FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10Q
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 September 30, 2006
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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 October 31, 2006:
3,468,957,731
FORM 10Q
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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Nine months ended September 30, |
As of or for the period ended |
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3Q06 |
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2Q06 |
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1Q06 |
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4Q05 |
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3Q05 |
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2006 |
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2005 |
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Selected income statement data |
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Noninterest revenue |
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$ |
10,021 |
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$ |
9,762 |
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$ |
10,050 |
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$ |
8,804 |
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$ |
9,482 |
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$ |
29,833 |
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$ |
25,389 |
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Net interest income |
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5,379 |
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5,178 |
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4,993 |
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4,678 |
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4,783 |
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15,550 |
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14,877 |
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Total net revenue |
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15,400 |
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14,940 |
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15,043 |
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13,482 |
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14,265 |
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45,383 |
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40,266 |
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Provision for credit losses |
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812 |
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493 |
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831 |
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1,224 |
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1,245 |
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2,136 |
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2,259 |
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Noninterest expense |
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9,651 |
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9,236 |
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9,648 |
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8,430 |
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9,359 |
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28,535 |
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29,996 |
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Income from continuing operations before
income tax expense |
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4,937 |
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5,211 |
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4,564 |
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3,828 |
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3,661 |
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14,712 |
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8,011 |
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Income tax expense |
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1,705 |
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1,727 |
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1,537 |
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1,186 |
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1,192 |
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4,969 |
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2,399 |
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Income from continuing operations (after-tax) |
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3,232 |
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3,484 |
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3,027 |
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2,642 |
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2,469 |
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9,743 |
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5,612 |
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Income from discontinued operations
(after-tax)(a) |
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65 |
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56 |
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54 |
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56 |
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58 |
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175 |
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173 |
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Net income |
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$ |
3,297 |
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$ |
3,540 |
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$ |
3,081 |
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$ |
2,698 |
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$ |
2,527 |
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$ |
9,918 |
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$ |
5,785 |
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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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$ |
0.93 |
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$ |
1.00 |
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$ |
0.87 |
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$ |
0.76 |
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$ |
0.71 |
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$ |
2.81 |
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$ |
1.60 |
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Net income |
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0.95 |
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1.02 |
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0.89 |
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0.78 |
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0.72 |
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2.86 |
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1.65 |
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Diluted earnings per share |
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Income from continuing operations |
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$ |
0.90 |
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$ |
0.98 |
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$ |
0.85 |
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$ |
0.74 |
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$ |
0.70 |
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$ |
2.73 |
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$ |
1.58 |
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Net income |
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0.92 |
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0.99 |
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0.86 |
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0.76 |
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0.71 |
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2.78 |
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1.62 |
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Cash dividends declared per share |
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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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0.34 |
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1.02 |
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1.02 |
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Book value per share |
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32.75 |
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31.89 |
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31.19 |
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30.71 |
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30.26 |
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32.75 |
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30.26 |
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Common shares outstanding |
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Average: Basic |
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3,469 |
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3,474 |
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3,473 |
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3,472 |
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3,485 |
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3,472 |
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3,498 |
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Diluted |
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3,574 |
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3,572 |
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3,571 |
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3,564 |
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3,548 |
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3,572 |
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3,555 |
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Common shares at period-end |
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3,468 |
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3,471 |
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3,473 |
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3,487 |
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3,503 |
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Selected ratios |
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Return on common equity (ROE)(b) |
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12 |
% |
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13 |
% |
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12 |
% |
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10 |
% |
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9 |
% |
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12 |
% |
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7 |
% |
Return on assets (ROA)(b)(c) |
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1.00 |
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1.06 |
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1.00 |
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0.89 |
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0.84 |
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1.02 |
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0.66 |
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Tier 1 capital ratio |
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8.6 |
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8.5 |
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8.5 |
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8.5 |
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8.2 |
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Total capital ratio |
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12.1 |
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12.0 |
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12.1 |
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12.0 |
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11.3 |
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Tier 1 leverage ratio |
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6.3 |
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5.8 |
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6.1 |
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6.3 |
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6.2 |
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Selected balance sheet data (period-end) |
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Total assets |
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$ |
1,338,029 |
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$ |
1,328,001 |
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$ |
1,273,282 |
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$ |
1,198,942 |
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$ |
1,203,033 |
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Securities |
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86,548 |
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78,022 |
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67,126 |
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47,600 |
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68,697 |
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Loans |
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463,544 |
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455,104 |
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432,081 |
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419,148 |
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420,504 |
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Deposits(d) |
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582,115 |
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593,716 |
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584,465 |
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554,991 |
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535,123 |
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Long-term debt |
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126,619 |
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125,280 |
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112,133 |
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108,357 |
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101,853 |
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Common stockholders equity |
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113,561 |
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110,684 |
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108,337 |
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107,072 |
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105,996 |
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Total stockholders equity |
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113,561 |
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110,684 |
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108,337 |
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107,211 |
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106,135 |
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Credit quality metrics |
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Allowance for credit losses |
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$ |
7,524 |
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$ |
7,500 |
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$ |
7,659 |
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$ |
7,490 |
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$ |
7,615 |
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$ |
7,524 |
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$ |
7,615 |
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Nonperforming assets(e) |
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2,300 |
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|
2,384 |
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2,348 |
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2,590 |
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2,839 |
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2,300 |
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2,839 |
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Allowance for loan losses to total
loans(f) |
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1.65 |
% |
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1.69 |
% |
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1.83 |
% |
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1.84 |
% |
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1.86 |
% |
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1.65 |
% |
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1.86 |
% |
Net charge-offs |
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$ |
790 |
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$ |
654 |
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$ |
668 |
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$ |
1,360 |
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$ |
870 |
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$ |
2,112 |
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$ |
2,459 |
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Net charge-off rate(b)(f) |
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0.74 |
% |
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0.64 |
% |
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0.69 |
% |
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1.39 |
% |
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0.89 |
% |
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0.69 |
% |
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0.87 |
% |
Wholesale net charge-off (recovery)
rate(b)(f) |
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(0.03 |
) |
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(0.05 |
) |
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(0.06 |
) |
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0.07 |
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(0.12 |
) |
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(0.04 |
) |
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(0.10 |
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Managed card net charge-off rate(b) |
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3.58 |
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3.28 |
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2.99 |
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6.39 |
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|
4.70 |
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3.29 |
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4.80 |
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Headcount |
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171,589 |
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172,423 |
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170,787 |
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168,847 |
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168,955 |
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Share price(g) |
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High |
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$ |
47.49 |
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$ |
46.80 |
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$ |
42.43 |
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$ |
40.56 |
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$ |
35.95 |
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$ |
47.49 |
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$ |
39.69 |
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Low |
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|
40.40 |
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|
39.33 |
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|
37.88 |
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|
32.92 |
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|
33.31 |
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|
37.88 |
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|
33.31 |
|
Close |
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|
46.96 |
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|
|
42.00 |
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|
|
41.64 |
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|
|
39.69 |
|
|
|
33.93 |
|
|
|
46.96 |
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|
|
33.93 |
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(a) |
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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, small-business and middle-market banking businesses of The Bank of New
York. The results of operations of these corporate trust businesses are being reported as
discontinued operations for each of the periods presented. |
|
(b) |
|
Based upon annualized
amounts. |
|
(c) |
|
Represents Net income divided by Total average assets. |
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(d) |
|
Excludes deposits of $24.0 billion and $26.5 billion at September 30, 2006 and June 30, 2006,
respectively, which have been reclassified to Liabilities of discontinued operations
held-for-sale. |
|
(e) |
|
Excludes wholesale held-for-sale (HFS) loans purchased as part of the Investment
Banks proprietary activities. |
|
(f) |
|
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. |
|
(g) |
|
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. |
3
MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
This
Form 10-Q provides managements discussion and analysis (MD&A) of the financial
condition and results of operations for JPMorgan Chase & Co. See the Glossary of terms on pages
100102 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. See Forward-looking
statements on page 104 and Part II, Item 1A: Risk Factors
on page 106, of this Form 10-Q.
References
to the 2005 Annual Report in this Form 10-Q are to the Firms Annual Report on
Form 10K for the year ended December 31, 2005, as
amended by the Form 10-K/A filed on
August 3, 2006, and as further amended by the Form 8-K filed on September 18, 2006.
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, $114 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 worlds most prominent corporate, institutional and
government clients.
JPMorgan Chases 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 Firms credit card issuing bank. JPMorgan
Chases principal nonbank subsidiary is J.P. Morgan Securities Inc. (JPMSI), 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 & Wealth 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 Chase is one of the worlds leading investment banks, as evidenced by the breadth of the
Investment Bank (IB) client relationships and product capabilities. The 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 Firms 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. On October 1, 2006, JPMorgan Chase
acquired The Bank of New York Company, Inc.s (The Bank of New York) consumer banking business,
expanding the Regional Banking branch network, which is one of the largest in the United States, to
include 3,016 branches and 8,240 automated teller machines (ATMs) covering 17 states. 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 139 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.
4
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 its clients through its local market presence,
offering industry expertise, a dedicated client service team and risk management capabilities.
Partnerships with other JPMorgan Chase businesses position 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. The October 1, 2006, acquisition of The Bank
of New Yorks middle-market banking business added approximately 2,000 clients, $2.5 billion
of loans and $1.3 billion in deposits.
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. 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, small-business and
middle-market banking businesses of The Bank of New York. These corporate trust businesses,
which were previously reported in TSS, have been deemed discontinued operations. The related
balance sheet, income statement and assets under custody activity have been transferred to the
Corporate segment for all periods presented.
Asset & Wealth Management
Asset & Wealth Management (AWM) provides investment advice and management for institutions and
individuals. With $1.3 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 AWMs 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 selected corporate trust businesses, including trustee, paying
agent, loan agency and document management services
On October 1, 2006, JPMorgan Chase completed the acquisition of The Bank of New Yorks consumer,
small-business and middle-market banking businesses in exchange for selected corporate
trust businesses plus a cash payment of $150 million. The Bank of New York businesses acquired were
valued at a premium of $2.30 billion; the Firms corporate trust businesses that were transferred
(i.e., trustee, paying agent, loan agency and document management services) were valued at a
premium of $2.15 billion. The Firm also may make a future payment to The Bank of New York of up to
$50 million depending on certain new account openings. Reflected in the Firms fourth quarter 2006
earnings will be an after-tax gain of approximately $650 million relating to this transaction.
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 that was comprised of
$900 million of cash received from Protective Life Corporation
and approximately $300 million of pre-closing dividends from the
sold entities. The
after-tax impact of this transaction was negligible. The sale included both the heritage Chase
insurance business and the insurance business that Bank One had bought from Zurich Insurance in
2003.
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. In the discussion below,
information is presented on a managed basis. For more information about managed basis, see
Explanation and Reconciliation of the Firms Use of Non-GAAP Financial Measures on pages
1215 of this Form 10-Q.
Business overview
The Firm reported 2006 third-quarter net income of $3.3 billion, or $0.92 per share, compared
with net income of $2.5 billion, or $0.71 per share, for the third quarter of 2005. Return on
common equity for the quarter was 12% compared with 9% in the prior year. The comparison with the
prior year benefited from the absence of a special provision for credit losses related to Hurricane
Katrina of $248 million after-tax, or $0.07 per share. Results for the current quarter
included $30 million of merger charges after-tax, or $0.01 per share, compared with $137
million, or $0.04 per share, in the third quarter of 2005.
Net
income for the first nine months of 2006 was $9.9 billion, or $2.78 per share, compared with
$5.8 billion, or $1.62 per share, in the prior year. Return on common equity was 12% for the first
nine months of 2006 compared with 7% for the prior-year period. Current year-to-date
results included insurance recoveries related to certain material litigation of $233 million
after-tax, or $0.07 per share, incremental expense of $415 million after-tax, or $0.11
per share, related to the adoption of SFAS 123R; and merger costs of $127 million after-tax,
or $0.03 per share. Prior-year results included a litigation reserve charge of $1.7 billion
after-tax, or $0.48 per share, a special provision for credit losses related to Hurricane
Katrina of $248 million after-tax, or $0.07 per share, and merger costs of $400 million
after-tax, or $0.11 per share.
During the quarter, the Firm completed the Tri-State consumer conversion, which linked the
Firms more than 2,600 branches in 17 states on a common systems platform. In addition, 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, small-business
and middle-market banking businesses of The Bank of New York, adding $13 billion in deposits,
$7.9 billion in loans, 339 branches and more than 400 ATMs.
Global economic and market conditions affected the performance of each of the Firms businesses. In
the third quarter of 2006, the global economy continued to expand at a strong pace with some
variance by region. The European economy continued to grow at a solid pace while growth in Asia and
Japan slowed. The U.S. economy continued to slow, and was led by a decline in home construction.
The Federal Reserve, after two years of raising interest rates, held the benchmark federal funds
rate at 5.25%, anticipating slower U.S. economic growth and lower inflation. The yield curve
inverted further, with long-term interest rates falling below the federal funds rate. Global
equity markets benefited from the continuing economic expansion with market indices higher versus
the prior year, but relatively flat compared with the prior quarter.
The discussion that follows highlights the performance of each business segment during the third
quarter of 2006 with the comparable period in the prior year, unless otherwise noted.
Investment Bank net income was driven by record third-quarter revenue. Compared with the prior
year, net income decreased as higher compensation expense and an increased provision for credit
losses were offset largely by higher revenue. Revenue benefited from continued investments in key
business initiatives, increased market share and global capital markets activity. Investment
banking fees were at a record level, benefiting from record debt underwriting fees and strong
advisory fees. Fixed Income Markets were down slightly from the prior years record level. Equity
Markets results were also lower from a strong prior-year quarter. The provision for credit
losses increased from the prior years benefit reflecting portfolio activity and stable credit
quality. The increase in expense was due primarily to higher performance-based compensation
including the impact of a higher ratio of compensation expense to revenue, and incremental expense
related to SFAS 123R.
Retail Financial Services net income increased from the prior year, benefiting from a lower
provision for credit losses and improved performance in Regional Banking and Auto Finance,
partially offset by lower results in Mortgage Banking. Revenue was down slightly reflecting lower
results in Mortgage Banking; the sale of the insurance business; narrower spreads on loans; and
narrower spreads on deposits caused by a shift in the deposit mix reflecting the current interest
rate and competitive environments. These factors were offset partially by increases in deposit and
loan and lease balances, as well as higher fee income in Regional Banking. Also benefiting revenue
this quarter was the absence of a prior-year net loss in Auto Finance associated with the
transfer of $1.5 billion of loans to held-for-sale and the acquisition of Collegiate
Funding Services. The provision for credit losses declined due to the absence of a special
provision in the prior year for Hurricane Katrina. Expense decreased due to the sale of the
insurance business and merger-related and other operating efficiencies, partially offset by
ongoing investment in retail distribution, the acquisition of Collegiate Funding Services and
higher depreciation expense on owned automobiles subject to operating leases. 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, and average deposit and loan balances, as well as to improved
cross-selling of credit cards and mortgages.
6
Card Services net income increased primarily due to lower credit losses benefiting from a
significantly lower level of bankruptcy filings. The current interest rate and competitive
environments have contributed to a decrease in managed revenue (excluding the impact of the
deconsolidation of Paymentech). Additional factors negatively affecting revenue were: attrition of
higher spread balances as a result of higher payment rates; the higher cost of funds on balance
growth in promotional, introductory, and transactor loan balances; and higher volume-driven
payments to partners. These decreases were offset partially by an increase in average managed loan
balances, which benefited from recent portfolio acquisitions, and higher interchange income
resulting from higher charge volume. The provision for credit losses benefited from lower
bankruptcy-related losses, strong underlying credit quality and the absence, when compared to
the prior year, of a special provision related to Hurricane Katrina. Total noninterest expense
(excluding the impact of the deconsolidation of Paymentech) increased driven by recent acquisitions
and higher marketing spending, partially offset by benefits from merger savings.
Commercial Banking net income was down, primarily due to a higher provision for credit losses.
Revenue increased due to higher liability balances and loan volumes, reflecting increased sales
efforts and U.S. economic growth. This benefit was offset largely by narrower loan spreads and a
shift to lower-margin liability products. The increase in the provision for credit losses
reflected growth in the loan portfolio and stable credit quality. Expense increased due largely to
higher compensation expense and increased expense related to higher client usage of Treasury
Services products.
Treasury & Securities Services net income was up from the prior year benefiting primarily from
higher revenue. Revenue growth reflected wider spreads on higher average liability balances,
business growth, increased product usage by clients and an increase in assets under custody, all of
which benefited from global economic growth and capital markets activity. The increase in expense
was due to increased client activity, business growth and investment in new product platforms.
Asset & Wealth Management generated strong net income growth compared with the prior year. Revenue
growth was driven by increased assets under management, driven by strong net asset inflows and
strength in global equity markets, and higher performance fees. Provision for credit losses was a
benefit, reflecting a higher level of recoveries. 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 from improved Treasury net interest
spread and a higher level of available-for-sale securities. These benefits were offset
partially by lower private equity gains. Expense decreased due to lower merger-related costs.
During the quarter ended September 30, 2006, approximately $655 million (pretax) of merger savings
were realized, which is an annualized rate of approximately $2.6 billion. Management estimates that
annualized merger savings will be approximately $2.8 billion by the end of 2006. Merger costs of
$48 million were expensed during the third quarter of 2006, bringing the total amount expensed
since the merger announcement to $3.3 billion (including capitalized costs). Management currently
expects total merger costs to be approximately $4.0 billion. The balance of the merger costs are
expected to be incurred by the end of 2007.
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,
small-business and middle-market banking businesses of The Bank of New York. These
corporate trust businesses, which were previously reported in TSS, have been deemed discontinued
operations. The related balance sheet and income statement activity is reflected in the Corporate
segment for all periods presented. During the current quarter, these businesses produced $65
million in net income compared with net income of $58 million in the prior year.
Managed credit costs for the Firm were $1.4 billion compared with $2.1 billion in the prior year.
The decrease was due primarily to the absence this year of a special provision of $400 million
related to Hurricane Katrina and releases of allowance for credit losses in the wholesale
businesses, both in the third quarter of 2005, and lower bankruptcy-related filings in CS in
the third quarter of 2006. Wholesale credit costs were $35 million compared with a benefit of $99
million in the prior year. The increase reflected loan growth and portfolio activity while credit
quality remained stable. Managed consumer credit costs were $1.4 billion compared with $2.2 billion
in the prior year. The reduction from the prior year reflected the impact in 2005 of special
provisions related to Hurricane Katrina and higher bankruptcy-related filings.
The Firm had, at September 30, 2006, total stockholders equity of $113.6 billion and a Tier 1
capital ratio of 8.6%. The Firm purchased $900 million, or 20 million shares, of common stock
during the quarter and $2.9 billion, or 69.5 million shares, of common stock during the first nine
months of 2006.
7
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.
The performance of the Firms 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 fourth quarter of 2006 with a strong fee pipeline and remains focused on continuing to
build out new products and capabilities. However, results will be dependent upon market conditions
in any given quarter.
In Retail Financial Services, the current interest rate and competitive environments are expected
to continue in the fourth quarter, resulting in potential modest net interest margin compression.
In Card Services, net interest margin and balances are also expected to experience continued
pressure from the interest rate and competitive environments, as well as from high 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, but results can be volatile from quarter to quarter. Management believes that Treasury net
interest income will approximate zero over time, but there will be volatility from quarter to
quarter, and that Corporate Other, excluding one-time items, will have a net loss in the
fourth quarter of 2006 that will be relatively consistent with the third-quarter 2006 level.
Overall credit quality 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.
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 67 of this
Form 10-Q and pages 8183 of the JPMorgan Chase 2005 Annual Report.
The following table presents the components of Total net revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Investment banking fees |
|
$ |
1,416 |
|
|
$ |
989 |
|
|
|
43 |
% |
|
$ |
3,955 |
|
|
$ |
2,943 |
|
|
|
34 |
% |
Principal transactions |
|
|
2,636 |
|
|
|
2,886 |
|
|
|
(9 |
) |
|
|
7,866 |
|
|
|
6,246 |
|
|
|
26 |
|
Lending & deposit related fees |
|
|
867 |
|
|
|
865 |
|
|
|
|
|
|
|
2,573 |
|
|
|
2,536 |
|
|
|
1 |
|
Asset management,
administration
and commissions |
|
|
2,798 |
|
|
|
2,500 |
|
|
|
12 |
|
|
|
8,580 |
|
|
|
7,286 |
|
|
|
18 |
|
Securities gains (losses) |
|
|
40 |
|
|
|
(44 |
) |
|
NM |
|
|
|
(578 |
) |
|
|
(796 |
) |
|
|
27 |
|
Mortgage fees and related
income |
|
|
62 |
|
|
|
201 |
|
|
|
(69 |
) |
|
|
516 |
|
|
|
899 |
|
|
|
(43 |
) |
Credit card income |
|
|
1,567 |
|
|
|
1,855 |
|
|
|
(16 |
) |
|
|
5,268 |
|
|
|
5,352 |
|
|
|
(2 |
) |
Other income |
|
|
635 |
|
|
|
230 |
|
|
|
176 |
|
|
|
1,653 |
|
|
|
923 |
|
|
|
79 |
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
10,021 |
|
|
|
9,482 |
|
|
|
6 |
|
|
|
29,833 |
|
|
|
25,389 |
|
|
|
18 |
|
Net interest income |
|
|
5,379 |
|
|
|
4,783 |
|
|
|
12 |
|
|
|
15,550 |
|
|
|
14,877 |
|
|
|
5 |
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
15,400 |
|
|
$ |
14,265 |
|
|
|
8 |
% |
|
$ |
45,383 |
|
|
$ |
40,266 |
|
|
|
13 |
% |
|
Total net revenue for the third quarter of 2006 was $15.4 billion, up by $1.1 billion, or 8%,
from the prior year. The increase was due to record Investment banking fees, higher Other income,
increased Asset management, administration, and commissions revenue, and higher Net interest
income. Offsetting this growth was lower Credit card income; decreased Principal transactions
revenue, partly from a decline in Private equity gains; and lower Mortgage Banking results. For the
first nine months of 2006, Total net revenue was $45.4 billion, up by $5.1 billion, or 13%, from
the prior year. The increase was driven primarily by the aforementioned items, except for Principal
transactions, which were higher as a result of stronger trading performance.
Investment banking fees of $1.4 billion in the third quarter and $4.0 billion for the first nine
months of 2006 were record levels for the Firm. The results were driven by record debt
underwriting, and strong advisory and equity underwriting fees. For a further discussion of
Investment banking fees, which are primarily recorded in the IB, see the IB segment results on
pages 1720 of this 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 fair value, as well as Private equity gains. Trading revenue in the third quarter of 2006
declined slightly from last years record level. Private equity gains were lower, reflecting large
realized gains recognized last year. In the first nine months of 2006, Principal transactions
increased over the same period of last year due to stronger trading performance in Equities and
Fixed Income, partially offset by lower private equity gains. For a further discussion of Principal
transactions, see the IB and Corporate segment results on pages 1720 and 4143 ,
respectively, of this 10-Q.
Lending & deposit related fees rose slightly in comparison with the 2005 third-quarter and
year-to-date periods as a result of higher fee income on deposit-related products
from business growth in RFS. For a further discussion of Lending & deposit related fees, which are
partly recorded in RFS, see the RFS segment results on pages
2128 of this Form 10-Q.
The increase in Asset management, administration and commissions for the third quarter and first
nine months of 2006 were due to increased assets under management and higher performance and
placement fees. The growth in assets under management reflected net asset inflows in the retail
segment, mainly in equity-related products, institutional flows in liquidity products, and
market appreciation. Also contributing to the increase for both periods was an increase in assets
under custody driven by market value appreciation and new business; and growth in ADRs, global
clearing, and securities lending, which were driven by increased product usage by existing clients
and new business. In addition, commissions rose due to higher brokerage transaction volume across
regions, partly offset by the sale of the insurance business and BrownCo. For additional
information on these fees and commissions, see the segment discussions for the IB on pages
1720, TSS on pages 3437 and AWM on pages 3740, of
this Form 10-Q.
The favorable variance in Securities gains (losses) for all periods primarily reflects the results
of portfolio repositioning in connection with the Firms asset/liability management activities. For
a further discussion of Securities gains (losses), which are
mostly recorded in the Firms Treasury business, see the Corporate segment discussion on pages
4143 of this Form 10-Q.
9
Mortgage fees and related income declined in comparison with the third quarter and nine months
ended September 30, 2005, reflecting a reduction in the value of the MSR asset, partly offset by
increased loan servicing revenue on higher third-party loans serviced. For the quarterly
comparison, production revenue declined primarily resulting from lower mortgage originations; and
for the year-to-date comparison, productions revenue rose as a result of wider margins.
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
2627 of this Form 10-Q.
Credit card income decreased from the third quarter of 2005, primarily from higher
volume-driven payments to partners, including Kohls, and increased rewards expense, partially
offset by increased interchange income related to higher charge volume. On a year-to-date
basis, Credit card income decreased due to the aforementioned items. These were offset partially by
higher servicing fees, which benefited from lower credit losses incurred on securitized credit card
loans, as well as an increase in charge volume. Credit card income also was negatively impacted by
the deconsolidation of Paymentech. For a further discussion of Credit card income, see CSs segment
results on pages 2831 of this Form 10-Q.
The increase in Other income compared with the third quarter of 2005 was due to higher equity
investment income, in particular, from a merchant processing joint venture; and increased income
from automobile operating leases. For the first nine months of 2006, Other income increased as a
result of the aforementioned items as well as a gain of $103 million on the sale of MasterCard
shares in its initial public offering.
Net interest income rose from the third quarter and first nine months of 2005 largely due to
improvement in Treasurys net interest spread, increases in consumer loans, wholesale liability
balances, consumer deposits and available-for-sale securities. These increases were
offset partially by narrower spreads on trading-related assets, consumer loans, including
credit cards, and consumer deposits due to a shift in the deposit mix. The Firms total average
interest-earning assets for the third quarter of 2006 were $992 billion, up 10% from the third
quarter of 2005, primarily as a result of an increase in loans, available-for-sale
securities and other liquid earning assets, 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 2.17%, an increase of four basis points from
the prior year. The Firms total average interest-earning assets, for the nine months ended
September 30, 2006, were $981 billion, up 10% from 2005 as a result of the aforementioned items,
except that available-for-sale securities declined slightly. The net interest yield on
these assets, on a fully taxable-equivalent basis, was 2.14%, a decrease of 12 basis points
from the prior year. For a further discussion of Net interest income, see the Business Segment
Results section on pages 1543 of this Form 10-Q.
Provision for credit losses
The Provision for credit losses in the third quarter and first nine months of 2006 declined from
the respective periods of last year, primarily due to the absence of a special provision of $400
million related to Hurricane Katrina and a decrease in CS reflecting lower bankruptcy-related
losses, partly offset by higher contractual net charge offs. The wholesale provision for credit
losses increased from both periods of 2005. The current year reflected stable credit quality, loan
growth and portfolio activity. The prior year provision was driven by improvement in credit quality
reflected in reductions in criticized exposure and nonperforming loans. The total net
charge-off rate was 0.74% for the third quarter of 2006 compared with 0.89% in the prior year.
The net charge-off rate for the first nine months of 2006 was 0.69% compared with 0.87% for
the same period in 2005. The improvements were due primarily to lower bankruptcies in CS. For a
more detailed discussion of the loan portfolio and the Allowance for loan losses, refer to Credit
risk management on pages 5263 of this Form 10-Q.
Noninterest expense
The following table presents the components of Noninterest expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
Nine months ended September 30, |
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Compensation expense |
|
$ |
5,390 |
|
|
$ |
4,954 |
|
|
|
9 |
% |
|
$ |
16,206 |
|
|
$ |
13,828 |
|
|
|
17 |
% |
Occupancy expense |
|
|
563 |
|
|
|
542 |
|
|
|
4 |
|
|
|
1,710 |
|
|
|
1,632 |
|
|
|
5 |
|
Technology, communications and
equipment expense |
|
|
911 |
|
|
|
892 |
|
|
|
2 |
|
|
|
2,656 |
|
|
|
2,698 |
|
|
|
(2 |
) |
Professional & outside
services |
|
|
966 |
|
|
|
1,001 |
|
|
|
(3 |
) |
|
|
2,781 |
|
|
|
3,177 |
|
|
|
(12 |
) |
Marketing |
|
|
550 |
|
|
|
512 |
|
|
|
7 |
|
|
|
1,595 |
|
|
|
1,532 |
|
|
|
4 |
|
Other expense(a) |
|
|
877 |
|
|
|
864 |
|
|
|
2 |
|
|
|
2,324 |
|
|
|
5,360 |
|
|
|
(57 |
) |
Amortization of intangibles |
|
|
346 |
|
|
|
373 |
|
|
|
(7 |
) |
|
|
1,058 |
|
|
|
1,124 |
|
|
|
(6 |
) |
Merger costs |
|
|
48 |
|
|
|
221 |
|
|
|
(78 |
) |
|
|
205 |
|
|
|
645 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
Total Noninterest expense |
|
$ |
9,651 |
|
|
$ |
9,359 |
|
|
|
3 |
% |
|
$ |
28,535 |
|
|
$ |
29,996 |
|
|
|
(5 |
)% |
|
|
|
|
(a) |
|
Includes litigation reserve charges of $2,772 million in the first nine months of 2005
related to the settlement of the Enron and WorldCom class action litigations and for certain
other material legal proceedings. In the third quarter and first nine months of 2006,
insurance recoveries relating to certain material litigation of $17 million and $375 million,
respectively, were recorded. |
10
Total Noninterest expense for the third quarter of 2006 was $9.7 billion, up by $292 million,
or 3%, from the prior year. Excluding in the current quarter incremental expense of $104 million
related to SFAS 123R, $48 million of Merger costs, and $17 million of insurance recoveries relating
to certain material litigation; and excluding from the prior year $221 million of Merger costs,
Total Noninterest expense would have been up by $378 million. The increase was driven by higher
performance-based compensation and acquisitions, partially offset by the deconsolidation of
Paymentech and the sale of the insurance business. For the first nine months of the year,
Noninterest expense of $28.5 billion declined by $1.5 billion, or 5%. Excluding in the current
year-to-date, incremental expense of $669 million related to SFAS 123R, $375 million of insurance
recoveries relating to certain material litigation, and $205 million of Merger costs; and excluding
in the prior year-to-date period material litigation charges of $2.8 billion and $645 million of
Merger costs, Total Noninterest expense would have been up by $1.5 billion. The increase was driven
primarily by higher performance-based compensation, acquisitions, and investments in businesses.
Partially offsetting this increase were the deconsolidation of Paymentech, the sale of the
insurance business, merger-related savings and other operating efficiencies.
The increases in Compensation expense from the third quarter and first nine months of 2005 were
primarily a result of higher performance-based incentives, SFAS 123R incremental expense of $104
million and $669 million for the three- and nine-months ended September 30, 2006, respectively, and
additional headcount in connection with growth in business volume and investments in the
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 7780 of
this Form 10-Q.
The increases in Occupancy expense from the third quarter and first nine months of 2005 were due to
ongoing investment in the retail distribution network, partially offset by merger-related savings
and other operating efficiencies.
The increase in Technology, communications and equipment expense from the third quarter 2005 was
due primarily to higher depreciation expense on owned automobiles subject to operating leases and
increased technology investments to support business growth. The decline in expense for the first
nine months of 2006 was due primarily to merger-related savings and other operating efficiencies,
partially offset by higher depreciation expense on owned automobiles subject to operating leases,
and increased technology investments to support business growth.
Professional & outside services decreased from the third quarter and first nine months of 2005 due
to merger-related savings and other operating efficiencies, the settlement of several legal matters
in 2005 and the Paymentech deconsolidation.
Marketing expense was higher when compared with the third quarter and first nine months of 2005,
reflecting the costs of campaigns for credit cards and other consumer products.
Other expense increased slightly from the third quarter of 2005 due to the impact of growth in
business volume and investments in the businesses, partially offset by the sale of the insurance
business. On a year-to-date basis, Other expense was lower due to significant litigation-related
charges of $2.8 billion in 2005, associated with the settlement of the Enron and WorldCom class
action litigations and certain other material legal proceedings. In addition, in the first nine
months of 2006, the Firm recognized insurance recoveries of $375 million pertaining to certain
material litigation matters. Also contributing to the decline from the prior year were charges of
$93 million in connection with the termination of a client contract in TSS in the second quarter of
2005, and in RFS, the sale of the insurance business in the current quarter. These items were
offset partially by higher charges related to other litigation, and the impact of growth in
business volume and investments in the businesses.
For discussion of Amortization of intangibles and Merger costs, refer to Note 15 and Note 8 on
pages 8890 and 80, 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 September 30, |
Nine months ended September 30, |
(in millions, except rate) |
|
2006 |
|
2005 |
|
2006 |
|
2005 |
|
Income from continuing
operations before income tax
expense |
|
$ |
4,937 |
|
|
$ |
3,661 |
|
|
$ |
14,712 |
|
|
$ |
8,011 |
|
Income tax expense |
|
|
1,705 |
|
|
|
1,192 |
|
|
|
4,969 |
|
|
|
2,399 |
|
Effective tax rate |
|
|
34.5 |
% |
|
|
32.6 |
% |
|
|
33.8 |
% |
|
|
29.9 |
% |
|
The increase in the effective tax rate for the third quarter and first nine months of 2006, as
compared with prior-year periods, was primarily the result of higher reported pretax 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. As a result of an audit
settlement, approximately $260 million of tax benefits will be recorded in the fourth quarter of
2006.
11
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
69 72 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 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
Chases 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 nonrecurring; they are now
included in the Corporate segments results. In addition, trading-related net interest income is no
longer reclassified from Net interest income to Principal transactions.
The presentation of CS results on a managed basis assumes that loans that have been securitized in
accordance with SFAS 140 still remain on the balance sheet and that the earnings on the securitized
loans should be classified in the same manner as the earnings on retained loans recorded on the
balance sheet. JPMorgan Chase uses the managed basis to evaluate the credit performance and overall
financial performance of CS entire managed credit card portfolio as 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 retained loans on the balance
sheet. JPMorgan Chase believes managed basis information is useful to investors to enable them to
understand the credit risks within the loans reported on the balance sheet as well as the Firms
retained interests in the securitizations. For a reconciliation of reported to managed basis of CS
results, see page 31 of this Form 10-Q. For information regarding the securitization process, see
Note 1 on page 91 of JPMorgan Chases 2005 Annual Report. For information regarding loans and
residual interests sold and securitized, see Note 13 on pages
83 86 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 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.
12
The following summary table provides a reconciliation from the Firms reported U.S. GAAP results to
managed basis:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
2006 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,416 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1,416 |
|
Principal transactions |
|
|
2,636 |
|
|
|
|
|
|
|
|
|
|
|
2,636 |
|
Lending & deposit related fees |
|
|
867 |
|
|
|
|
|
|
|
|
|
|
|
867 |
|
Asset management, administration and commissions |
|
|
2,798 |
|
|
|
|
|
|
|
|
|
|
|
2,798 |
|
Securities gains |
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
40 |
|
Mortgage fees and related income |
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
62 |
|
Credit card income |
|
|
1,567 |
|
|
|
(721 |
) |
|
|
|
|
|
|
846 |
|
Other income |
|
|
635 |
|
|
|
|
|
|
|
165 |
|
|
|
800 |
|
|
Noninterest revenue |
|
|
10,021 |
|
|
|
(721 |
) |
|
|
165 |
|
|
|
9,465 |
|
Net interest income |
|
|
5,379 |
|
|
|
1,328 |
|
|
|
57 |
|
|
|
6,764 |
|
|
Total net revenue |
|
|
15,400 |
|
|
|
607 |
|
|
|
222 |
|
|
|
16,229 |
|
Provision for credit losses |
|
|
812 |
|
|
|
607 |
|
|
|
|
|
|
|
1,419 |
|
Noninterest expense |
|
|
9,651 |
|
|
|
|
|
|
|
|
|
|
|
9,651 |
|
|
Income from continuing operations before income tax
expense |
|
|
4,937 |
|
|
|
|
|
|
|
222 |
|
|
|
5,159 |
|
Income tax expense |
|
|
1,705 |
|
|
|
|
|
|
|
222 |
|
|
|
1,927 |
|
|
Income from continuing operations (after-tax) |
|
|
3,232 |
|
|
|
|
|
|
|
|
|
|
|
3,232 |
|
Income from discontinued operations (after-tax) |
|
|
65 |
|
|
|
|
|
|
|
|
|
|
|
65 |
|
|
Net income |
|
$ |
3,297 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,297 |
|
|
Net income
diluted earnings per share |
|
$ |
0.92 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.92 |
|
|
Return on common equity |
|
|
12 |
% |
|
|
|
% |
|
|
|
% |
|
|
12 |
% |
Return on equity less goodwill(a) |
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
19 |
|
|
Return on assets(b) |
|
|
1.00 |
|
|
NM |
|
|
NM |
|
|
|
0.95 |
|
|
Overhead ratio |
|
|
63 |
|
|
NM |
|
|
NM |
|
|
|
59 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
2005 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
989 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
989 |
|
Principal transactions |
|
|
2,886 |
|
|
|
|
|
|
|
|
|
|
|
2,886 |
|
Lending & deposit related fees |
|
|
865 |
|
|
|
|
|
|
|
|
|
|
|
865 |
|
Asset management, administration and commissions |
|
|
2,500 |
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
Securities gains (losses) |
|
|
(44 |
) |
|
|
|
|
|
|
|
|
|
|
(44 |
) |
Mortgage fees and related income |
|
|
201 |
|
|
|
|
|
|
|
|
|
|
|
201 |
|
Credit card income |
|
|
1,855 |
|
|
|
(733 |
) |
|
|
|
|
|
|
1,122 |
|
Other income |
|
|
230 |
|
|
|
|
|
|
|
155 |
|
|
|
385 |
|
|
Noninterest revenue |
|
|
9,482 |
|
|
|
(733 |
) |
|
|
155 |
|
|
|
8,904 |
|
Net interest income |
|
|
4,783 |
|
|
|
1,600 |
|
|
|
67 |
|
|
|
6,450 |
|
|
Total net revenue |
|
|
14,265 |
|
|
|
867 |
|
|
|
222 |
|
|
|
15,354 |
|
Provision for credit losses |
|
|
1,245 |
|
|
|
867 |
|
|
|
|
|
|
|
2,112 |
|
Noninterest expense |
|
|
9,359 |
|
|
|
|
|
|
|
|
|
|
|
9,359 |
|
|
Income from continuing operations before income tax
expense |
|
|
3,661 |
|
|
|
|
|
|
|
222 |
|
|
|
3,883 |
|
Income tax expense |
|
|
1,192 |
|
|
|
|
|
|
|
222 |
|
|
|
1,414 |
|
|
Income from continuing operations (after-tax) |
|
|
2,469 |
|
|
|
|
|
|
|
|
|
|
|
2,469 |
|
Income from discontinued operations (after-tax) |
|
|
58 |
|
|
|
|
|
|
|
|
|
|
|
58 |
|
|
Net income |
|
$ |
2,527 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,527 |
|
|
Net income
diluted earnings per share |
|
$ |
0.71 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
0.71 |
|
|
Return on common equity |
|
|
9 |
% |
|
|
|
% |
|
|
|
% |
|
|
9 |
% |
Return on equity less goodwill(a) |
|
|
16 |
|
|
|
|
|
|
|
|
|
|
|
16 |
|
|
Return on assets(b) |
|
|
0.84 |
|
|
NM |
|
|
NM |
|
|
|
0.79 |
|
|
Overhead ratio |
|
|
66 |
|
|
NM |
|
|
NM |
|
|
|
61 |
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
2006 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
3,955 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,955 |
|
Principal transactions |
|
|
7,866 |
|
|
|
|
|
|
|
|
|
|
|
7,866 |
|
Lending & deposit related fees |
|
|
2,573 |
|
|
|
|
|
|
|
|
|
|
|
2,573 |
|
Asset management, administration and commissions |
|
|
8,580 |
|
|
|
|
|
|
|
|
|
|
|
8,580 |
|
Securities gains (losses) |
|
|
(578 |
) |
|
|
|
|
|
|
|
|
|
|
(578 |
) |
Mortgage fees and related income |
|
|
516 |
|
|
|
|
|
|
|
|
|
|
|
516 |
|
Credit card income |
|
|
5,268 |
|
|
|
(2,783 |
) |
|
|
|
|
|
|
2,485 |
|
Other income |
|
|
1,653 |
|
|
|
|
|
|
|
481 |
|
|
|
2,134 |
|
|
Noninterest revenue |
|
|
29,833 |
|
|
|
(2,783 |
) |
|
|
481 |
|
|
|
27,531 |
|
Net interest income |
|
|
15,550 |
|
|
|
4,400 |
|
|
|
175 |
|
|
|
20,125 |
|
|
Total net revenue |
|
|
45,383 |
|
|
|
1,617 |
|
|
|
656 |
|
|
|
47,656 |
|
Provision for credit losses |
|
|
2,136 |
|
|
|
1,617 |
|
|
|
|
|
|
|
3,753 |
|
Noninterest expense |
|
|
28,535 |
|
|
|
|
|
|
|
|
|
|
|
28,535 |
|
|
Income from continuing operations before income tax
expense |
|
|
14,712 |
|
|
|
|
|
|
|
656 |
|
|
|
15,368 |
|
Income tax expense |
|
|
4,969 |
|
|
|
|
|
|
|
656 |
|
|
|
5,625 |
|
|
Income from continuing operations (after-tax) |
|
|
9,743 |
|
|
|
|
|
|
|
|
|
|
|
9,743 |
|
Income from discontinued operations (after-tax) |
|
|
175 |
|
|
|
|
|
|
|
|
|
|
|
175 |
|
|
Net income |
|
$ |
9,918 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
9,918 |
|
|
Net income
diluted earnings per share |
|
$ |
2.78 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2.78 |
|
|
Return on common equity |
|
|
12 |
% |
|
|
|
% |
|
|
|
% |
|
|
12 |
% |
Return on equity less goodwill(a) |
|
|
20 |
|
|
|
|
|
|
|
|
|
|
|
20 |
|
|
Return on assets(b) |
|
|
1.02 |
|
|
NM |
|
|
NM |
|
|
|
0.97 |
|
|
Overhead ratio |
|
|
63 |
|
|
NM |
|
|
NM |
|
|
|
60 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
2005 |
|
|
Reported |
|
Credit |
|
Tax-equivalent |
|
Managed |
(in millions, except per share and ratio data) |
|
results |
|
card(c) |
|
adjustments |
|
basis |
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
2,943 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,943 |
|
Principal transactions |
|
|
6,246 |
|
|
|
|
|
|
|
|
|
|
|
6,246 |
|
Lending & deposit related fees |
|
|
2,536 |
|
|
|
|
|
|
|
|
|
|
|
2,536 |
|
Asset management, administration and commissions |
|
|
7,286 |
|
|
|
|
|
|
|
|
|
|
|
7,286 |
|
Securities gains (losses) |
|
|
(796 |
) |
|
|
|
|
|
|
|
|
|
|
(796 |
) |
Mortgage fees and related income |
|
|
899 |
|
|
|
|
|
|
|
|
|
|
|
899 |
|
Credit card income |
|
|
5,352 |
|
|
|
(2,276 |
) |
|
|
|
|
|
|
3,076 |
|
Other income |
|
|
923 |
|
|
|
|
|
|
|
413 |
|
|
|
1,336 |
|
|
Noninterest revenue |
|
|
25,389 |
|
|
|
(2,276 |
) |
|
|
413 |
|
|
|
23,526 |
|
Net interest income |
|
|
14,877 |
|
|
|
4,990 |
|
|
|
212 |
|
|
|
20,079 |
|
|
Total net revenue |
|
|
40,266 |
|
|
|
2,714 |
|
|
|
625 |
|
|
|
43,605 |
|
Provision for credit losses |
|
|
2,259 |
|
|
|
2,714 |
|
|
|
|
|
|
|
4,973 |
|
Noninterest expense |
|
|
29,996 |
|
|
|
|
|
|
|
|
|
|
|
29,996 |
|
|
Income from continuing operations before income tax
expense |
|
|
8,011 |
|
|
|
|
|
|
|
625 |
|
|
|
8,636 |
|
Income tax expense |
|
|
2,399 |
|
|
|
|
|
|
|
625 |
|
|
|
3,024 |
|
|
Income from continuing operations (after-tax) |
|
|
5,612 |
|
|
|
|
|
|
|
|
|
|
|
5,612 |
|
Income from discontinued operations (after-tax) |
|
|
173 |
|
|
|
|
|
|
|
|
|
|
|
173 |
|
|
Net income |
|
$ |
5,785 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
5,785 |
|
|
Net income
diluted earnings per share |
|
$ |
1.62 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
1.62 |
|
|
Return on common equity |
|
|
7 |
% |
|
|
|
% |
|
|
|
% |
|
|
7 |
% |
Return on equity less goodwill(a) |
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
Return on assets(b) |
|
|
0.66 |
|
|
NM |
|
|
NM |
|
|
|
0.62 |
|
|
Overhead ratio |
|
|
74 |
|
|
NM |
|
|
NM |
|
|
|
69 |
|
|
|
|
|
(a) |
|
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 and to facilitate comparisons to competitors. |
|
(b) |
|
Return on assets on reported results represents Net income (annualized) divided by Total
average assets. Return on assets on a managed basis represents Net income (annualized) divided
by Total average managed assets, which includes average securitized credit card receivables. |
|
(c) |
|
The impact of credit card
securitizations affects CS. See pages 28 31 of this Form 10-Q for
further information. |
14
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
2006 |
|
2005 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
463,544 |
|
|
$ |
65,245 |
|
|
$ |
528,789 |
|
|
$ |
420,504 |
|
|
$ |
69,095 |
|
|
$ |
489,599 |
|
Total assets
average |
|
|
1,309,139 |
|
|
|
62,971 |
|
|
|
1,372,110 |
|
|
|
1,196,045 |
|
|
|
67,021 |
|
|
|
1,263,066 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, |
|
2006 |
|
2005 |
(in millions) |
|
Reported |
|
Securitized |
|
Managed |
|
Reported |
|
Securitized |
|
Managed |
|
Loans Period-end |
|
$ |
463,544 |
|
|
$ |
65,245 |
|
|
$ |
528,789 |
|
|
$ |
420,504 |
|
|
$ |
69,095 |
|
|
$ |
489,599 |
|
Total assets
average |
|
|
1,297,344 |
|
|
|
65,797 |
|
|
|
1,363,141 |
|
|
|
1,178,420 |
|
|
|
66,917 |
|
|
|
1,245,337 |
|
|
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 Chases 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 Chases 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 Firms 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 segments results. In addition, trading-related net interest income is no
longer reclassified from Net interest income to Principal transactions. 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 21 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.
CBs business metrics now include gross investment banking revenue, which reflects revenue recorded
in both CB and the IB.
Corporates 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
46 47 of this Form 10-Q.
Discontinued operations
As a result of the transaction with The Bank of New York, selected corporate trust businesses have
been transferred from TSS to the Corporate segment and reported in discontinued operations for all
periods reported.
15
Segment
Results Managed Basis
The following table summarizes the business segment results for the periods indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
|
|
|
|
|
|
September 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 |
|
$ |
4,673 |
|
|
$ |
4,471 |
|
|
|
5 |
% |
|
$ |
3,101 |
|
|
$ |
2,877 |
|
|
|
8 |
% |
|
$ |
976 |
|
|
$ |
1,068 |
|
|
|
(9 |
)% |
|
|
18 |
% |
|
|
21 |
% |
Retail Financial Services |
|
|
3,555 |
|
|
|
3,590 |
|
|
|
(1 |
) |
|
|
2,139 |
|
|
|
2,156 |
|
|
|
(1 |
) |
|
|
746 |
|
|
|
656 |
|
|
|
14 |
|
|
|
21 |
|
|
|
19 |
|
Card Services |
|
|
3,646 |
|
|
|
3,980 |
|
|
|
(8 |
) |
|
|
1,253 |
|
|
|
1,286 |
|
|
|
(3 |
) |
|
|
711 |
|
|
|
541 |
|
|
|
31 |
|
|
|
20 |
|
|
|
18 |
|
Commercial Banking |
|
|
933 |
|
|
|
877 |
|
|
|
6 |
|
|
|
500 |
|
|
|
458 |
|
|
|
9 |
|
|
|
231 |
|
|
|
284 |
|
|
|
(19 |
) |
|
|
17 |
|
|
|
33 |
|
Treasury & Securities
Services |
|
|
1,499 |
|
|
|
1,380 |
|
|
|
9 |
|
|
|
1,064 |
|
|
|
999 |
|
|
|
7 |
|
|
|
256 |
|
|
|
222 |
|
|
|
15 |
|
|
|
46 |
|
|
|
58 |
|
Asset & Wealth Management |
|
|
1,636 |
|
|
|
1,449 |
|
|
|
13 |
|
|
|
1,115 |
|
|
|
976 |
|
|
|
14 |
|
|
|
346 |
|
|
|
315 |
|
|
|
10 |
|
|
|
39 |
|
|
|
52 |
|
Corporate(a) |
|
|
287 |
|
|
|
(393 |
) |
|
NM |
|
|
|
479 |
|
|
|
607 |
|
|
|
(21 |
) |
|
|
31 |
|
|
|
(559 |
) |
|
NM |
|
|
NM |
|
|
NM |
|
Total(a) |
|
$ |
16,229 |
|
|
$ |
15,354 |
|
|
|
6 |
% |
|
$ |
9,651 |
|
|
$ |
9,359 |
|
|
|
3 |
% |
|
$ |
3,297 |
|
|
$ |
2,527 |
|
|
|
30 |
% |
|
|
12 |
% |
|
|
9 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended |
|
|
|
|
|
|
|
|
September 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 |
|
$ |
13,556 |
|
|
$ |
11,418 |
|
|
|
19 |
% |
|
$ |
9,238 |
|
|
$ |
7,585 |
|
|
|
22 |
% |
|
$ |
2,665 |
|
|
$ |
3,007 |
|
|
|
(11 |
)% |
|
|
17 |
% |
|
|
20 |
% |
Retail Financial Services |
|
|
11,097 |
|
|
|
11,236 |
|
|
|
(1 |
) |
|
|
6,636 |
|
|
|
6,444 |
|
|
|
3 |
|
|
|
2,495 |
|
|
|
2,624 |
|
|
|
(5 |
) |
|
|
24 |
|
|
|
26 |
|
Card Services |
|
|
10,995 |
|
|
|
11,645 |
|
|
|
(6 |
) |
|
|
3,745 |
|
|
|
3,982 |
|
|
|
(6 |
) |
|
|
2,487 |
|
|
|
1,605 |
|
|
|
55 |
|
|
|
24 |
|
|
|
18 |
|
Commercial Banking |
|
|
2,782 |
|
|
|
2,572 |
|
|
|
8 |
|
|
|
1,494 |
|
|
|
1,381 |
|
|
|
8 |
|
|
|
754 |
|
|
|
672 |
|
|
|
12 |
|
|
|
18 |
|
|
|
26 |
|
Treasury & Securities
Services |
|
|
4,572 |
|
|
|
4,103 |
|
|
|
11 |
|
|
|
3,162 |
|
|
|
3,053 |
|
|
|
4 |
|
|
|
834 |
|
|
|
609 |
|
|
|
37 |
|
|
|
48 |
|
|
|
53 |
|
Asset & Wealth Management |
|
|
4,840 |
|
|
|
4,153 |
|
|
|
17 |
|
|
|
3,294 |
|
|
|
2,827 |
|
|
|
17 |
|
|
|
1,002 |
|
|
|
874 |
|
|
|
15 |
|
|
|
38 |
|
|
|
49 |
|
Corporate(a) |
|
|
(186 |
) |
|
|
(1,522 |
) |
|
|
88 |
|
|
|
966 |
|
|
|
4,724 |
|
|
|
(80 |
) |
|
|
(319 |
) |
|
|
(3,606 |
) |
|
|
91 |
|
|
NM |
|
|
NM |
|
Total(a) |
|
$ |
47,656 |
|
|
$ |
43,605 |
|
|
|
9 |
% |
|
$ |
28,535 |
|
|
$ |
29,996 |
|
|
|
(5 |
)% |
|
$ |
9,918 |
|
|
$ |
5,785 |
|
|
|
71 |
% |
|
|
12 |
% |
|
|
7 |
% |
|
|
|
|
(a) |
|
Net income includes Income from discontinued operations (after-tax) of $65 million and
$58 million for the three months ended September 30, 2006 and 2005, respectively, and $175
million and $173 million for the nine months ended September 30, 2006 and 2005, respectively. |
16
INVESTMENT BANK
For a discussion of the business profile of the IB, see pages 3638 of JPMorgan Chases 2005 Annual
Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees |
|
$ |
1,419 |
|
|
$ |
985 |
|
|
|
44 |
% |
|
$ |
3,957 |
|
|
$ |
2,935 |
|
|
|
35 |
% |
Principal transactions |
|
|
2,449 |
|
|
|
2,594 |
|
|
|
(6 |
) |
|
|
6,869 |
|
|
|
4,896 |
|
|
|
40 |
|
Lending & deposit related fees |
|
|
127 |
|
|
|
148 |
|
|
|
(14 |
) |
|
|
398 |
|
|
|
451 |
|
|
|
(12 |
) |
Asset management, administration
and commissions |
|
|
468 |
|
|
|
445 |
|
|
|
5 |
|
|
|
1,570 |
|
|
|
1,267 |
|
|
|
24 |
|
All other income |
|
|
159 |
|
|
|
40 |
|
|
|
298 |
|
|
|
437 |
|
|
|
419 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
4,622 |
|
|
|
4,212 |
|
|
|
10 |
|
|
|
13,231 |
|
|
|
9,968 |
|
|
|
33 |
|
Net interest income |
|
|
51 |
|
|
|
259 |
|
|
|
(80 |
) |
|
|
325 |
|
|
|
1,450 |
|
|
|
(78 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(a) |
|
|
4,673 |
|
|
|
4,471 |
|
|
|
5 |
|
|
|
13,556 |
|
|
|
11,418 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
7 |
|
|
|
(46 |
) |
|
|
NM |
|
|
|
128 |
|
|
|
(755 |
) |
|
|
NM |
|
Credit reimbursement from
TSS(b) |
|
|
30 |
|
|
|
38 |
|
|
|
(21 |
) |
|
|
90 |
|
|
|
114 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
2,093 |
|
|
|
1,885 |
|
|
|
11 |
|
|
|
6,310 |
|
|
|
4,696 |
|
|
|
34 |
|
Noncompensation expense |
|
|
1,008 |
|
|
|
992 |
|
|
|
2 |
|
|
|
2,928 |
|
|
|
2,889 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
3,101 |
|
|
|
2,877 |
|
|
|
8 |
|
|
|
9,238 |
|
|
|
7,585 |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,595 |
|
|
|
1,678 |
|
|
|
(5 |
) |
|
|
4,280 |
|
|
|
4,702 |
|
|
|
(9 |
) |
Income tax expense |
|
|
619 |
|
|
|
610 |
|
|
|
1 |
|
|
|
1,615 |
|
|
|
1,695 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
976 |
|
|
$ |
1,068 |
|
|
|
(9 |
) |
|
$ |
2,665 |
|
|
$ |
3,007 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
18 |
% |
|
|
21 |
% |
|
|
|
|
|
|
17 |
% |
|
|
20 |
% |
|
|
|
|
ROA |
|
|
0.62 |
|
|
|
0.69 |
|
|
|
|
|
|
|
0.55 |
|
|
|
0.68 |
|
|
|
|
|
Overhead ratio |
|
|
66 |
|
|
|
64 |
|
|
|
|
|
|
|
68 |
|
|
|
66 |
|
|
|
|
|
Compensation expense as % of total
net revenue(c) |
|
|
44 |
|
|
|
42 |
|
|
|
|
|
|
|
44 |
|
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment banking fees: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Advisory |
|
$ |
436 |
|
|
$ |
300 |
|
|
|
45 |
|
|
$ |
1,177 |
|
|
$ |
922 |
|
|
|
28 |
|
Equity underwriting |
|
|
275 |
|
|
|
210 |
|
|
|
31 |
|
|
|
851 |
|
|
|
553 |
|
|
|
54 |
|
Debt underwriting |
|
|
708 |
|
|
|
475 |
|
|
|
49 |
|
|
|
1,929 |
|
|
|
1,460 |
|
|
|
32 |
|
|
|
|
|
|
|
|
|
|
|
|
Total investment banking fees |
|
|
1,419 |
|
|
|
985 |
|
|
|
44 |
|
|
|
3,957 |
|
|
|
2,935 |
|
|
|
35 |
|
Fixed income markets |
|
|
2,370 |
|
|
|
2,441 |
|
|
|
(3 |
) |
|
|
6,400 |
|
|
|
6,165 |
|
|
|
4 |
|
Equity markets |
|
|
612 |
|
|
|
713 |
|
|
|
(14 |
) |
|
|
2,355 |
|
|
|
1,341 |
|
|
|
76 |
|
Credit portfolio |
|
|
272 |
|
|
|
332 |
|
|
|
(18 |
) |
|
|
844 |
|
|
|
977 |
|
|
|
(14 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
4,673 |
|
|
$ |
4,471 |
|
|
|
5 |
|
|
$ |
13,556 |
|
|
$ |
11,418 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by region |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Americas |
|
$ |
2,700 |
|
|
$ |
2,700 |
|
|
|
|
|
|
$ |
6,777 |
|
|
$ |
6,774 |
|
|
|
|
|
Europe/Middle East/Africa |
|
|
1,678 |
|
|
|
1,272 |
|
|
|
32 |
|
|
|
5,472 |
|
|
|
3,361 |
|
|
|
63 |
|
Asia/Pacific |
|
|
295 |
|
|
|
499 |
|
|
|
(41 |
) |
|
|
1,307 |
|
|
|
1,283 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
4,673 |
|
|
$ |
4,471 |
|
|
|
5 |
|
|
$ |
13,556 |
|
|
$ |
11,418 |
|
|
|
19 |
|
|
|
|
|
(a) |
|
Total net revenue includes tax-equivalent adjustments, primarily due to tax-exempt income
from municipal bond investments and income tax credits related to affordable housing
investments, of $197 million and $200 million for the quarters ended September 30, 2006 and
2005, respectively, and $584 million and $561 million year-to-date 2006 and 2005,
respectively. |
|
(b) |
|
TSS is charged a credit reimbursement related to certain exposures managed within the IB
credit portfolio on behalf of clients shared with TSS. |
|
(c) |
|
Beginning in the quarter ended March 31, 2006, Compensation expense to Total net revenue
ratio is 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. |
17
Quarterly results
Net income of $976 million was driven by record third-quarter revenues. Compared with the prior
year, net income decreased by $92 million, or 9%, reflecting higher compensation expense and a
higher provision for credit losses, largely offset by increased revenue.
Net revenue of $4.7 billion, the second highest level ever posted, was up 5% from the prior year.
Investment banking fees of $1.4 billion were a record, up 44% from the prior year, driven by record
debt underwriting and strong advisory fees, which were the highest since 2000. Advisory fees of
$436 million were up 45% over the prior year driven by strong performance in the Americas and
Europe. Debt underwriting fees of $708 million were up 49% from the prior year driven by record
loan syndication fees and strong bond underwriting fees, with strength in the Americas and Europe.
Equity underwriting fees of $275 million were up 31% from the prior year driven by improved market
share. Fixed Income Markets revenue of $2.4 billion was down 3% from the prior years record level.
The current quarter included very strong results in commodities. Equity Markets revenue of $612
million decreased 14%, reflecting lower trading results compared with a strong prior-year quarter,
partially offset by strength in commissions. Credit Portfolio revenue of $272 million was down 18%,
primarily reflecting lower gains from loan workouts and loan sales.
Provision for credit losses was $7 million for the quarter compared with a benefit of $46 million
in the prior year. The increase reflects portfolio activity and stable credit quality.
Noninterest expense was $3.1 billion, up by $224 million, or 8%, from the prior year. This increase
was due primarily to higher performance-based compensation, including the impact of an increase in
the ratio of compensation expense to total net revenue and incremental expense related to SFAS
123R.
Return on equity was 18% on $21.0 billion of allocated capital.
Year-to-date results
Net income of $2.7 billion was driven by record year-to-date revenues of $13.6 billion. Compared
with the prior year, net income decreased by $342 million, or 11%, reflecting higher
performance-based compensation expense and a higher provision for credit losses compared to a
benefit in the prior year.
Net revenue of $13.6 billion was up $2.1 billion, or 19%, from the prior year. Investment banking
fees of $4.0 billion were a record, up 35% from the prior year driven by record debt and equity
underwriting and strong advisory fees, which were the highest since 2000. Advisory fees of $1.2
billion were up 28% over the prior year driven by strong performance in the Americas. Debt
underwriting fees of $1.9 billion were up 32% from the prior year driven by record performance in
both loan syndications and bond underwriting. Equity underwriting fees of $851 million were up 54%
from the prior year driven by improved market share. Fixed Income Markets revenue of $6.4 billion
was also a record, up 4% from the prior year driven by strength in emerging markets, securitized
products and currencies. Record Equity Markets revenue of $2.4 billion increased 76%, reflecting
strength in both trading results and commissions. Credit Portfolio revenue of $844 million was down
14%, primarily reflecting lower results from credit risk management activities.
Provision for credit losses was $128 million year-to-date compared with a benefit of $755 million
in the prior period. The current year-to-date provision reflects stable credit quality and
portfolio activity. The prior-years benefit reflected improvement in credit quality due to
declining criticized loans, including nonperforming loans, as well as a higher level of recoveries.
Noninterest expense of $9.2 billion was up by $1.7 billion, or 22%, from the prior year. This
increase was due primarily to higher performance-based compensation, including the impact of an
increase in the ratio of compensation expense to total net revenue and incremental expense related
to SFAS 123R.
Return on equity was 17% on $20.7 billion of allocated capital.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and ratio data) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
626,245 |
|
|
$ |
617,717 |
|
|
|
1 |
% |
|
$ |
648,101 |
|
|
$ |
593,557 |
|
|
|
9 |
% |
Trading assetsdebt and equity
instruments |
|
|
283,915 |
|
|
|
234,722 |
|
|
|
21 |
|
|
|
268,256 |
|
|
|
231,057 |
|
|
|
16 |
|
Trading assetsderivatives
receivables |
|
|
53,184 |
|
|
|
52,399 |
|
|
|
1 |
|
|
|
52,769 |
|
|
|
57,429 |
|
|
|
(8 |
) |
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans retained(a) |
|
|
61,623 |
|
|
|
47,411 |
|
|
|
30 |
|
|
|
58,137 |
|
|
|
43,591 |
|
|
|
33 |
|
Loans held-for-sale(b) |
|
|
24,030 |
|
|
|
12,747 |
|
|
|
89 |
|
|
|
21,072 |
|
|
|
10,538 |
|
|
|
100 |
|
|
|
|
|
|
|
|
|
|
|
|
Total loans |
|
|
85,653 |
|
|
|
60,158 |
|
|
|
42 |
|
|
|
79,209 |
|
|
|
54,129 |
|
|
|
46 |
|
Adjusted assets(c) |
|
|
539,278 |
|
|
|
462,056 |
|
|
|
17 |
|
|
|
520,718 |
|
|
|
453,990 |
|
|
|
15 |
|
Equity |
|
|
21,000 |
|
|
|
20,000 |
|
|
|
5 |
|
|
|
20,670 |
|
|
|
20,000 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
23,447 |
|
|
|
19,558 |
|
|
|
20 |
|
|
|
23,447 |
|
|
|
19,558 |
|
|
|
20 |
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(8 |
) |
|
$ |
(69 |
) |
|
|
88 |
|
|
$ |
(41 |
) |
|
$ |
(121 |
) |
|
|
66 |
|
Nonperforming assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nonperforming loans(d) |
|
|
420 |
|
|
|
702 |
|
|
|
(40 |
) |
|
|
420 |
|
|
|
702 |
|
|
|
(40 |
) |
Other nonperforming assets |
|
|
36 |
|
|
|
232 |
|
|
|
(84 |
) |
|
|
36 |
|
|
|
232 |
|
|
|
(84 |
) |
Allowance for loan losses |
|
|
1,010 |
|
|
|
1,002 |
|
|
|
1 |
|
|
|
1,010 |
|
|
|
1,002 |
|
|
|
1 |
|
Allowance for lending related
commitments |
|
|
292 |
|
|
|
211 |
|
|
|
38 |
|
|
|
292 |
|
|
|
211 |
|
|
|
38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery) rate(b) |
|
|
(0.05 |
)% |
|
|
(0.58 |
)% |
|
|
|
|
|
|
(0.09 |
)% |
|
|
(0.37 |
)% |
|
|
|
|
Allowance for loan losses to
average loans(b) |
|
|
1.64 |
|
|
|
2.11 |
|
|
|
|
|
|
|
1.74 |
|
|
|
2.30 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(d) |
|
|
253 |
|
|
|
168 |
|
|
|
|
|
|
|
253 |
|
|
|
168 |
|
|
|
|
|
Nonperforming loans to average loans |
|
|
0.49 |
|
|
|
1.17 |
|
|
|
|
|
|
|
0.53 |
|
|
|
1.30 |
|
|
|
|
|
Market riskaverage trading
and credit portfolio VAR |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
By risk type: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fixed income |
|
$ |
63 |
|
|
$ |
57 |
|
|
|
11 |
|
|
$ |
58 |
|
|
$ |
66 |
|
|
|
(12 |
) |
Foreign exchange |
|
|
24 |
|
|
|
24 |
|
|
|
|
|
|
|
23 |
|
|
|
23 |
|
|
|
|
|
Equities |
|
|
32 |
|
|
|
41 |
|
|
|
(22 |
) |
|
|
29 |
|
|
|
35 |
|
|
|
(17 |
) |
Commodities and other |
|
|
46 |
|
|
|
24 |
|
|
|
92 |
|
|
|
48 |
|
|
|
16 |
|
|
|
200 |
|
Less: portfolio diversification(e) |
|
|
(82 |
) |
|
|
(62 |
) |
|
|
(32 |
) |
|
|
(74 |
) |
|
|
(56 |
) |
|
|
(32 |
) |
|
|
|
|
|
|
|
|
|
|
|
Trading VAR(f) |
|
|
83 |
|
|
|
84 |
|
|
|
(1 |
) |
|
|
84 |
|
|
|
84 |
|
|
|
|
|
Credit portfolio VAR(g) |
|
|
14 |
|
|
|
15 |
|
|
|
(7 |
) |
|
|
14 |
|
|
|
14 |
|
|
|
|
|
Less: portfolio diversification(e) |
|
|
(8 |
) |
|
|
(13 |
) |
|
|
38 |
|
|
|
(9 |
) |
|
|
(12 |
) |
|
|
25 |
|
|
|
|
|
|
|
|
|
|
|
|
Total trading and credit
portfolio VAR |
|
$ |
89 |
|
|
$ |
86 |
|
|
|
3 |
|
|
$ |
89 |
|
|
$ |
86 |
|
|
|
3 |
|
|
|
|
|
(a) |
|
Loans retained include Credit Portfolio, Conduit loans, leveraged leases, bridge loans
for underwriting and other accrual loans. |
|
(b) |
|
Loans held-for-sale, which include loan syndications, and warehouse loans held as part of
the IBs mortgage-backed, asset-backed and other securitization businesses, are excluded from
Total loans for 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 (VIEs) 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, which excludes certain
assets considered to have a low risk profile, provides a more meaningful measure of balance
sheet leverage in the securities industry. |
|
(d) |
|
Nonperforming loans include loans held-for-sale of $21 million and $106 million as of
September 30, 2006 and 2005, respectively, which are excluded from the allowance coverage
ratios. Nonperforming loans exclude distressed HFS loans purchased as part of IBs
proprietary activities. |
|
(e) |
|
Average VARs are less than the sum of the VARs of its market risk components due to risk
offsets resulting from portfolio diversification. The diversification effect reflects the
fact that the risks are not perfectly correlated. The risk of a portfolio of positions is
therefore usually less than the sum of the risks of the positions themselves. |
|
(f) |
|
Includes substantially all trading activities; however, particular risk parameters of
certain products are not fully captured, for example, correlation risk. |
|
(g) |
|
Includes VAR on derivative credit valuation adjustments, credit valuation adjustment hedges
and mark-to-market hedges of the accrual loan portfolio, which are all reported in Principal
transactions. This VAR does not include the accrual loan portfolio, which is not marked to
market. |
19
According to Thomson Financial, the Firm was ranked #1 in Global Syndicated Loans, #2 in
Global Long-Term Debt, #2 in Global Debt, Equity and Equity-Related, #3 in Global Announced M&A and
#2 in U.S. Announced M&A, year-to-date September 30, 2006, based on volume. In addition, according
to Dealogic, the Firm was ranked #1 in Investment Banking Fees year-to-date September 30, 2006.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nine months ended September 30, 2006 |
|
Full Year 2005 |
Market shares and rankings(a) |
|
Market Share |
|
Rankings |
|
Market Share |
|
Rankings |
|
Global debt, equity and equity-related |
|
|
7 |
% |
|
|
#2 |
|
|
|
7 |
% |
|
|
#2 |
|
Global syndicated loans |
|
|
15 |
|
|
|
#1 |
|
|
|
15 |
|
|
|
#1 |
|
Global long-term debt |
|
|
7 |
|
|
|
#2 |
|
|
|
6 |
|
|
|
#4 |
|
Global equity and equity-related |
|
|
8 |
|
|
|
#5 |
|
|
|
7 |
|
|
|
#6 |
|
Global announced M&A |
|
|
26 |
|
|
|
#3 |
|
|
|
23 |
|
|
|
#3 |
|
U.S. debt, equity and equity-related |
|
|
9 |
|
|
|
#2 |
|
|
|
8 |
|
|
|
#3 |
|
U.S. syndicated loans |
|
|
27 |
|
|
|
#1 |
|
|
|
28 |
|
|
|
#1 |
|
U.S. long-term debt |
|
|
12 |
|
|
|
#2 |
|
|
|
11 |
|
|
|
#2 |
|
U.S. equity and equity-related |
|
|
8 |
|
|
|
#5 |
|
|
|
9 |
|
|
|
#6 |
|
U.S. announced M&A |
|
|
28 |
|
|
|
#2 |
|
|
|
26 |
|
|
|
#3 |
|
|
|
|
|
(a) |
|
Source: Thomson Financial Securities data. Global announced M&A is based upon rank value;
all other rankings are 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%. |
20
RETAIL FINANCIAL SERVICES
Retail Financial Services realigned its business reporting segments on January 1, 2006, into
Regional Banking, Mortgage Banking and Auto Finance. On October 1, 2006, JPMorgan Chase acquired
The Bank of New Yorks consumer banking business, expanding the Regional Banking branch network,
which is one of the largest in the United States, to include 3,016 branches and 8,240 ATMs covering
17 states. 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.
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 3, 2006, RFS sold its life insurance and
annuity underwriting businesses to Protective Life Corporation.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
406 |
|
|
$ |
380 |
|
|
|
7 |
% |
|
$ |
1,167 |
|
|
$ |
1,078 |
|
|
|
8 |
% |
Asset management, administration and
commissions |
|
|
326 |
|
|
|
370 |
|
|
|
(12 |
) |
|
|
1,129 |
|
|
|
1,133 |
|
|
|
|
|
Securities gains (losses) |
|
|
(7 |
) |
|
|
|
|
|
|
NM |
|
|
|
(52 |
) |
|
|
10 |
|
|
|
NM |
|
Mortgage fees and related income |
|
|
67 |
|
|
|
212 |
|
|
|
(68 |
) |
|
|
507 |
|
|
|
921 |
|
|
|
(45 |
) |
Credit card income |
|
|
136 |
|
|
|
109 |
|
|
|
25 |
|
|
|
380 |
|
|
|
308 |
|
|
|
23 |
|
Other income |
|
|
170 |
|
|
|
7 |
|
|
|
NM |
|
|
|
381 |
|
|
|
63 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,098 |
|
|
|
1,078 |
|
|
|
2 |
|
|
|
3,512 |
|
|
|
3,513 |
|
|
|
|
|
Net interest income |
|
|
2,457 |
|
|
|
2,512 |
|
|
|
(2 |
) |
|
|
7,585 |
|
|
|
7,723 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
3,555 |
|
|
|
3,590 |
|
|
|
(1 |
) |
|
|
11,097 |
|
|
|
11,236 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit
losses(a) |
|
|
114 |
|
|
|
378 |
|
|
|
(70 |
) |
|
|
299 |
|
|
|
566 |
|
|
|
(47 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
886 |
|
|
|
842 |
|
|
|
5 |
|
|
|
2,707 |
|
|
|
2,484 |
|
|
|
9 |
|
Noncompensation expense |
|
|
1,142 |
|
|
|
1,189 |
|
|
|
(4 |
) |
|
|
3,595 |
|
|
|
3,585 |
|
|
|
|
|
Amortization of intangibles |
|
|
111 |
|
|
|
125 |
|
|
|
(11 |
) |
|
|
334 |
|
|
|
375 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,139 |
|
|
|
2,156 |
|
|
|
(1 |
) |
|
|
6,636 |
|
|
|
6,444 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,302 |
|
|
|
1,056 |
|
|
|
23 |
|
|
|
4,162 |
|
|
|
4,226 |
|
|
|
(2 |
) |
Income tax expense |
|
|
556 |
|
|
|
400 |
|
|
|
39 |
|
|
|
1,667 |
|
|
|
1,602 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
746 |
|
|
$ |
656 |
|
|
|
14 |
|
|
$ |
2,495 |
|
|
$ |
2,624 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
21 |
% |
|
|
19 |
% |
|
|
|
|
|
|
24 |
% |
|
|
26 |
% |
|
|
|
|
ROA |
|
|
1.31 |
|
|
|
1.14 |
|
|
|
|
|
|
|
1.45 |
|
|
|
1.55 |
|
|
|
|
|
Overhead ratio |
|
|
60 |
|
|
|
60 |
|
|
|
|
|
|
|
60 |
|
|
|
57 |
|
|
|
|
|
Overhead ratio excluding core deposit
intangibles(b) |
|
|
57 |
|
|
|
57 |
|
|
|
|
|
|
|
57 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
(a) |
|
Third quarter 2005 includes a $250 million special provision related to Hurricane Katrina
allocated as follows: $230 million in Regional Banking and $20 million in Auto Finance; within
Regional Banking, $140 million was for real estate and $90 million was for Business Banking. |
|
(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 would result in an improving overhead ratio over time, all things remaining equal. This
non-GAAP ratio excludes Regional Bankings core deposit intangible amortization expense
related to the Bank One merger of $109 million and $124 million for the quarters ended
September 30, 2006 and 2005, respectively, and $328 million and $372 million year-to-date 2006
and 2005, respectively. |
21
Quarterly results
Net income of $746 million was up by $90 million, or 14%, from the prior year. Excluding the
prior-year impact of the $155 million (after-tax) special provision for credit losses related to
Hurricane Katrina, net income would have been down by $65 million, or 8%. The decrease reflected a
decline in Mortgage Banking results, partially offset by improved results in Regional Banking and
Auto Finance.
Net revenue of $3.6 billion was down by $35 million, or 1%, from the prior year. Net interest
income of $2.5 billion was down 2% due to the sale of the insurance business during the quarter,
lower auto loan and lease balances, narrower spreads on loans and deposits in Regional Banking and
decreased revenue in Mortgage Banking. These declines were offset partially by the benefit of
higher deposit and loan balances in Regional Banking. Noninterest revenue of $1.1 billion was up by
$20 million, or 2%, driven by increases in deposit-related fees and credit card sales. Also
contributing to the increase was the absence of a prior-year net loss in Auto Finance associated
with the transfer of $1.5 billion of loans to held-for-sale, higher automobile operating lease
revenue and the acquisition of Collegiate Funding Services in the first quarter of 2006. These
increases were largely offset by lower net mortgage servicing revenue and by the sale of the
insurance business.
The provision for credit losses of $114 million was down by $264 million from the prior year, which
included a $250 million special provision for credit losses related to Hurricane Katrina.
Noninterest expense of $2.1 billion was down slightly, benefiting from the sale of the insurance
business during the quarter and merger-related and other operating efficiencies. These decreases
were offset partially by the acquisition of Collegiate Funding Services in the first quarter of
2006, investments in the retail distribution network and higher depreciation expense on owned
automobiles subject to operating leases.
Year-to-date results
Net income of $2.5 billion was down by $129 million, or 5%, from the prior year. Excluding the
prior-year impact of the $155 million (after-tax) special provision for credit losses related to
Hurricane Katrina, net income would have been down by $284 million, or 10%. The decrease reflected
a decline in Mortgage Banking results, partially offset by improved results in Auto Finance.
Net revenue of $11.1 billion was down by $139 million, or 1%, from the prior year. Net interest
income of $7.6 billion was down 2% due to the sale of the insurance business during the quarter,
narrower spreads on loans and deposits in Regional Banking, lower auto loan and lease balances, and
decreased revenue in Mortgage Banking. These declines were offset partially by the benefit of
higher deposit and loan balances in Regional Banking. Noninterest revenue of $3.5 billion was flat.
This result was driven by increases in deposit-related fees and credit card sales and higher
automobile operating lease revenue, as well as the absence of a prior-year net loss in Auto Finance
associated with the transfer of $1.5 billion of loans to held-for-sale and the acquisition of
Collegiate Funding Services in the first quarter of 2006. These increases were offset by lower net
mortgage servicing revenue and the sale of the insurance business.
The provision for credit losses of $299 million was down by $267 million from the prior-year
provision, which included a $250 million special provision for credit losses related to Hurricane
Katrina.
Noninterest expense of $6.6 billion was up by $192 million, or 3%, as the acquisition of Collegiate
Funding Services in the first quarter of 2006, investments in the retail distribution network and
higher depreciation expense on owned automobiles subject to operating leases were offset partially
by the sale of the insurance business during the quarter and merger-related and other operating
efficiencies.
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
227,056 |
|
|
$ |
230,698 |
|
|
|
(2 |
)% |
|
$ |
227,056 |
|
|
$ |
230,698 |
|
|
|
(2 |
)% |
Loans(a) |
|
|
205,554 |
|
|
|
200,434 |
|
|
|
3 |
|
|
|
205,554 |
|
|
|
200,434 |
|
|
|
3 |
|
Deposits |
|
|
198,260 |
|
|
|
187,621 |
|
|
|
6 |
|
|
|
198,260 |
|
|
|
187,621 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
$ |
225,307 |
|
|
$ |
227,875 |
|
|
|
(1 |
) |
|
$ |
230,307 |
|
|
$ |
226,200 |
|
|
|
2 |
|
Loans(b) |
|
|
203,307 |
|
|
|
199,057 |
|
|
|
2 |
|
|
|
201,263 |
|
|
|
198,421 |
|
|
|
1 |
|
Deposits |
|
|
198,967 |
|
|
|
187,216 |
|
|
|
6 |
|
|
|
197,491 |
|
|
|
186,035 |
|
|
|
6 |
|
Equity |
|
|
14,300 |
|
|
|
13,475 |
|
|
|
6 |
|
|
|
14,167 |
|
|
|
13,276 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
61,915 |
|
|
|
60,375 |
|
|
|
3 |
|
|
|
61,915 |
|
|
|
60,375 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
128 |
|
|
$ |
144 |
|
|
|
(11 |
) |
|
$ |
362 |
|
|
$ |
410 |
|
|
|
(12 |
) |
Nonperforming loans(c) |
|
|
1,404 |
|
|
|
1,203 |
|
|
|
17 |
|
|
|
1,404 |
|
|
|
1,203 |
|
|
|
17 |
|
Nonperforming assets |
|
|
1,595 |
|
|
|
1,387 |
|
|
|
15 |
|
|
|
1,595 |
|
|
|
1,387 |
|
|
|
15 |
|
Allowance for loan losses |
|
|
1,306 |
|
|
|
1,375 |
|
|
|
(5 |
) |
|
|
1,306 |
|
|
|
1,375 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off rate(b) |
|
|
0.27 |
% |
|
|
0.31 |
% |
|
|
|
|
|
|
0.26 |
% |
|
|
0.30 |
% |
|
|
|
|
Allowance for loan losses to
ending loans(a) |
|
|
0.69 |
|
|
|
0.75 |
|
|
|
|
|
|
|
0.69 |
|
|
|
0.75 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans(c) |
|
|
95 |
|
|
|
115 |
|
|
|
|
|
|
|
95 |
|
|
|
115 |
|
|
|
|
|
Nonperforming loans to total
loans |
|
|
0.68 |
|
|
|
0.60 |
|
|
|
|
|
|
|
0.68 |
|
|
|
0.60 |
|
|
|
|
|
|
|
|
|
(a) |
|
Includes loans held-for-sale of $17,005 million and $17,695 million at September 30,
2006 and 2005, respectively. These amounts are not included in the allowance coverage ratios. |
|
(b) |
|
Average loans include loans held-for-sale of $13,994 million and $15,707 million for the
quarters ended September 30, 2006 and 2005, respectively, and $14,411 million and $15,395
million for year-to-date 2006 and 2005, respectively. These amounts are not included in the
net charge-off rate. |
|
(c) |
|
Nonperforming loans include loans held-for-sale of $24 million and $10 million at September
30, 2006 and 2005, respectively. These amounts are not included in the allowance coverage
ratios. |
REGIONAL BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Noninterest revenue |
|
$ |
855 |
|
|
$ |
789 |
|
|
|
8 |
% |
|
$ |
2,526 |
|
|
$ |
2,437 |
|
|
|
4 |
% |
Net interest income |
|
|
2,107 |
|
|
|
2,089 |
|
|
|
1 |
|
|
|
6,539 |
|
|
|
6,430 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Net revenue |
|
|
2,962 |
|
|
|
2,878 |
|
|
|
3 |
|
|
|
9,065 |
|
|
|
8,867 |
|
|
|
2 |
|
Provision for credit losses |
|
|
53 |
|
|
|
297 |
|
|
|
(82 |
) |
|
|
189 |
|
|
|
425 |
|
|
|
(56 |
) |
Noninterest expense |
|
|
1,611 |
|
|
|
1,673 |
|
|
|
(4 |
) |
|
|
5,095 |
|
|
|
5,039 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
1,298 |
|
|
|
908 |
|
|
|
43 |
|
|
|
3,781 |
|
|
|
3,403 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
744 |
|
|
$ |
563 |
|
|
|
32 |
|
|
$ |
2,265 |
|
|
$ |
2,111 |
|
|
|
7 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
29 |
% |
|
|
24 |
% |
|
|
|
|
|
|
30 |
% |
|
|
31 |
% |
|
|
|
|
ROA |
|
|
1.86 |
|
|
|
1.46 |
|
|
|
|
|
|
|
1.89 |
|
|
|
1.88 |
|
|
|
|
|
Overhead ratio |
|
|
54 |
|
|
|
58 |
|
|
|
|
|
|
|
56 |
|
|
|
57 |
|
|
|
|
|
Overhead ratio excluding core
deposit intangibles(a) |
|
|
51 |
|
|
|
54 |
|
|
|
|
|
|
|
53 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
(a) |
|
Regional Banking 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 would result in an improving overhead ratio over time, all things remaining equal. This
non-GAAP ratio excludes Regional Bankings core deposit intangible amortization expense
related to the Bank One merger of $109 million and $124 million for the quarters ended
September 30, 2006 and 2005, respectively, and $328 million and $372 million year-to-date
September 30, 2006 and 2005, respectively. |
23
Quarterly results
Regional Banking net income of $744 million was up by $181 million from the prior year. Excluding
the prior-year impact of a $143 million (after-tax) special provision for credit losses related to
Hurricane Katrina, net income would have been up by $38 million, or 5%. Results also reflected the
sale of the insurance business during the current quarter. Net revenue of $3.0 billion was up by
$84 million, or 3%, benefiting from growth in deposits and home equity loans, increases in
deposit-related fees and credit card sales, and the acquisition of Collegiate Funding Services in
the first quarter of 2006. These benefits were offset partially by the sale of the insurance
business, narrower spreads on loans and narrower spreads on deposits caused by a shift in the
deposit mix. The provision for credit losses decreased by $244 million, primarily the result of a
$230 million special provision in the prior year related to Hurricane Katrina. Expenses of $1.6
billion were down by $62 million, or 4%, from the prior year. The decrease was due to the sale of
the insurance business, merger savings and operating efficiencies, primarily offset by investments
in the retail distribution network and the acquisition of Collegiate Funding Services.
Year-to-date results
Regional Banking net income of $2.3 billion was up by $154 million from the prior year. Excluding
the prior-year impact of a $143 million (after-tax) special provision for credit losses related to
Hurricane Katrina, net income would have been flat. Results also reflected the sale of the
insurance business during the current quarter. Net revenue of $9.1 billion was up by $198 million,
or 2%, benefiting from growth in deposits and home equity loans, increases in deposit-related fees
and credit card sales, and the acquisition of Collegiate Funding Services in the first quarter of
2006. These benefits were offset partially by the sale of the insurance business, narrower spreads
on loans, and narrower spreads on deposits caused by a shift in the deposit mix. The provision for
credit losses decreased by $236 million, primarily the result of a $230 million special provision
in the prior year related to Hurricane Katrina. Expenses of $5.1 billion were up by $56 million, or
1%, from the prior year. The increase was due to investments in the retail distribution network and
the acquisition of Collegiate Funding Services, partially offset by the sale of the insurance
business, merger savings and operating efficiencies.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in billions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Home equity origination volume |
|
$ |
13.3 |
|
|
$ |
14.3 |
|
|
|
(7 |
)% |
|
$ |
39.0 |
|
|
$ |
42.0 |
|
|
|
(7 |
)% |
End-of-period
loans owned |
Home equity |
|
$ |
80.4 |
|
|
$ |
72.5 |
|
|
|
11 |
|
|
$ |
80.4 |
|
|
$ |
72.5 |
|
|
|
11 |
|
Mortgage |
|
|
46.6 |
|
|
|
47.0 |
|
|
|
(1 |
) |
|
|
46.6 |
|
|
|
47.0 |
|
|
|
(1 |
) |
Business banking |
|
|
13.1 |
|
|
|
12.7 |
|
|
|
3 |
|
|
|
13.1 |
|
|
|
12.7 |
|
|
|
3 |
|
Education |
|
|
9.4 |
|
|
|
2.9 |
|
|
|
224 |
|
|
|
9.4 |
|
|
|
2.9 |
|
|
|
224 |
|
Other loans(a) |
|
|
2.2 |
|
|
|
2.9 |
|
|
|
(24 |
) |
|
|
2.2 |
|
|
|
2.9 |
|
|
|
(24 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total end of period loans |
|
|
151.7 |
|
|
|
138.0 |
|
|
|
10 |
|
|
|
151.7 |
|
|
|
138.0 |
|
|
|
10 |
|
End-of-period
deposits |
Checking |
|
$ |
59.8 |
|
|
$ |
62.3 |
|
|
|
(4 |
) |
|
$ |
59.8 |
|
|
$ |
62.3 |
|
|
|
(4 |
) |
Savings |
|
|
86.9 |
|
|
|
86.9 |
|
|
|
|
|
|
|
86.9 |
|
|
|
86.9 |
|
|
|
|
|
Time and other |
|
|
41.5 |
|
|
|
27.0 |
|
|
|
54 |
|
|
|
41.5 |
|
|
|
27.0 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end of period deposits |
|
|
188.2 |
|
|
|
176.2 |
|
|
|
7 |
|
|
|
188.2 |
|
|
|
176.2 |
|
|
|
7 |
|
Average
loans owned |
Home equity |
|
$ |
78.8 |
|
|
$ |
71.7 |
|
|
|
10 |
|
|
$ |
76.4 |
|
|
$ |
69.0 |
|
|
|
11 |
|
Mortgage |
|
|
47.8 |
|
|
|
46.6 |
|
|
|
3 |
|
|
|
46.5 |
|
|
|
45.3 |
|
|
|
3 |
|
Business banking |
|
|
13.0 |
|
|
|
12.5 |
|
|
|
4 |
|
|
|
12.9 |
|
|
|
12.5 |
|
|
|
3 |
|
Education |
|
|
8.9 |
|
|
|
2.2 |
|
|
|
305 |
|
|
|
7.7 |
|
|
|
2.8 |
|
|
|
175 |
|
Other loans(a) |
|
|
2.2 |
|
|
|
2.6 |
|
|
|
(15 |
) |
|
|
2.6 |
|
|
|
3.3 |
|
|
|
(21 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total average loans(b) |
|
|
150.7 |
|
|
|
135.6 |
|
|
|
11 |
|
|
|
146.1 |
|
|
|
132.9 |
|
|
|
10 |
|
Average
deposits |
Checking |
|
$ |
60.3 |
|
|
$ |
61.0 |
|
|
|
(1 |
) |
|
$ |
61.9 |
|
|
$ |
61.7 |
|
|
|
|
|
Savings |
|
|
88.1 |
|
|
|
87.1 |
|
|
|
1 |
|
|
|
89.1 |
|
|
|
87.4 |
|
|
|
2 |
|
Time and other |
|
|
39.0 |
|
|
|
26.3 |
|
|
|
48 |
|
|
|
35.6 |
|
|
|
25.4 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average deposits |
|
|
187.4 |
|
|
|
174.4 |
|
|
|
7 |
|
|
|
186.6 |
|
|
|
174.5 |
|
|
|
7 |
|
Average assets |
|
|
159.1 |
|
|
|
152.9 |
|
|
|
4 |
|
|
|
160.3 |
|
|
|
150.0 |
|
|
|
7 |
|
Average equity |
|
|
10.2 |
|
|
|
9.2 |
|
|
|
11 |
|
|
|
10.1 |
|
|
|
9.0 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
24
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate(c)(d) |
|
|
1.57 |
% |
|
|
1.45 |
% |
|
|
|
|
|
|
1.57 |
% |
|
|
1.45 |
% |
|
|
|
|
Net
charge-offs |
Home equity |
|
$ |
29 |
|
|
$ |
32 |
|
|
|
(9 |
) |
|
$ |
92 |
|
|
$ |
99 |
|
|
|
(7 |
) |
Mortgage |
|
|
14 |
|
|
|
6 |
|
|
|
133 |
|
|
|
35 |
|
|
|
20 |
|
|
|
75 |
|
Business banking |
|
|
19 |
|
|
|
25 |
|
|
|
(24 |
) |
|
|
53 |
|
|
|
69 |
|
|
|
(23 |
) |
Other loans |
|
|
1 |
|
|
|
11 |
|
|
|
(91 |
) |
|
|
21 |
|
|
|
22 |
|
|
|
(5 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
63 |
|
|
|
74 |
|
|
|
(15 |
) |
|
|
201 |
|
|
|
210 |
|
|
|
(4 |
) |
Net
charge-off rate |
Home equity |
|
|
0.15 |
% |
|
|
0.18 |
% |
|
|
|
|
|
|
0.16 |
% |
|
|
0.19 |
% |
|
|
|
|
Mortgage |
|
|
0.12 |
|
|
|
0.05 |
|
|
|
|
|
|
|
0.10 |
|
|
|
0.06 |
|
|
|
|
|
Business banking |
|
|
0.58 |
|
|
|
0.79 |
|
|
|
|
|
|
|
0.55 |
|
|
|
0.74 |
|
|
|
|
|
Other loans(b) |
|
|
0.05 |
|
|
|
1.68 |
|
|
|
|
|
|
|
0.36 |
|
|
|
0.92 |
|
|
|
|
|
Total net charge-off rate(b) |
|
|
0.17 |
|
|
|
0.22 |
|
|
|
|
|
|
|
0.19 |
|
|
|
0.22 |
|
|
|
|
|
Nonperforming assets(e)(f)(g) |
|
$ |
1,421 |
|
|
$ |
1,141 |
|
|
|
25 |
|
|
$ |
1,421 |
|
|
$ |
1,141 |
|
|
|
25 |
|
|
|
|
|
(a) |
|
Includes commercial loans derived from community development activities and, prior to
July 3, 2006, insurance policy loans. |
|
(b) |
|
Average loans include loans held-for-sale of $2.5 billion and $2.2 billion for the quarters
ended September 30, 2006 and 2005, respectively, and $2.6 billion and $2.9 billion
year-to-date September 30, 2006 and 2005, respectively. These amounts are not included in the
net charge-off rate. |
|
(c) |
|
Excludes delinquencies related to loans eligible for repurchase as well as loans repurchased
from GNMA pools that are insured by government agencies of $0.9 billion and $0.8 billion at
September 30, 2006 and 2005, respectively. These amounts are excluded as reimbursement is
proceeding normally. |
|
(d) |
|
Excludes delinquencies that are insured by government agencies under the Federal Family
Education Loan Program of $0.5 billion at September 30, 2006. Delinquencies were insignificant
at September 30, 2005. These amounts are excluded as reimbursement is proceeding normally. |
|
(e) |
|
Excludes nonperforming assets related to loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by government agencies of $1.1 billion and $1.0
billion at September 30, 2006 and 2005, respectively. These amounts are excluded as
reimbursement is proceeding normally. |
|
(f) |
|
Excludes loans that are 90 days past due and still accruing, which are insured by government
agencies under the Federal Family Education Loan Program of $0.2 billion at September 30,
2006. The Education loans past due 90 days were insignificant at September 30, 2005. These
amounts are excluded as reimbursement is proceeding normally. |
|
(g) |
|
Includes nonperforming loans held-for-sale related to mortgage banking activities of $3
million and $10 million at September 30, 2006 and 2005, respectively. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail branch business metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except where otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Investment sales volume |
|
$ |
3,536 |
|
|
$ |
2,745 |
|
|
|
29 |
% |
|
$ |
10,781 |
|
|
$ |
8,522 |
|
|
|
27 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Branches |
|
|
2,677 |
|
|
|
2,549 |
|
|
|
128 |
# |
|
|
2,677 |
|
|
|
2,549 |
|
|
|
128 |
# |
ATMs |
|
|
7,825 |
|
|
|
7,136 |
|
|
|
689 |
|
|
|
7,825 |
|
|
|
7,136 |
|
|
|
689 |
|
Personal bankers |
|
|
7,484 |
|
|
|
6,719 |
|
|
|
765 |
|
|
|
7,484 |
|
|
|
6,719 |
|
|
|
765 |
|
Sales specialists |
|
|
3,471 |
|
|
|
3,117 |
|
|
|
354 |
|
|
|
3,471 |
|
|
|
3,117 |
|
|
|
354 |
|
Active online customers (in
thousands) |
|
|
5,340 |
|
|
|
4,099 |
|
|
|
1,241 |
|
|
|
5,340 |
|
|
|
4,099 |
|
|
|
1,241 |
|
Checking accounts (in thousands) |
|
|
9,270 |
|
|
|
8,702 |
|
|
|
568 |
|
|
|
9,270 |
|
|
|
8,702 |
|
|
|
568 |
|
|
25
MORTGAGE BANKING
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Production revenue |
|
$ |
197 |
|
|
$ |
229 |
|
|
|
(14 |
)% |
|
$ |
618 |
|
|
$ |
610 |
|
|
|
1 |
% |
Net mortgage servicing revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Servicing revenue |
|
|
579 |
|
|
|
533 |
|
|
|
9 |
|
|
|
1,702 |
|
|
|
1,569 |
|
|
|
8 |
|
Changes in MSR asset fair value: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Due to inputs or assumptions in
model(a) |
|
|
(1,075 |
) |
|
|
767 |
|
|
|
NM |
|
|
|
127 |
|
|
|
613 |
|
|
|
(79 |
) |
Other changes in fair value(b) |
|
|
(327 |
) |
|
|
(323 |
) |
|
|
(1 |
) |
|
|
(1,068 |
) |
|
|
(986 |
) |
|
|
(8 |
) |
Derivative valuation adjustments
and other |
|
|
824 |
|
|
|
(814 |
) |
|
|
NM |
|
|
|
(475 |
) |
|
|
(390 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net mortgage servicing revenue |
|
|
1 |
|
|
|
163 |
|
|
|
(99 |
) |
|
|
286 |
|
|
|
806 |
|
|
|
(65 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
198 |
|
|
|
392 |
|
|
|
(49 |
) |
|
|
904 |
|
|
|
1,416 |
|
|
|
(36 |
) |
Noninterest expense |
|
|
334 |
|
|
|
309 |
|
|
|
8 |
|
|
|
987 |
|
|
|
914 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income tax expense |
|
|
(136 |
) |
|
|
83 |
|
|
|
NM |
|
|
|
(83 |
) |
|
|
502 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
(83 |
) |
|
$ |
53 |
|
|
|
NM |
|
|
$ |
(51 |
) |
|
$ |
316 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
NM |
|
|
|
13 |
% |
|
|
|
|
|
|
NM |
|
|
|
26 |
% |
|
|
|
|
ROA |
|
|
NM |
|
|
|
0.89 |
|
|
|
|
|
|
|
NM |
|
|
|
1.94 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party mortgage loans serviced
(ending) |
|
$ |
510.7 |
|
|
$ |
450.3 |
|
|
|
13 |
|
|
$ |
510.7 |
|
|
$ |
450.3 |
|
|
|
13 |
|
MSR net carrying value (ending) |
|
|
7.4 |
|
|
|
6.1 |
|
|
|
21 |
|
|
|
7.4 |
|
|
|
6.1 |
|
|
|
21 |
|
Average mortgage loans held-for-sale |
|
|
10.5 |
|
|
|
13.5 |
|
|
|
(22 |
) |
|
|
11.1 |
|
|
|
11.8 |
|
|
|
(6 |
) |
Average assets |
|
|
22.4 |
|
|
|
23.7 |
|
|
|
(5 |
) |
|
|
24.5 |
|
|
|
21.8 |
|
|
|
12 |
|
Average equity |
|
|
1.7 |
|
|
|
1.6 |
|
|
|
6 |
|
|
|
1.7 |
|
|
|
1.6 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage origination volume by
channel (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
|
$ |
10.1 |
|
|
$ |
13.9 |
|
|
|
(27 |
) |
|
$ |
30.0 |
|
|
$ |
35.6 |
|
|
|
(16 |
) |
Wholesale |
|
|
7.7 |
|
|
|
10.1 |
|
|
|
(24 |
) |
|
|
23.8 |
|
|
|
26.0 |
|
|
|
(8 |
) |
Correspondent (including negotiated
transactions) (c) |
|
|
10.6 |
|
|
|
15.3 |
|
|
|
(31 |
) |
|
|
34.3 |
|
|
|
35.5 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
28.4 |
|
|
$ |
39.3 |
|
|
|
(28 |
) |
|
$ |
88.1 |
|
|
$ |
97.1 |
|
|
|
(9 |
) |
|
|
|
|
(a) |
|
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. |
|
(b) |
|
Includes changes in the MSR value due to servicing portfolio runoff (or time decay).
Effective January 1, 2006, the Firm implemented SFAS 156, adopting fair value for the MSR
asset. For the period ending September 30, 2005, this amount represents MSR asset amortization
expense calculated in accordance with SFAS 140. |
|
(c) |
|
Excludes purchased correspondent bulk servicing. Prior periods have been restated to conform
to current methodologies. |
Quarterly results
Mortgage Banking net loss was $83 million compared with net income of $53 million in the prior
year. Net revenue was $198 million, down by $194 million. Revenue comprises production revenue and
net mortgage servicing revenue. Production revenue was $197 million, down by $32 million,
reflecting a 28% decrease in mortgage originations, partially offset by wider margins. Net mortgage
servicing revenue, which includes loan servicing revenue, MSR risk management results and other
changes in fair value, was $1 million compared with $163 million in the prior year. Loan servicing
revenue of $579 million increased by $46 million on a 13% increase in third-party loans serviced.
MSR risk management revenue of negative $251 million was down by $204 million from the prior year,
reflecting a $235 million negative valuation adjustment to the MSR asset due to changes and
refinements to inputs and assumptions used in the MSR valuation model. Other changes in fair value
of the MSR asset, representing runoff of the asset against the realization of servicing cash flows,
were negative $327 million. Noninterest expense was $334 million, up by $25 million, or 8%.
Year-to-date results
Mortgage Banking net loss was $51 million compared with net income of $316 million in the prior
year. Net revenue was $904 million, down by $512 million from the prior year. Revenue comprises
production revenue and net mortgage servicing revenue. Production revenue was $618 million, up by
$8 million, as wider margins were offset partially by a 9% decrease in mortgage originations. Net
mortgage servicing revenue, which includes loan servicing revenue, MSR risk management results and
other changes in fair value, was $286 million compared with $806 million in the prior year. Loan
servicing revenue of
26
$1.7 billion increased by $133 million on a 13% increase in third-party loans serviced. MSR risk
management revenue of negative $348 million was down by $571 million from the prior year,
reflecting positive risk management results in the prior year and a $235 million negative valuation
adjustment to the MSR asset due to changes and refinements to inputs and assumptions used in the
MSR valuation model. Other changes in fair value of the MSR asset, representing runoff of the
asset against the realization of servicing cash flows, were negative $1.1 billion. Noninterest
expense was $987 million, up by $73 million, or 8%.
AUTO FINANCE
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios and where |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Noninterest revenue |
|
$ |
110 |
|
|
$ |
14 |
|
|
|
NM |
|
|
$ |
244 |
|
|
$ |
11 |
|
|
|
NM |
|
Net interest income |
|
|
285 |
|
|
|
306 |
|
|
|
(7 |
)% |
|
|
884 |
|
|
|
942 |
|
|
|
(6 |
)% |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
395 |
|
|
|
320 |
|
|
|
23 |
|
|
|
1,128 |
|
|
|
953 |
|
|
|
18 |
|
Provision for credit losses |
|
|
61 |
|
|
|
81 |
|
|
|
(25 |
) |
|
|
110 |
|
|
|
141 |
|
|
|
(22 |
) |
Noninterest expense |
|
|
194 |
|
|
|
174 |
|
|
|
11 |
|
|
|
554 |
|
|
|
491 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
140 |
|
|
|
65 |
|
|
|
115 |
|
|
|
464 |
|
|
|
321 |
|
|
|
45 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
85 |
|
|
$ |
40 |
|
|
|
113 |
|
|
$ |
281 |
|
|
$ |
197 |
|
|
|
43 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
14 |
% |
|
|
6 |
% |
|
|
|
|
|
|
16 |
% |
|
|
10 |
% |
|
|
|
|
ROA |
|
|
0.77 |
|
|
|
0.31 |
|
|
|
|
|
|
|
0.82 |
|
|
|
0.48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics (in billions) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auto origination volume |
|
$ |
5.5 |
|
|
$ |
5.1 |
|
|
|
8 |
|
|
$ |
14.3 |
|
|
$ |
14.0 |
|
|
|
2 |
|
End-of-period loans and lease
related assets |
Loans outstanding |
|
$ |
38.1 |
|
|
$ |
43.3 |
|
|
|
(12 |
) |
|
$ |
38.1 |
|
|
$ |
43.3 |
|
|
|
(12 |
) |
Lease financing receivables |
|
|
2.2 |
|
|
|
5.1 |
|
|
|
(57 |
) |
|
|
2.2 |
|
|
|
5.1 |
|
|
|
(57 |
) |
Operating lease assets |
|
|
1.5 |
|
|
|
0.7 |
|
|
|
114 |
|
|
|
1.5 |
|
|
|
0.7 |
|
|
|
114 |
|
|
|
|
|
|
|
|
|
|
|
|
Total end-of-period loans and
lease related assets |
|
|
41.8 |
|
|
|
49.1 |
|
|
|
(15 |
) |
|
|
41.8 |
|
|
|
49.1 |
|
|
|
(15 |
) |
Average loans and lease related
assets |
Loans outstanding(a) |
|
$ |
38.9 |
|
|
$ |
43.7 |
|
|
|
(11 |
) |
|
$ |
40.1 |
|
|
$ |
46.5 |
|
|
|
(14 |
) |
Lease financing receivables |
|
|
2.5 |
|
|
|
5.6 |
|
|
|
(55 |
) |
|
|
3.2 |
|
|
|
6.6 |
|
|
|
(52 |
) |
Operating lease assets |
|
|
1.4 |
|
|
|
0.6 |
|
|
|
133 |
|
|
|
1.2 |
|
|
|
0.4 |
|
|
|
200 |
|
|
|
|
|
|
|
|
|
|
|
|
Total average loans and lease
related assets |
|
|
42.8 |
|
|
|
49.9 |
|
|
|
(14 |
) |
|
|
44.5 |
|
|
|
53.5 |
|
|
|
(17 |
) |
Average assets |
|
|
43.8 |
|
|
|
51.3 |
|
|
|
(15 |
) |
|
|
45.6 |
|
|
|
54.5 |
|
|
|
(16 |
) |
Average equity |
|
|
2.4 |
|
|
|
2.7 |
|
|
|
(11 |
) |
|
|
2.4 |
|
|
|
2.7 |
|
|
|
(11 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ day delinquency rate |
|
|
1.61 |
% |
|
|
1.60 |
% |
|
|
|
|
|
|
1.61 |
% |
|
|
1.60 |
% |
|
|
|
|
Net
charge-offs |
Loans |
|
$ |
63 |
|
|
$ |
66 |
|
|
|
(5 |
) |
|
$ |
155 |
|
|
$ |
185 |
|
|
|
(16 |
) |
Lease receivables |
|
|
2 |
|
|
|
4 |
|
|
|
(50 |
) |
|
|
6 |
|
|
|
15 |
|
|
|
(60 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net charge-offs |
|
|
65 |
|
|
|
70 |
|
|
|
(7 |
) |
|
|
161 |
|
|
|
200 |
|
|
|
(20 |
) |
Net
charge-off rate |
Loans(a) |
|
|
0.66 |
% |
|
|
0.60 |
% |
|
|
|
|
|
|
0.53 |
% |
|
|
0.54 |
% |
|
|
|
|
Lease receivables |
|
|
0.32 |
|
|
|
0.28 |
|
|
|
|
|
|
|
0.25 |
|
|
|
0.30 |
|
|
|
|
|
Total net charge-off rate(a) |
|
|
0.64 |
|
|
|
0.56 |
|
|
|
|
|
|
|
0.51 |
|
|
|
0.51 |
|
|
|
|
|
Nonperforming assets |
|
$ |
174 |
|
|
$ |
246 |
|
|
|
(29 |
) |
|
$ |
174 |
|
|
$ |
246 |
|
|
|
(29 |
) |
|
|
|
|
(a) |
|
Average loans include loans held-for-sale of $0.9 billion for the quarter ended September
30, 2006, and $0.7 billion for both year-to-date 2006 and 2005. Average loans held-for-sale
for the quarter ended September 30, 2005, were insignificant. These amounts are not included
in the net charge-off rate. |
Quarterly results
Auto Finance net income of $85 million was up by $45 million from the prior year. Net revenue of
$395 million was up by $75 million, or 23%, reflecting the absence of a prior-year write-down of
$48 million associated with the transfer of $1.5 billion of loans to held-for-sale, higher
automobile operating lease revenue and wider loan spreads on lower loan and direct finance lease
balances. The provision for credit losses of $61 million decreased by $20 million due to a special
provision in the prior year related to Hurricane Katrina. Noninterest expense of $194 million
increased by $20 million, or 11%, driven by increased depreciation expense on owned automobiles
subject to operating leases.
27
Year-to-date results
Auto Finance net income of $281 million was up by $84 million from the prior year. Net revenue of
$1.1 billion was up by $175 million, or 18%, reflecting the absence of a prior-year write-down of
$48 million associated with the transfer of $1.5 billion of loans to held-for-sale, higher
automobile operating lease revenue and wider loan spreads on lower loan and direct finance lease
balances. The provision for credit losses of $110 million decreased by $31 million due to a special
provision in the prior year related to Hurricane Katrina. Noninterest expense of $554 million
increased by $63 million, or 13%, driven by increased depreciation expense on owned automobiles
subject to operating leases, partially offset by operating efficiencies on a 2% increase in
origination volumes.
CARD SERVICES
For a
discussion of the business profile of CS, see pages 4546 of JPMorgan Chases 2005 Annual
Report.
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. For
further information, see Explanation and reconciliation of the Firms use of non-GAAP financial
measures on pages 1215 of this Form 10-Q. 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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
|
|
|
|
|
managed basis |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
$ |
636 |
|
|
$ |
950 |
|
|
|
(33 |
)% |
|
$ |
1,890 |
|
|
$ |
2,579 |
|
|
|
(27 |
)% |
All other income |
|
|
126 |
|
|
|
60 |
|
|
|
110 |
|
|
|
246 |
|
|
|
113 |
|
|
|
118 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
762 |
|
|
|
1,010 |
|
|
|
(25 |
) |
|
|
2,136 |
|
|
|
2,692 |
|
|
|
(21 |
) |
Net interest income |
|
|
2,884 |
|
|
|
2,970 |
|
|
|
(3 |
) |
|
|
8,859 |
|
|
|
8,953 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue(a) |
|
|
3,646 |
|
|
|
3,980 |
|
|
|
(8 |
) |
|
|
10,995 |
|
|
|
11,645 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit
losses(b) |
|
|
1,270 |
|
|
|
1,833 |
|
|
|
(31 |
) |
|
|
3,317 |
|
|
|
5,110 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
251 |
|
|
|
284 |
|
|
|
(12 |
) |
|
|
761 |
|
|
|
860 |
|
|
|
(12 |
) |
Noncompensation expense |
|
|
823 |
|
|
|
813 |
|
|
|
1 |
|
|
|
2,429 |
|
|
|
2,556 |
|
|
|
(5 |
) |
Amortization of intangibles |
|
|
179 |
|
|
|
189 |
|
|
|
(5 |
) |
|
|
555 |
|
|
|
566 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense(a) |
|
|
1,253 |
|
|
|
1,286 |
|
|
|
(3 |
) |
|
|
3,745 |
|
|
|
3,982 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense(a) |
|
|
1,123 |
|
|
|
861 |
|
|
|
30 |
|
|
|
3,933 |
|
|
|
2,553 |
|
|
|
54 |
|
Income tax expense |
|
|
412 |
|
|
|
320 |
|
|
|
29 |
|
|
|
1,446 |
|
|
|
948 |
|
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
711 |
|
|
$ |
541 |
|
|
|
31 |
|
|
$ |
2,487 |
|
|
$ |
1,605 |
|
|
|
55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memo: Net securitization gains |
|
$ |
48 |
|
|
$ |
25 |
|
|
|
92 |
|
|
$ |
50 |
|
|
$ |
28 |
|
|
|
79 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
20 |
% |
|
|
18 |
% |
|
|
|
|
|
|
24 |
% |
|
|
18 |
% |
|
|
|
|
Overhead ratio |
|
|
34 |
|
|
|
32 |
|
|
|
|
|
|
|
34 |
|
|
|
34 |
|
|
|
|
|
|
|
|
|
(a) |
|
As a result of the integration of Chase Merchant Services and Paymentech merchant
processing businesses into a joint venture, beginning in the fourth quarter of 2005, Total net
revenue, Total noninterest expense and Income before income tax expense have been reduced to
reflect the deconsolidation of Paymentech. There is no impact to Net income. |
|
(b) |
|
Third quarter of 2005 includes a $100 million special provision related to Hurricane Katrina,
of which $90 million was released in the second quarter of 2006. |
To illustrate underlying business trends, the following discussion of CS performance assumes
for all relevant 2005 periods that the deconsolidation of Paymentech had occurred as of the
beginning of the year. The effect of the deconsolidation would have reduced Total net revenue,
primarily in Noninterest revenue, and Total noninterest expense, but would not have any impact on
Net income for such periods. For a reconciliation of CS managed basis to an adjusted basis to
disclose the effect of the deconsolidation of Paymentech, see page 31
of this Form 10-Q.
28
Quarterly results
Net income of $711 million was up by $170 million, or 31%, from the prior year. Results were driven
by a lower provision for credit losses due to significantly lower bankruptcy filings and the
absence of an increase in the allowance for credit losses of $124 million (after-tax) in the prior
year.
End-of-period managed loans of $143.8 billion increased by $6.3 billion, or 5%, from the prior
year. Average managed loans of $141.7 billion increased by $3.9 billion, or 3%, from the prior
year. The current quarter included average and end-of-period managed loans of $2.1 billion from the
acquisition of the Sears Canada credit card business (acquired in the fourth quarter of 2005), as
well as $1.6 billion of average managed loans and $1.7 billion of end-of-period managed loans from
the acquisition of the Kohls private label portfolio (acquired in the second quarter of 2006).
Compared with the prior year, both average managed and end-of-period managed loans continued to be
affected negatively by higher customer payment rates. Management believes that contributing to the
higher payment rates are the new minimum payment rules and a higher proportion of customers in
rewards-based programs.
Net managed revenue was $3.6 billion, down by $183 million, or 5%, from the prior year. Net
interest income of $2.9 billion was down by $80 million, or 3%. The decrease in net interest income
was driven by attrition of mature, higher spread balances as a result of higher payment rates. Also
contributing to the reduction was higher cost of funds on balance growth in promotional,
introductory and transactor loan balances, which increased due to continued investment in
marketing. These decreases were offset partially by an increase in average managed loan balances
due to acquisitions. Noninterest revenue of $762 million was down by $103 million, or 12%, due to
higher volume-driven payments to partners, including Kohls, and increased rewards expense,
partially offset by increased interchange income related to a 15% increase in charge volume.
The managed provision for credit losses was $1.3 billion, down by $563 million, or 31%, from the
prior year. This benefit was due to a decrease in net charge-offs of $353 million, reflecting the
continued low level of bankruptcy losses, partially offset by increased contractual net
charge-offs. The provision also benefited from the lack of an increase in the allowance for credit
losses of $200 million related to Hurricane Katrina and higher bankruptcy filings in the prior
year. The managed net charge-off rate for the quarter was 3.58%, down from 4.70% in the prior year.
The 30-day managed delinquency rate was 3.17%, down from 3.39% in the prior year.
Noninterest expense of $1.3 billion was up by $101 million, or 9%, from the prior year due to the
acquisitions of the Sears Canada credit card business and Kohls private label portfolio as well as
higher marketing spending, partially offset by merger savings.
Year-to-date results
Net income of $2.5 billion was up by $882 million, or 55%, from the prior year. Results were driven
by a lower provision for credit losses due to significantly lower bankruptcy filings.
End-of-period managed loans of $143.8 billion increased by $6.3 billion, or 5%, from the prior
year. Average managed loans of $139.0 billion increased by $3.4 billion, or 3%, from the prior
year. The current period included $2.1 billion of average and end-of-period loans from the
acquisition of the Sears Canada credit card business (acquired in the fourth quarter of 2005), as
well as approximately $900 million of average loans and $1.7 billion of end-of-period loans from
the acquisition, in the second quarter of 2006, of the Kohls private label portfolio. Compared
with the prior year, both average managed and end-of-period managed loans were negatively affected
by higher customer payment rates. Management believes that contributing to the higher payment rates
are the new minimum payment rules and a higher proportion of customers in rewards-based programs.
Total net revenue of $11.0 billion was down $215 million, or 2%, from the prior year. Net interest
income of $8.9 billion was down $81 million, or 1%, from the prior year. The decrease in net
interest income was driven by attrition of mature, higher spread balances as a result of higher
payment rates. Also contributing to the reduction was higher cost of funds on balance growth in
promotional, introductory and transactor loan balances, which increased due to continued investment
in marketing. These decreases were offset partially by an increase in average managed loan balances
due to acquisitions and lower revenue reversals due to lower bankruptcies. Noninterest revenue of
$2.1 billion was down by $134 million, or 6%, due to higher volume-driven payments to partners,
including Kohls, and increased rewards expense, partially offset by increased interchange income
related to an 11% increase in charge volume.
The managed provision for credit losses was $3.3 billion, down by $1.8 billion, or 35%, from the
prior year. The benefit was due to a decrease in net charge-offs of $1.4 billion, reflecting the
continued low level of bankruptcy losses. The provision also benefited from a reduction in the
allowance for credit losses in the current year compared with an increase in the allowance for
credit losses in the prior year. The managed net charge-off rate decreased to 3.29%, down from
4.80% in the prior year. The 30-day managed delinquency rate was 3.17%, down from 3.39% in the
prior year.
Noninterest expense of $3.7 billion was up $152 million, or 4%. The acquisition of the Sears Canada
credit card business and Kohls private label portfolio, increased marketing spending and higher
fraud-related losses were offset partially by merger savings and other efficiencies.
29
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount, ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
and where otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
% of average managed outstandings: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
8.07 |
% |
|
|
8.55 |
% |
|
|
|
|
|
|
8.52 |
% |
|
|
8.83 |
% |
|
|
|
|
Provision for credit losses |
|
|
3.56 |
|
|
|
5.28 |
|
|
|
|
|
|
|
3.19 |
|
|
|
5.04 |
|
|
|
|
|
Noninterest revenue |
|
|
2.13 |
|
|
|
2.91 |
|
|
|
|
|
|
|
2.05 |
|
|
|
2.66 |
|
|
|
|
|
Risk adjusted margin(a) |
|
|
6.65 |
|
|
|
6.18 |
|
|
|
|
|
|
|
7.39 |
|
|
|
6.45 |
|
|
|
|
|
Noninterest expense |
|
|
3.51 |
|
|
|
3.70 |
|
|
|
|
|
|
|
3.60 |
|
|
|
3.93 |
|
|
|
|
|
Pretax income (ROO) |
|
|
3.14 |
|
|
|
2.48 |
|
|
|
|
|
|
|
3.78 |
|
|
|
2.52 |
|
|
|
|
|
Net income |
|
|
1.99 |
|
|
|
1.56 |
|
|
|
|
|
|
|
2.39 |
|
|
|
1.58 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Charge volume (in billions) |
|
$ |
87.5 |
|
|
$ |
76.4 |
|
|
|
15 |
% |
|
$ |
246.2 |
|
|
$ |
222.3 |
|
|
|
11 |
% |
Net accounts opened (in
thousands)(b) |
|
|
4,186 |
|
|
|
3,022 |
|
|
|
39 |
|
|
|
31,477 |
|
|
|
8,555 |
|
|
|
268 |
|
Credit cards issued (in thousands) |
|
|
139,513 |
|
|
|
98,236 |
|
|
|
42 |
|
|
|
139,513 |
|
|
|
98,236 |
|
|
|
42 |
|
Number of registered Internet
customers (in millions) |
|
|
20.4 |
|
|
|
14.6 |
|
|
|
40 |
|
|
|
20.4 |
|
|
|
14.6 |
|
|
|
40 |
|
Merchant acquiring business(c) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bank card volume (in billions) |
|
$ |
168.7 |
|
|
$ |
143.4 |
|
|
|
18 |
|
|
$ |
482.7 |
|
|
$ |
409.7 |
|
|
|
18 |
|
Total transactions (in millions)(d) |
|
|
4,597 |
|
|
|
3,921 |
|
|
|
17 |
|
|
|
13,203 |
|
|
|
11,184 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected ending balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
78,587 |
|
|
$ |
68,479 |
|
|
|
15 |
|
|
$ |
78,587 |
|
|
$ |
68,479 |
|
|
|
15 |
|
Securitized loans |
|
|
65,245 |
|
|
|
69,095 |
|
|
|
(6 |
) |
|
|
65,245 |
|
|
|
69,095 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
143,832 |
|
|
$ |
137,574 |
|
|
|
5 |
|
|
$ |
143,832 |
|
|
$ |
137,574 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed assets |
|
$ |
148,272 |
|
|
$ |
144,225 |
|
|
|
3 |
|
|
$ |
146,192 |
|
|
$ |
141,180 |
|
|
|
4 |
|
Loans: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans on balance sheets |
|
$ |
76,655 |
|
|
$ |
68,877 |
|
|
|
11 |
|
|
$ |
71,129 |
|
|
$ |
66,759 |
|
|
|
7 |
|
Securitized loans |
|
|
65,061 |
|
|
|
68,933 |
|
|
|
(6 |
) |
|
|
67,862 |
|
|
|
68,791 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed loans |
|
$ |
141,716 |
|
|
$ |
137,810 |
|
|
|
3 |
|
|
$ |
138,991 |
|
|
$ |
135,550 |
|
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
14,100 |
|
|
|
11,800 |
|
|
|
19 |
|
|
|
14,100 |
|
|
|
11,800 |
|
|
|
19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
18,696 |
|
|
|
19,463 |
|
|
|
(4 |
) |
|
|
18,696 |
|
|
|
19,463 |
|
|
|
(4 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
1,280 |
|
|
$ |
1,633 |
|
|
|
(22 |
) |
|
$ |
3,417 |
|
|
$ |
4,864 |
|
|
|
(30 |
) |
Net charge-off rate |
|
|
3.58 |
% |
|
|
4.70 |
% |
|
|
|
|
|
|
3.29 |
% |
|
|
4.80 |
% |
|
|
|
|
Delinquency ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30+ days |
|
|
3.17 |
% |
|
|
3.39 |
% |
|
|
|
|
|
|
3.17 |
% |
|
|
3.39 |
% |
|
|
|
|
90+ days |
|
|
1.48 |
|
|
|
1.55 |
|
|
|
|
|
|
|
1.48 |
|
|
|
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
3,176 |
|
|
$ |
3,255 |
|
|
|
(2 |
) |
|
$ |
3,176 |
|
|
$ |
3,255 |
|
|
|
(2 |
) |
Allowance for loan losses to
period-end loans |
|
|
4.04 |
% |
|
|
4.75 |
% |
|
|
|
|
|
|
4.04 |
% |
|
|
4.75 |
% |
|
|
|
|
|
|
|
|
(a) |
|
Represents Total net revenue less Provision for credit losses. |
|
(b) |
|
Year-to-date 2006 includes 21 million accounts from the acquisition of the Kohls private
label portfolio in the second quarter of 2006. |
|
(c) |
|
Represents 100% of the merchant acquiring business. |
|
(d) |
|
Periods prior to the fourth quarter of 2005 have been restated to conform methodologies
following the integration of Chase Merchant Services and Paymentech merchant processing
businesses. |
30
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 September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Income statement data(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit card income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported data for the period |
|
$ |
1,357 |
|
|
$ |
1,683 |
|
|
|
(19 |
)% |
|
$ |
4,673 |
|
|
$ |
4,855 |
|
|
|
(4 |
)% |
Securitization adjustments |
|
|
(721 |
) |
|
|
(733 |
) |
|
|
2 |
|
|
|
(2,783 |
) |
|
|
(2,276 |
) |
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed credit card income |
|
$ |
636 |
|
|
$ |
950 |
|
|
|
(33 |
) |
|
$ |
1,890 |
|
|
$ |
2,579 |
|
|
|
(27 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported data for the period |
|
$ |
1,556 |
|
|
$ |
1,370 |
|
|
|
14 |
|
|
$ |
4,459 |
|
|
$ |
3,963 |
|
|
|
13 |
|
Securitization adjustments |
|
|
1,328 |
|
|
|
1,600 |
|
|
|
(17 |
) |
|
|
4,400 |
|
|
|
4,990 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed net interest income |
|
$ |
2,884 |
|
|
$ |
2,970 |
|
|
|
(3 |
) |
|
$ |
8,859 |
|
|
$ |
8,953 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported data for the period |
|
$ |
3,039 |
|
|
$ |
3,113 |
|
|
|
(2 |
) |
|
$ |
9,378 |
|
|
$ |
8,931 |
|
|
|
5 |
|
Securitization adjustments |
|
|
607 |
|
|
|
867 |
|
|
|
(30 |
) |
|
|
1,617 |
|
|
|
2,714 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed total net revenue |
|
$ |
3,646 |
|
|
$ |
3,980 |
|
|
|
(8 |
) |
|
$ |
10,995 |
|
|
$ |
11,645 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported data for the period(b) |
|
$ |
663 |
|
|
$ |
966 |
|
|
|
(31 |
) |
|
$ |
1,700 |
|
|
$ |
2,396 |
|
|
|
(29 |
) |
Securitization adjustments |
|
|
607 |
|
|
|
867 |
|
|
|
(30 |
) |
|
|
1,617 |
|
|
|
2,714 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed provision for credit losses(b) |
|
$ |
1,270 |
|
|
$ |
1,833 |
|
|
|
(31 |
) |
|
$ |
3,317 |
|
|
$ |
5,110 |
|
|
|
(35 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
sheet average balances(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported data for the period |
|
$ |
85,301 |
|
|
$ |
77,204 |
|
|
|
10 |
|
|
$ |
80,395 |
|
|
$ |
74,263 |
|
|
|
8 |
|
Securitization adjustments |
|
|
62,971 |
|
|
|
67,021 |
|
|
|
(6 |
) |
|
|
65,797 |
|
|
|
66,917 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed average assets |
|
$ |
148,272 |
|
|
$ |
144,225 |
|
|
|
3 |
|
|
$ |
146,192 |
|
|
$ |
141,180 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit quality statistics(a) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net charge-offs data for the period |
|
$ |
673 |
|
|
$ |
766 |
|
|
|
(12 |
) |
|
$ |
1,800 |
|
|
$ |
2,150 |
|
|
|
(16 |
) |
Securitization adjustments |
|
|
607 |
|
|
|
867 |
|
|
|
(30 |
) |
|
|
1,617 |
|
|
|
2,714 |
|
|
|
(40 |
) |
|
|
|
|
|
|
|
|
|
|
|
Managed net charge-offs |
|
$ |
1,280 |
|
|
$ |
1,633 |
|
|
|
(22 |
) |
|
$ |
3,417 |
|
|
$ |
4,864 |
|
|
|
(30 |
) |
|
|
|
|
(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 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.
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 versus managed earnings; however, it does affect the
classification of items on the Consolidated statements of income and Consolidated balance
sheets. |
|
(b) |
|
Third quarter of 2005 includes a $100 million special provision related to Hurricane Katrina,
of which $90 million was released in the second quarter of 2006. |
Reconciliation of Card Services managed results to adjusted results as if Paymentech had not been consolidated
The financial information presented below is presented to illustrate the underlying trends of how
CS results may have appeared had Paymentech been deconsolidated prior to the earliest date
indicated.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Noninterest revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Noninterest revenue |
|
$ |
762 |
|
|
$ |
1,010 |
|
|
|
(25 |
)% |
|
$ |
2,136 |
|
|
$ |
2,692 |
|
|
|
(21 |
)% |
Adjustment for Paymentech |
|
|
|
|
|
|
(145 |
) |
|
|
NM |
|
|
|
|
|
|
|
(422 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Noninterest revenue |
|
$ |
762 |
|
|
$ |
865 |
|
|
|
(12 |
) |
|
$ |
2,136 |
|
|
$ |
2,270 |
|
|
|
(6 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Total net revenue |
|
$ |
3,646 |
|
|
$ |
3,980 |
|
|
|
(8 |
) |
|
$ |
10,995 |
|
|
$ |
11,645 |
|
|
|
(6 |
) |
Adjustment for Paymentech |
|
|
|
|
|
|
(151 |
) |
|
|
NM |
|
|
|
|
|
|
|
(435 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Total net revenue |
|
$ |
3,646 |
|
|
$ |
3,829 |
|
|
|
(5 |
) |
|
$ |
10,995 |
|
|
$ |
11,210 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Managed Total noninterest
expense |
|
$ |
1,253 |
|
|
$ |
1,286 |
|
|
|
(3 |
) |
|
$ |
3,745 |
|
|
$ |
3,982 |
|
|
|
(6 |
) |
Adjustment for Paymentech |
|
|
|
|
|
|
(134 |
) |
|
|
NM |
|
|
|
|
|
|
|
(389 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted Total noninterest
expense |
|
$ |
1,253 |
|
|
$ |
1,152 |
|
|
|
9 |
|
|
$ |
3,745 |
|
|
$ |
3,593 |
|
|
|
4 |
|
|
31
COMMERCIAL BANKING
For a
discussion of the business profile of CB, see page 5 of this
Form 10-Q. For additional
information on the transfers of various wholesale banking clients among CB, the IB and TSS, see
page 15 of this Form 10-Q.
The October 1, 2006 acquisition of The Bank of New Yorks middle-market banking business added
approximately 2,000 clients, $2.5 billion of loans and $1.3 billion in deposits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
145 |
|
|
$ |
145 |
|
|
|
|
% |
|
$ |
434 |
|
|
$ |
429 |
|
|
|
1 |
% |
Asset management, administration
and commissions |
|
|
16 |
|
|
|
15 |
|
|
|
7 |
|
|
|
47 |
|
|
|
43 |
|
|
|
9 |
|
All other income(a) |
|
|
95 |
|
|
|
94 |
|
|
|
1 |
|
|
|
282 |
|
|
|
261 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
256 |
|
|
|
254 |
|
|
|
1 |
|
|
|
763 |
|
|
|
733 |
|
|
|
4 |
|
Net interest income |
|
|
677 |
|
|
|
623 |
|
|
|
9 |
|
|
|
2,019 |
|
|
|
1,839 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
933 |
|
|
|
877 |
|
|
|
6 |
|
|
|
2,782 |
|
|
|
2,572 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit
losses(b) |
|
|
54 |
|
|
|
(46 |
) |
|
|
NM |
|
|
|
49 |
|
|
|
90 |
|
|
|
(46 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
190 |
|
|
|
164 |
|
|
|
16 |
|
|
|
566 |
|
|
|
484 |
|
|
|
17 |
|
Noncompensation expense |
|
|
296 |
|
|
|
279 |
|
|
|
6 |
|
|
|
883 |
|
|
|
848 |
|
|
|
4 |
|
Amortization of intangibles |
|
|
14 |
|
|
|
15 |
|
|
|
(7 |
) |
|
|
45 |
|
|
|
49 |
|
|
|
(8 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
500 |
|
|
|
458 |
|
|
|
9 |
|
|
|
1,494 |
|
|
|
1,381 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax
expense |
|
|
379 |
|
|
|
465 |
|
|
|
(18 |
) |
|
|
1,239 |
|
|
|
1,101 |
|
|
|
13 |
|
Income tax expense |
|
|
148 |
|
|
|
181 |
|
|
|
(18 |
) |
|
|
485 |
|
|
|
429 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
231 |
|
|
$ |
284 |
|
|
|
(19 |
) |
|
$ |
754 |
|
|
$ |
672 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
17 |
% |
|
|
33 |
% |
|
|
|
|
|
|
18 |
% |
|
|
26 |
% |
|
|
|
|
ROA |
|
|
1.60 |
|
|
|
2.17 |
|
|
|
|
|
|
|
1.79 |
|
|
|
1.74 |
|
|
|
|
|
Overhead ratio |
|
|
54 |
|
|
|
52 |
|
|
|
|
|
|
|
54 |
|
|
|
54 |
|
|
|
|
|
|
|
|
|
(a) |
|
IB-related and commercial card revenues are included in All other income.
|
|
(b) |
|
Third quarter of 2005 includes a $35 million special provision related to Hurricane Katrina. |
Quarterly results
Net income was $231 million, down by $53 million, or 19%, from the prior year. The decrease was
driven primarily by a higher provision for credit losses.
Net revenue was $933 million, up by $56 million, or 6%, from the prior year. Net interest income
was $677 million, up by $54 million, or 9%, due to higher liability balances and loan volumes,
largely offset by narrower loan spreads and a shift to lower margin liability products. Noninterest
revenue of $256 million was up by $2 million, or 1%.
Each business within CB grew revenue over the prior year, primarily driven by increased Treasury
Services revenue and lending revenue. Compared with the prior year, Middle Market Banking revenue
of $617 million increased by $28 million, or 5%. Mid-Corporate Banking revenue of $160 million
increased by $19 million, or 13%, and Real Estate revenue of $119 million increased by $5 million,
or 4%.
Provision for credit losses was $54 million reflecting stable credit quality and growth in the loan
portfolio. The provision for credit losses was a benefit of $46 million in the prior year, which
included a release of the allowance for credit losses that was offset partially by a special
provision related to Hurricane Katrina.
Noninterest expense was $500 million, up by $42 million, or 9%, from the prior year, largely due to
higher compensation expense and increased expense related to higher client usage of Treasury
Services products.
32
Year-to-date results
Earnings of $754 million increased by $82 million, or 12%, from the prior year due to higher
revenues and lower provision for credit losses, partially offset by higher expenses.
Net revenues of $2.8 billion increased 8%, or $210 million. Net interest income increased to $2
billion, primarily driven by higher liability balances and loan volumes, partially offset by lower
loan spreads. Noninterest revenue was $763 million, up $30 million, or 4%, due to higher commercial
card and IB-related revenues.
Each business within CB grew revenue over the prior year, primarily driven by increased Treasury
Services revenue and lending revenue. Compared with the prior year, Middle Market Banking revenue
of $1.9 billion increased by $124 million, or 7%. Mid-Corporate Banking revenue of $458 million
increased by $55 million, or 14%, and Real Estate revenue of $338 million increased by $26 million,
or 8%.
Provision for credit losses was $49 million, down from $90 million in the prior year. The provision
for credit losses in the prior year was primarily related to refinements in the data used to
estimate the allowance for credit losses and a $35 million provision for Hurricane Katrina.
Noninterest expenses of $1.5 billion increased by $113 million, or 8%, from last year, primarily
related to incremental compensation expense related to SFAS 123R and increased expense resulting
from higher client usage of Treasury Services products.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratio and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
headcount data) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue by product: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending |
|
$ |
335 |
|
|
$ |
302 |
|
|
|
11 |
% |
|
$ |
985 |
|
|
$ |
905 |
|
|
|
9 |
% |
Treasury Services |
|
|
551 |
|
|
|
517 |
|
|
|
7 |
|
|
|
1,667 |
|
|
|
1,516 |
|
|
|
10 |
|
Investment banking |
|
|
60 |
|
|
|
50 |
|
|
|
20 |
|
|
|
166 |
|
|
|
150 |
|
|
|
11 |
|
Other |
|
|
(13 |
) |
|
|
8 |
|
|
|
NM |
|
|
|
(36 |
) |
|
|
1 |
|
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking
revenue |
|
|
933 |
|
|
|
877 |
|
|
|
6 |
|
|
|
2,782 |
|
|
|
2,572 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
IB revenues,
gross(a) |
|
$ |
170 |
|
|
$ |
145 |
|
|
|
17 |
|
|
$ |
470 |
|
|
$ |
402 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
617 |
|
|
$ |
589 |
|
|
|
5 |
|
|
$ |
1,874 |
|
|
$ |
1,750 |
|
|
|
7 |
|
Mid-Corporate Banking |
|
|
160 |
|
|
|
141 |
|
|
|
13 |
|
|
|
458 |
|
|
|
403 |
|
|
|
14 |
|
Real Estate |
|
|
119 |
|
|
|
114 |
|
|
|
4 |
|
|
|
338 |
|
|
|
312 |
|
|
|
8 |
|
Other |
|
|
37 |
|
|
|
33 |
|
|
|
12 |
|
|
|
112 |
|
|
|
107 |
|
|
|
5 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking
revenue |
|
$ |
933 |
|
|
$ |
877 |
|
|
|
6 |
|
|
$ |
2,782 |
|
|
$ |
2,572 |
|
|
|
8 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected average balances |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
57,378 |
|
|
$ |
51,988 |
|
|
|
10 |
|
|
$ |
56,246 |
|
|
$ |
51,735 |
|
|
|
9 |
|
Loans and leases(b) |
|
|
53,404 |
|
|
|
47,999 |
|
|
|
11 |
|
|
|
52,227 |
|
|
|
47,468 |
|
|
|
10 |
|
Liability
balances(c) |
|
|
72,009 |
|
|
|
64,772 |
|
|
|
11 |
|
|
|
71,781 |
|
|
|
65,098 |
|
|
|
10 |
|
Equity |
|
|
5,500 |
|
|
|
3,400 |
|
|
|
62 |
|
|
|
5,500 |
|
|
|
3,400 |
|
|
|
62 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average loans by business: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Middle Market Banking |
|
$ |
32,890 |
|
|
$ |
31,402 |
|
|
|
5 |
|
|
$ |
32,418 |
|
|
$ |
30,917 |
|
|
|
5 |
|
Mid-Corporate Banking |
|
|
8,756 |
|
|
|
6,434 |
|
|
|
36 |
|
|
|
8,205 |
|
|
|
6,163 |
|
|
|
33 |
|
Real Estate |
|
|
7,564 |
|
|
|
6,623 |
|
|
|
14 |
|
|
|
7,505 |
|
|
|
6,760 |
|
|
|
11 |
|
Other |
|
|
4,194 |
|
|
|
3,540 |
|
|
|
18 |
|
|
|
4,099 |
|
|
|
3,628 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Total Commercial Banking loans |
|
|
53,404 |
|
|
|
47,999 |
|
|
|
11 |
|
|
|
52,227 |
|
|
|
47,468 |
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
4,447 |
|
|
|
4,441 |
|
|
|
|
|
|
|
4,447 |
|
|
|
4,441 |
|
|
|
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality
statistics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs |
|
$ |
21 |
|
|
$ |
6 |
|
|
|
250 |
|
|
$ |
11 |
|
|
$ |
5 |
|
|
|
120 |
|
Nonperforming loans |
|
|
157 |
|
|
|
369 |
|
|
|
(57 |
) |
|
|
157 |
|
|
|
369 |
|
|
|
(57 |
) |
Allowance for loan losses |
|
|
1,431 |
|
|
|
1,423 |
|
|
|
1 |
|
|
|
1,431 |
|
|
|
1,423 |
|
|
|
1 |
|
Allowance for lending-related
commitments |
|
|
156 |
|
|
|
161 |
|
|
|
(3 |
) |
|
|
156 |
|
|
|
161 |
|
|
|
(3 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off
rate(b) |
|
|
0.16 |
% |
|
|
0.05 |
% |
|
|
|
|
|
|
0.03 |
% |
|
|
0.01 |
% |
|
|
|
|
Allowance for loan losses to
average loans(b) |
|
|
2.70 |
|
|
|
2.98 |
|
|
|
|
|
|
|
2.76 |
|
|
|
3.02 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans |
|
|
911 |
|
|
|
386 |
|
|
|
|
|
|
|
911 |
|
|
|
386 |
|
|
|
|
|
Nonperforming loans to
average loans |
|
|
0.29 |
|
|
|
0.77 |
|
|
|
|
|
|
|
0.30 |
|
|
|
0.78 |
|
|
|
|
|
|
|
|
|
(a) |
|
Represents the revenue related to investment banking products sold to CB clients. |
|
(b) |
|
Average loans include loans held-for-sale of $359 million and $298 million for the three
months ended September 30, 2006 and 2005, respectively, and $321 million and $307 million for
the nine months ended September 30, 2006 and 2005, respectively. These amounts are not
included in the net charge-off rate or allowance coverage ratios. |
|
(c) |
|
Liability balances include deposits and deposits that are swept to on-balance sheet
liabilities. |
TREASURY & SECURITIES SERVICES
For a
discussion of the business profile of TSS, see page 5 of this Form 10-Q. In 2006, various
wholesale banking clients, and the related revenue and expense, have been transferred among CB, IB
and TSS. As a result, prior period amounts have been reclassified to conform to the current year
presentation. TSS firmwide disclosures have also been adjusted to reflect a refined set of TSS
products and a revised split of liability balances and lending-related revenue related to the
client transfers described on page 15 of this Form 10-Q.
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,
small business and middle market banking businesses of The Bank of New York. These corporate trust
businesses, which were previously reported in TSS, have been deemed discontinued operations. The
related balance sheet and income statement activity were transferred to the Corporate segment
commencing with the second quarter of 2006, and periods prior to the second quarter of 2006 have
been revised to reflect this transfer.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lending & deposit related fees |
|
$ |
183 |
|
|
$ |
179 |
|
|
|
2 |
% |
|
$ |
549 |
|
|
$ |
547 |
|
|
|
|
% |
Asset management, administration
and commissions |
|
|
642 |
|
|
|
605 |
|
|
|
6 |
|
|
|
1,975 |
|
|
|
1,780 |
|
|
|
11 |
|
All other income |
|
|
155 |
|
|
|
127 |
|
|
|
22 |
|
|
|
479 |
|
|
|
385 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
980 |
|
|
|
911 |
|
|
|
8 |
|
|
|
3,003 |
|
|
|
2,712 |
|
|
|
11 |
|
Net interest income |
|
|
519 |
|
|
|
469 |
|
|
|
11 |
|
|
|
1,569 |
|
|
|
1,391 |
|
|
|
13 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,499 |
|
|
|
1,380 |
|
|
|
9 |
|
|
|
4,572 |
|
|
|
4,103 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses |
|
|
1 |
|
|
|
(1 |
) |
|
|
NM |
|
|
|
1 |
|
|
|
(2 |
) |
|
|
NM |
|
Credit reimbursement to
IB(a) |
|
|
(30 |
) |
|
|
(38 |
) |
|
|
21 |
|
|
|
(90 |
) |
|
|
(114 |
) |
|
|
21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
557 |
|
|
|
487 |
|
|
|
14 |
|
|
|
1,643 |
|
|
|
1,420 |
|
|
|
16 |
|
Noncompensation expense |
|
|
489 |
|
|
|
493 |
|
|
|
(1 |
) |
|
|
1,462 |
|
|
|
1,572 |
|
|
|
(7 |
) |
Amortization of intangibles |
|
|
18 |
|
|
|
19 |
|
|
|
(5 |
) |
|
|
57 |
|
|
|
61 |
|
|
|
(7 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,064 |
|
|
|
999 |
|
|
|
7 |
|
|
|
3,162 |
|
|
|
3,053 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
404 |
|
|
|
344 |
|
|
|
17 |
|
|
|
1,319 |
|
|
|
938 |
|
|
|
41 |
|
Income tax expense |
|
|
148 |
|
|
|
122 |
|
|
|
21 |
|
|
|
485 |
|
|
|
329 |
|
|
|
47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
256 |
|
|
$ |
222 |
|
|
|
15 |
|
|
$ |
834 |
|
|
$ |
609 |
|
|
|
37 |
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
46 |
% |
|
|
58 |
% |
|
|
|
|
|
|
48 |
% |
|
|
53 |
% |
|
|
|
|
Overhead ratio |
|
|
71 |
|
|
|
72 |
|
|
|
|
|
|
|
69 |
|
|
|
74 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
27 |
|
|
|
25 |
|
|
|
|
|
|
|
29 |
|
|
|
23 |
|
|
|
|
|
|
34
|
|
|
(a) |
|
TSS is 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 2005 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 $256 million, up by $34 million, or 15%, from the prior year. Earnings benefited
from higher revenue due to wider spreads on higher average liability balances and growth in client
volumes.
Net revenue was $1.5 billion, up by $119 million, or 9%, from the prior year. Noninterest revenue
was $980 million, up by $69 million, or 8%. The improvement was due largely to an increase in
assets under custody to $12.9 trillion, which was driven by market value appreciation and new
business. Also contributing to the improvement was growth in ADRs, global clearing and securities
lending, all of which were driven by a combination of increased product usage by existing clients
and new business. Net interest income was $519 million, up by $50 million, or 11%, due to wider
spreads on a 22% increase in average liability balances.
Treasury Services net revenue of $697 million was up by $27 million, or 4%, from the prior year.
Worldwide Securities Services net revenue of $802 million was up by $92 million, or 13%. TSS
firmwide net revenue, which includes Treasury Services net revenue recorded in other lines of
business, grew to $2.1 billion, up by $160 million, or 8%. Treasury Services firmwide net revenue
grew to $1.3 billion, up by $68 million, or 6%.
Noninterest expense was $1.1 billion, up by $65 million, or 7%. The increase was due to higher
compensation expense related to growth in headcount supporting increased client activity, business
growth and investment in new product platforms.
Year-to-date results
Net income was $834 million, up by $225 million, or 37%, from the prior year. Earnings benefited
from higher revenue due to wider spreads on higher average liability balances, fee income and the
absence of prior year charges of $58 million (after-tax) related to the termination of a client
contract.
Net revenue was $4.6 billion, up by $469 million, or 11%. Noninterest revenue was $3.0 billion, up
by $291 million, or 11%. The improvement was due primarily to an increase in assets under custody
to $12.9 trillion, which was driven by market value appreciation and new business. Also
contributing to the improvement was growth in securities lending, foreign exchange and ADRs, all of
which were driven by a combination of increased product usage by existing clients and new business.
Net interest income was $1.6 billion, up by $178 million, or 13%, primarily resulting from wider
spreads on a 24% increase in average liability balances.
Treasury Services net revenue of $2.1 billion was up 4%. Worldwide Securities Services net revenue
of $2.5 billion grew by $386 million, or 18%. TSS firmwide net revenue, which includes Treasury
Services net revenue recorded in other lines of business, grew to $6.4 billion, up by $638 million,
or 11%. Treasury Services firmwide net revenue grew to $3.9 billion, up by $252 million, or 7%.
Noninterest expense was $3.2 billion, up $109 million, or 4%. The increase was due to higher
compensation expense related to growth in headcount supporting increased client activity, business
growth, investment in new product platforms and incremental expense related to SFAS 123R, partially
offset by the absence of prior-year charges of $93 million related to the termination of a client
contract.
35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except headcount, ratio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
data and where otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue by business |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services |
|
$ |
697 |
|
|
$ |
670 |
|
|
|
4 |
% |
|
$ |
2,092 |
|
|
$ |
2,009 |
|
|
|
4 |
% |
Worldwide Securities Services |
|
|
802 |
|
|
|
710 |
|
|
|
13 |
|
|
|
2,480 |
|
|
|
2,094 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,499 |
|
|
$ |
1,380 |
|
|
|
9 |
|
|
$ |
4,572 |
|
|
$ |
4,103 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under custody (in billions) |
|
$ |
12,873 |
|
|
$ |
10,448 |
|
|
|
23 |
|
|
$ |
12,873 |
|
|
$ |
10,448 |
|
|
|
23 |
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
US$ ACH transactions
originated (in millions) |
|
|
886 |
|
|
|
753 |
|
|
|
18 |
|
|
|
2,572 |
|
|
|
2,179 |
|
|
|
18 |
|
Total US$ clearing volume
(in thousands) |
|
|
26,252 |
|
|
|
24,906 |
|
|
|
5 |
|
|
|
77,940 |
|
|
|
70,811 |
|
|
|
10 |
|
International electronic funds
transfer volume
(in thousands)(a) |
|
|
35,322 |
|
|
|
22,723 |
|
|
|
55 |
|
|
|
104,318 |
|
|
|
59,896 |
|
|
|
74 |
|
Wholesale check volume
(in millions) |
|
|
860 |
|
|
|
928 |
|
|
|
(7 |
) |
|
|
2,616 |
|
|
|
2,859 |
|
|
|
(8 |
) |
Wholesale cards issued
(in thousands)(b) |
|
|
16,662 |
|
|
|
12,810 |
|
|
|
30 |
|
|
|
16,662 |
|
|
|
12,810 |
|
|
|
30 |
|
Selected balance sheets
(average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
30,558 |
|
|
$ |
27,679 |
|
|
|
10 |
|
|
$ |
30,526 |
|
|
$ |
27,846 |
|
|
|
10 |
|
Loans |
|
|
15,231 |
|
|
|
12,160 |
|
|
|
25 |
|
|
|
14,396 |
|
|
|
11,851 |
|
|
|
21 |
|
Liability balances(c) |
|
|
192,518 |
|
|
|
157,493 |
|
|
|
22 |
|
|
|
188,330 |
|
|
|
152,289 |
|
|
|
24 |
|
Equity |
|
|
2,200 |
|
|
|
1,525 |
|
|
|
44 |
|
|
|
2,314 |
|
|
|
1,525 |
|
|
|
52 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
24,575 |
|
|
|
21,878 |
|
|
|
12 |
|
|
|
24,575 |
|
|
|
21,878 |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TSS firmwide metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Treasury Services firmwide
revenue(d) |
|
$ |
1,300 |
|
|
$ |
1,232 |
|
|
|
6 |
|
|
$ |
3,909 |
|
|
$ |
3,657 |
|
|
|
7 |
|
Treasury & Securities Services
firmwide revenue(d) |
|
|
2,102 |
|
|
|
1,942 |
|
|
|
8 |
|
|
|
6,389 |
|
|
|
5,751 |
|
|
|
11 |
|
Treasury Services firmwide
overhead ratio(e) |
|
|
57 |
% |
|
|
59 |
% |
|
|
|
|
|
|
56 |
% |
|
|
58 |
% |
|
|
|
|
Treasury & Securities Services
firmwide overhead ratio(e) |
|
|
63 |
|
|
|
64 |
|
|
|
|
|
|
|
61 |
|
|
|
66 |
|
|
|
|
|
Treasury Services firmwide
liability balances (average)(f) |
|
$ |
162,326 |
|
|
$ |
140,079 |
|
|
|
16 |
|
|
$ |
159,897 |
|
|
$ |
137,325 |
|
|
|
16 |
|
Treasury & Securities Services
firmwide liability balances
(average)(f) |
|
|
264,527 |
|
|
|
222,264 |
|
|
|
19 |
|
|
|
259,477 |
|
|
|
217,387 |
|
|
|
19 |
|
|
|
|
|
(a) |
|
International electronic funds transfer includes non-US$ ACH and clearing volume. |
|
(b) |
|
Wholesale cards issued include domestic commercial card, stored value card, prepaid card, and
government electronic benefit card products. |
|
(c) |
|
Liability balances include deposits and deposits swept to on-balance 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 Treasury Services (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 includes TS revenue recorded in the CB, Regional Banking and AWM
lines of business (see below) and exclude FX revenues recorded in the IB for TSS-related
FX activity. 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 $85 million for
the quarter ended September 30, 2006, and $349 million for the nine months ended September
30, 2006. |
|
(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 are not included in
this ratio. |
|
(f) |
|
Firmwide liability balances include TS liability balances recorded in certain other
lines of business. Liability balances associated with TS customers who are also customers
of the CB line of business are not included in TS liability balances. |
36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Treasury Services revenue reported in CB |
|
$ |
551 |
|
|
$ |
517 |
|
|
|
7 |
% |
|
$ |
1,667 |
|
|
$ |
1,516 |
|
|
|
10 |
% |
Treasury Services revenue reported in
other
lines of business |
|
|
52 |
|
|
|
45 |
|
|
|
16 |
|
|
|
150 |
|
|
|
132 |
|
|
|
14 |
|
|
ASSET & WEALTH MANAGEMENT
For a
discussion of the business profile of AWM, see pages 5152 of JPMorgan Chases 2005 Annual
Report.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset management, administration
and commissions |
|
$ |
1,285 |
|
|
$ |
1,065 |
|
|
|
21 |
% |
|
$ |
3,786 |
|
|
$ |
3,034 |
|
|
|
25 |
% |
All other income |
|
|
120 |
|
|
|
117 |
|
|
|
3 |
|
|
|
329 |
|
|
|
296 |
|
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
1,405 |
|
|
|
1,182 |
|
|
|
19 |
|
|
|
4,115 |
|
|
|
3,330 |
|
|
|
24 |
|
Net interest income |
|
|
231 |
|
|
|
267 |
|
|
|
(13 |
) |
|
|
725 |
|
|
|
823 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
1,636 |
|
|
|
1,449 |
|
|
|
13 |
|
|
|
4,840 |
|
|
|
4,153 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit
losses(a) |
|
|
(28 |
) |
|
|
(19 |
) |
|
|
(47 |
) |
|
|
(42 |
) |
|
|
(46 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
676 |
|
|
|
554 |
|
|
|
22 |
|
|
|
2,027 |
|
|
|
1,601 |
|
|
|
27 |
|
Noncompensation expense |
|
|
417 |
|
|
|
397 |
|
|
|
5 |
|
|
|
1,201 |
|
|
|
1,151 |
|
|
|
4 |
|
Amortization of intangibles |
|
|
22 |
|
|
|
25 |
|
|
|
(12 |
) |
|
|
66 |
|
|
|
75 |
|
|
|
(12 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
1,115 |
|
|
|
976 |
|
|
|
14 |
|
|
|
3,294 |
|
|
|
2,827 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense |
|
|
549 |
|
|
|
492 |
|
|
|
12 |
|
|
|
1,588 |
|
|
|
1,372 |
|
|
|
16 |
|
Income tax expense |
|
|
203 |
|
|
|
177 |
|
|
|
15 |
|
|
|
586 |
|
|
|
498 |
|
|
|
18 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
346 |
|
|
$ |
315 |
|
|
|
10 |
|
|
$ |
1,002 |
|
|
$ |
874 |
|
|
|
15 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial ratios |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
ROE |
|
|
39 |
% |
|
|
52 |
% |
|
|
|
|
|
|
38 |
% |
|
|
49 |
% |
|
|
|
|
Overhead ratio |
|
|
68 |
|
|
|
67 |
|
|
|
|
|
|
|
68 |
|
|
|
68 |
|
|
|
|
|
Pretax margin ratio(b) |
|
|
34 |
|
|
|
34 |
|
|
|
|
|
|
|
33 |
|
|
|
33 |
|
|
|
|
|
|
|
|
|
(a) |
|
Third quarter of 2005 includes a $3 million special provision related to Hurricane
Katrina. |
|
(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 $346 million, up by $31 million, or 10%, from the prior year. Performance was driven
by increased revenue offset primarily by higher compensation expense.
Net revenue was $1.6 billion, up by $187 million, or 13%, from the prior year. Noninterest revenue,
principally fees and commissions, of $1.4 billion was up by $223 million, or 19%. This increase was
due largely to increased assets under management and higher performance fees. Net interest income
was $231 million, down by $36 million, or 13%, from the prior year, primarily due to narrower
deposit spreads, reflecting a shift in the deposit mix, and the sale of BrownCo in the fourth
quarter of 2005, partially offset by higher loan and deposit balances.
Private Bank client segment revenue grew 11% from the prior year, to $469 million, due to increased
placement activity, higher asset management fees and higher deposit balances, partially offset by
narrower deposit spreads. Institutional client segment revenue grew 30%, to $464 million, due to
net asset inflows and higher performance fees. Retail client segment revenue grew 10%, to $456
million, primarily due to net asset inflows, partially offset by the sale of BrownCo. Private
Client Services client segment revenue decreased 3%, to $247 million, due to narrower deposit and
loan spreads, partially offset by higher deposit and loan balances.
37
Provision for credit losses was a benefit of $28 million compared with a benefit of $19 million in
the prior year. The increased benefit reflects a higher level of recoveries.
Noninterest expense of $1.1 billion was up by $139 million, or 14%, from the prior year. The
increase was due to higher compensation, including incremental expense related to SFAS 123R, as
well as minority interest related to Highbridge Capital Management, partially offset by the sale of
BrownCo.
Year-to-date results
Net income was $1.0 billion, up by $128 million, or 15%, from the prior year. Performance was
driven by increased revenue offset partially by higher compensation expense.
Net revenue was $4.8 billion, up by $687 million, or 17%, from the prior year. Noninterest revenue,
principally fees and commissions, of $4.1 billion was up by $785 million, or 24%. This increase was
due largely to increased assets under management and higher performance and placement fees. Net
interest income was $725 million, down by $98 million, or 12%, from the prior year, primarily due
to narrower deposit spreads, reflecting a shift in the deposit mix, and the sale of BrownCo in the
fourth quarter of 2005, partially offset by higher deposit and loan balances.
Private Bank client segment revenue grew 10% from the prior year, to $1.4 billion, due to increased
placement activity, higher asset management fees and higher deposit balances, partially offset by
narrower deposit spreads. Institutional client segment revenue grew 36%, to $1.3 billion, due to
net asset inflows and higher performance fees. Retail client segment revenue grew 20%, to $1.3
billion, primarily due to net asset inflows, partially offset by the sale of BrownCo. Private
Client Services client segment revenue decreased 2%, to $769 million, due to narrower deposit and
loan spreads, partially offset by higher deposit and loan balances.
Provision for credit losses was a benefit of $42 million compared with a benefit of $46 million in
the prior year. The current-year benefit reflects a higher level of recoveries, whereas the
prior-year benefit relates to refinements in the data used to estimate the allowance for credit
losses.
Noninterest expense of $3.3 billion was up by $467 million, or 17%, from the prior year. The
increase was due to higher compensation, and increased salaries and benefits related to business
growth, including incremental expense related to SFAS 123R, as well as minority interest related to
Highbridge Capital Management, partially offset by the sale of BrownCo.
38
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
|
|
|
|
|
(in millions, except headcount, ratios |
|
|
|
|
|
|
and ranking data, and where |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
otherwise noted) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue by client segment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private bank |
|
$ |
469 |
|
|
$ |
421 |
|
|
|
11 |
% |
|
$ |
1,379 |
|
|
$ |
1,252 |
|
|
|
10 |
% |
Institutional |
|
|
464 |
|
|
|
358 |
|
|
|
30 |
|
|
|
1,348 |
|
|
|
993 |
|
|
|
36 |
|
Retail |
|
|
456 |
|
|
|
415 |
|
|
|
10 |
|
|
|
1,344 |
|
|
|
1,124 |
|
|
|
20 |
|
Private client services |
|
|
247 |
|
|
|
255 |
|
|
|
(3 |
) |
|
|
769 |
|
|
|
784 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
1,636 |
|
|
$ |
1,449 |
|
|
|
13 |
|
|
$ |
4,840 |
|
|
$ |
4,153 |
|
|
|
17 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Business metrics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Client advisors |
|
|
1,489 |
|
|
|
1,461 |
|
|
|
2 |
|
|
|
1,489 |
|
|
|
1,461 |
|
|
|
2 |
|
Retirement planning services
participants |
|
|
1,372,000 |
|
|
|
1,293,000 |
|
|
|
6 |
|
|
|
1,372,000 |
|
|
|
1,293,000 |
|
|
|
6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% of customer assets in 4 & 5
Star Funds(a) |
|
|
58 |
% |
|
|
44 |
% |
|
|
32 |
|
|
|
58 |
% |
|
|
44 |
% |
|
|
32 |
|
% of AUM in 1st and 2nd
quartiles:(b) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1 year |
|
|
79 |
% |
|
|
62 |
% |
|
|
27 |
|
|
|
79 |
% |
|
|
62 |
% |
|
|
27 |
|
3 years |
|
|
75 |
% |
|
|
72 |
% |
|
|
4 |
|
|
|
75 |
% |
|
|
72 |
% |
|
|
4 |
|
5 years |
|
|
80 |
% |
|
|
72 |
% |
|
|
11 |
|
|
|
80 |
% |
|
|
72 |
% |
|
|
11 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected balance sheets data
(average) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
43,524 |
|
|
$ |
42,427 |
|
|
|
3 |
|
|
$ |
42,597 |
|
|
$ |
41,391 |
|
|
|
3 |
|
Loans(c) |
|
|
26,770 |
|
|
|
26,850 |
|
|
|
|
|
|
|
25,695 |
|
|
|
26,595 |
|
|
|
(3 |
) |
Deposits(c)(d) |
|
|
51,395 |
|
|
|
41,453 |
|
|
|
24 |
|
|
|
50,360 |
|
|
|
41,421 |
|
|
|
22 |
|
Equity |
|
|
3,500 |
|
|
|
2,400 |
|
|
|
46 |
|
|
|
3,500 |
|
|
|
2,400 |
|
|
|
46 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
12,761 |
|
|
|
12,531 |
|
|
|
2 |
|
|
|
12,761 |
|
|
|
12,531 |
|
|
|
2 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit data and quality
statistics |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-offs (recoveries) |
|
$ |
(24 |
) |
|
$ |
23 |
|
|
|
NM |
|
|
$ |
(21 |
) |
|
$ |
15 |
|
|
|
NM |
|
Nonperforming loans |
|
|
57 |
|
|
|
118 |
|
|
|
(52 |
) |
|
|
57 |
|
|
|
118 |
|
|
|
(52 |
) |
Allowance for loan losses |
|
|
112 |
|
|
|
148 |
|
|
|
(24 |
) |
|
|
112 |
|
|
|
148 |
|
|
|
(24 |
) |
Allowance for lending-related
commitments |
|
|
4 |
|
|
|
6 |
|
|
|
(33 |
) |
|
|
4 |
|
|
|
6 |
|
|
|
(33 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net charge-off (recovery)
rate |
|
|
(0.36 |
)% |
|
|
0.34 |
% |
|
|
|
|
|
|
(0.11 |
)% |
|
|
0.08 |
% |
|
|
|
|
Allowance for loan losses to
average loans |
|
|
0.42 |
|
|
|
0.55 |
|
|
|
|
|
|
|
0.44 |
|
|
|
0.56 |
|
|
|
|
|
Allowance for loan losses to
nonperforming loans |
|
|
196 |
|
|
|
125 |
|
|
|
|
|
|
|
196 |
|
|
|
125 |
|
|
|
|
|
Nonperforming loans to
average loans |
|
|
0.21 |
|
|
|
0.44 |
|
|
|
|
|
|
|
0.22 |
|
|
|
0.44 |
|
|
|
|
|
|
|
|
|
(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) |
|
The sale of BrownCo, which occurred on November 30, 2005, included $3.0 billion in both
loans and deposits. |
|
(d) |
|
Reflects the transfer in 2005 of certain consumer deposits from RFS to AWM. |
Assets under supervision
Assets under supervision were $1.3 trillion, up 10%, or $112 billion, from the prior year,
net of a $33 billion reduction due to the sale of BrownCo. Assets under management were $935
billion, up 13%, or $107 billion, from the prior year. The increase was the result of net asset
inflows in the retail segment from third-party distribution, primarily in equity-related products,
institutional flows in liquidity products and market appreciation. Custody, brokerage,
administration and deposit balances were $330 billion, up by $5 billion, net of a $33 billion
reduction from the sale of BrownCo.
39
|
|
|
|
|
|
|
|
|
ASSETS UNDER SUPERVISION (in billions) |
|
|
|
|
|
|
As of September 30, |
|
2006 |
|
|
2005 |
|
|
Assets by asset class |
|
|
|
|
|
|
|
|
Liquidity(a) |
|
$ |
281 |
|
|
$ |
239 |
|
Fixed income |
|
|
171 |
|
|
|
166 |
|
Equities & balanced |
|
|
392 |
|
|
|
351 |
|
Alternatives |
|
|
91 |
|
|
|
72 |
|
|
Total Assets under management |
|
|
935 |
|
|
|
828 |
|
Custody/brokerage/administration/deposits |
|
|
330 |
|
|
|
325 |
|
|
Total Assets under supervision |
|
$ |
1,265 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
Assets by client segment |
|
|
|
|
|
|
|
|
Institutional(b) |
|
$ |
503 |
|
|
$ |
479 |
|
Private Bank |
|
|
150 |
|
|
|
142 |
|
Retail(b) |
|
|
228 |
|
|
|
155 |
|
Private Client Services |
|
|
54 |
|
|
|
52 |
|
|
Total Assets under management |
|
$ |
935 |
|
|
$ |
828 |
|
|
Institutional(b) |
|
$ |
505 |
|
|
$ |
483 |
|
Private Bank |
|
|
347 |
|
|
|
309 |
|
Retail(b) |
|
|
309 |
|
|
|
261 |
|
Private Client Services |
|
|
104 |
|
|
|
100 |
|
|
Total Assets under supervision |
|
$ |
1,265 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
Assets by geographic region |
|
|
|
|
|
|
|
|
U.S./Canada |
|
$ |
596 |
|
|
$ |
548 |
|
International |
|
|
339 |
|
|
|
280 |
|
|
Total Assets under management |
|
$ |
935 |
|
|
$ |
828 |
|
|
U.S./Canada |
|
$ |
855 |
|
|
$ |
815 |
|
International |
|
|
410 |
|
|
|
338 |
|
|
Total Assets under supervision |
|
$ |
1,265 |
|
|
$ |
1,153 |
|
|
|
|
|
|
|
|
|
|
|
Mutual fund assets by asset class |
|
|
|
|
|
|
|
|
Liquidity |
|
$ |
221 |
|
|
$ |
188 |
|
Fixed income |
|
|
45 |
|
|
|
39 |
|
Equity |
|
|
184 |
|
|
|
137 |
|
|
Total mutual fund assets |
|
$ |
450 |
|
|
$ |
364 |
|
|
|
|
|
(a) |
|
Third quarter of 2006 data reflects the reclassification of $19 billion of assets under
management into liquidity from other asset classes. Prior period data was not reclassified. |
|
(b) |
|
During the first quarter of 2006, assets under management of $22 billion from Retirement
planning services has been reclassified from the Institutional client segment to the Retail
client segment in order to be consistent with the revenue by client segment reporting. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Nine months ended |
|
|
|
September 30 |
|
|
September 30 |
|
Assets under management rollforward |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Beginning balance |
|
$ |
898 |
|
|
$ |
783 |
|
|
$ |
847 |
|
|
$ |
791 |
|
Flows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liquidity |
|
|
15 |
|
|
|
19 |
|
|
|
20 |
|
|
|
8 |
|
Fixed income |
|
|
4 |
|
|
|
(4 |
) |
|
|
10 |
|
|
|
(2 |
) |
Equities, balanced and alternatives |
|
|
3 |
|
|
|
4 |
|
|
|
29 |
|
|
|
13 |
|
Market/performance/other impacts |
|
|
15 |
|
|
|
26 |
|
|
|
29 |
|
|
|
18 |
|
|
Ending balance |
|
$ |
935 |
|
|
$ |
828 |
|
|
$ |
935 |
|
|
$ |
828 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets under supervision
rollforward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
1,213 |
|
|
$ |
1,093 |
|
|
$ |
1,149 |
|
|
$ |
1,106 |
|
Net asset flows |
|
|
26 |
|
|
|
28 |
|
|
|
71 |
|
|
|
34 |
|
Market/performance/other impacts |
|
|
26 |
|
|
|
32 |
|
|
|
45 |
|
|
|
13 |
|
|
Ending balance |
|
$ |
1,265 |
|
|
$ |
1,153 |
|
|
$ |
1,265 |
|
|
$ |
1,153 |
|
|
40
CORPORATE
For a discussion of the business profile of Corporate, see pages 5354 of JPMorgan Chases
2005 Annual Report. For additional information regarding enhanced disclosures related to the
Corporate segment, refer to page 15 of this Form 10-Q.
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 all periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal transactions |
|
$ |
193 |
|
|
$ |
262 |
|
|
|
(26 |
)% |
|
$ |
939 |
|
|
$ |
1,294 |
|
|
|
(27 |
)% |
Securities gains (losses) |
|
|
24 |
|
|
|
(43 |
) |
|
|
NM |
|
|
|
(626 |
) |
|
|
(938 |
) |
|
|
33 |
|
All other income |
|
|
125 |
|
|
|
38 |
|
|
|
229 |
|
|
|
458 |
|
|
|
222 |
|
|
|
106 |
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest revenue |
|
|
342 |
|
|
|
257 |
|
|
|
33 |
|
|
|
771 |
|
|
|
578 |
|
|
|
33 |
|
Net interest income |
|
|
(55 |
) |
|
|
(650 |
) |
|
|
92 |
|
|
|
(957 |
) |
|
|
(2,100 |
) |
|
|
54 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
|
287 |
|
|
|
(393 |
) |
|
|
NM |
|
|
|
(186 |
) |
|
|
(1,522 |
) |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for credit losses(a) |
|
|
1 |
|
|
|
13 |
|
|
|
(92 |
) |
|
|
1 |
|
|
|
10 |
|
|
|
(90 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest expense |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense |
|
|
737 |
|
|
|
738 |
|
|
|
|
|
|
|
2,192 |
|
|
|
2,283 |
|
|
|
(4 |
) |
Noncompensation expense(b) |
|
|
729 |
|
|
|
776 |
|
|
|
(6 |
) |
|
|
1,673 |
|
|
|
5,198 |
|
|
|
(68 |
) |
Merger costs |
|
|
48 |
|
|
|
221 |
|
|
|
(78 |
) |
|
|
205 |
|
|
|
645 |
|
|
|
(68 |
) |
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
|
|
1,514 |
|
|
|
1,735 |
|
|
|
(13 |
) |
|
|
4,070 |
|
|
|
8,126 |
|
|
|
(50 |
) |
Net expenses allocated to other
businesses |
|
|
(1,035 |
) |
|
|
(1,128 |
) |
|
|
8 |
|
|
|
(3,104 |
) |
|
|
(3,402 |
) |
|
|
9 |
|
|
|
|
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
479 |
|
|
|
607 |
|
|
|
(21 |
) |
|
|
966 |
|
|
|
4,724 |
|
|
|
(80 |
) |
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
before income tax expense |
|
|
(193 |
) |
|
|
(1,013 |
) |
|
|
81 |
|
|
|
(1,153 |
) |
|
|
(6,256 |
) |
|
|
82 |
|
Income tax expense (benefit) |
|
|
(159 |
) |
|
|
(396 |
) |
|
|
60 |
|
|
|
(659 |
) |
|
|
(2,477 |
) |
|
|
73 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations |
|
|
(34 |
) |
|
|
(617 |
) |
|
|
94 |
|
|
|
(494 |
) |
|
|
(3,779 |
) |
|
|
87 |
|
Income from discontinued operations
(after-tax)(c) |
|
|
65 |
|
|
|
58 |
|
|
|
12 |
|
|
|
175 |
|
|
|
173 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
$ |
31 |
|
|
$ |
(559 |
) |
|
|
NM |
|
|
$ |
(319 |
) |
|
$ |
(3,606 |
) |
|
|
91 |
|
|
|
|
|
(a) |
|
Third quarter of 2005 includes a $12 million special provision related to Hurricane
Katrina. |
|
(b) |
|
Includes litigation reserve charges of $2,772 million year-to-date 2005 related to
the settlement of the Enron and WorldCom class action litigations and for certain other
material legal proceedings. In the third quarter and the first nine months of 2006, insurance
recoveries related to certain material litigation of $17 million and $375 million,
respectively, were recorded. |
|
(c) |
|
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, small business and middle market banking businesses of The Bank of New York. The
results of operations of these corporate trust businesses are being reported as discontinued
operations for each of the periods presented. |
41
Quarterly results
Net income was $31 million compared with a net loss of $559 million in the prior year. In
comparison with the prior year, Private Equity earnings were $95 million, down from $141 million;
Treasury net income was $70 million compared with a net loss of $301 million; Other Corporate net
loss was $199 million compared with a net loss of $457 million; and earnings from Discontinued
Operations were $65 million compared with $58 million.
Net revenue was $287 million compared with negative $393 million in the prior year. Net interest
income was negative $55 million compared with negative $650 million in the prior year. Treasury was
the primary driver of the improvement, with net interest income of $149 million compared with
negative $415 million, primarily benefiting from an improvement in Treasurys net interest spread
and an increase in available-for-sale securities. Noninterest revenue was $342 million compared
with $257 million, reflecting $24 million of security gains in Treasury compared with security
losses of $43 million. These benefits were offset partially by lower Private Equity gains of $226
million compared with gains of $313 million.
Noninterest expense was $479 million, down by $128 million from $607 million in the prior year.
Insurance recoveries relating to certain material litigation were $17 million in the current
period. Merger costs of $48 million were incurred in the current quarter and $221 million in the
prior year.
Year-to-date results
Operating loss was $319 million compared with a net loss of $3.6 billion. In comparison with the
prior year, Private Equity earnings were $491 million, down from $700 million; Treasury net loss
was $549 million compared with a net loss of $1.5 billion; and the net loss in Other Corporate was
$436 million compared with a net loss of $3.0 billion.
Net revenue was negative $186 million compared with a negative $1.5 billion in the prior year. Net
interest income was a negative $1.0 billion compared with negative $2.1 billion. Treasury was the
primary driver of the improvement, with net interest income of negative $236 million compared with
negative $1.3 billion, benefiting primarily from an improvement in Treasurys net interest spread
and an increase in available-for-sale securities. Noninterest revenue was $771 million compared
with $578 million, reflecting $626 million in security losses in Treasury compared with security
losses of $939 million in the prior year; lower Private Equity gains of $1.0 billion compared with
gains of $1.4 billion in the prior year; and a gain of $103 million related to the sale of
MasterCard shares in its initial public offering in the current year.
Noninterest expense was $1.0 billion, down by $3.7 billion from $4.7 billion. Insurance recoveries
relating to certain material litigation were $375 million in the current year, while the prior-year
results included a material litigation charge of $2.8 billion. Merger costs were $205 million
compared with $645 million in the prior year. Excluding all of these items, noninterest expense
would have been down by $171 million compared with the prior year, reflecting merger-related
savings and other operating efficiencies.
42
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected metrics |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Total net revenue |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
188 |
|
|
$ |
272 |
|
|
|
(31 |
)% |
|
$ |
892 |
|
|
$ |
1,271 |
|
|
|
(30 |
)% |
Treasury |
|
|
185 |
|
|
|
(489 |
) |
|
|
NM |
|
|
|
(843 |
) |
|
|
(2,294 |
) |
|
|
63 |
|
Corporate other |
|
|
(86 |
) |
|
|
(176 |
) |
|
|
51 |
|
|
|
(235 |
) |
|
|
(499 |
) |
|
|
53 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net revenue |
|
$ |
287 |
|
|
$ |
(393 |
) |
|
|
NM |
|
|
$ |
(186 |
) |
|
$ |
(1,522 |
) |
|
|
88 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
$ |
95 |
|
|
$ |
141 |
|
|
|
(33 |
) |
|
$ |
491 |
|
|
$ |
700 |
|
|
|
(30 |
) |
Treasury |
|
|
70 |
|
|
|
(301 |
) |
|
|
NM |
|
|
|
(549 |
) |
|
|
(1,454 |
) |
|
|
62 |
|
Corporate other(a) |
|
|
(169 |
) |
|
|
(320 |
) |
|
|
47 |
|
|
|
(309 |
) |
|
|
(2,625 |
) |
|
|
88 |
|
Merger costs |
|
|
(30 |
) |
|
|
(137 |
) |
|
|
78 |
|
|
|
(127 |
) |
|
|
(400 |
) |
|
|
68 |
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing
operations |
|
|
(34 |
) |
|
|
(617 |
) |
|
|
94 |
|
|
|
(494 |
) |
|
|
(3,779 |
) |
|
|
87 |
|
Income from discontinued operations
(after-tax) |
|
|
65 |
|
|
|
58 |
|
|
|
12 |
|
|
|
175 |
|
|
|
173 |
|
|
|
1 |
|
|
|
|
|
|
|
|
|
|
|
|
Total net income (loss) |
|
$ |
31 |
|
|
$ |
(559 |
) |
|
|
NM |
|
|
$ |
(319 |
) |
|
$ |
(3,606 |
) |
|
|
91 |
|
|
|
|
|
|
|
|
|
|
|
|
Headcount |
|
|
25,748 |
|
|
|
30,709 |
|
|
|
(16 |
) |
|
|
25,748 |
|
|
|
30,709 |
|
|
|
(16 |
) |
|
|
|
|
(a) |
|
See footnotes (a) and (b) on page 41 of this Form 10-Q. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selected income statement |
|
|
|
|
|
|
and balance sheet data |
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
2006 |
|
|
2005 |
|
|
Change |
|
|
2006 |
|
|
2005 |
|
|
Change |
|
|
Treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities gains (losses)(a) |
|
$ |
24 |
|
|
$ |
(43 |
) |
|
|
NM |
|
|
$ |
(626 |
) |
|
$ |
(939 |
) |
|
|
33 |
% |
Investment portfolio (average) |
|
|
68,619 |
|
|
|
39,351 |
|
|
|
74 |
% |
|
|
57,545 |
|
|
|
49,453 |
|
|
|
16 |
|
Investment portfolio (ending) |
|
|
77,116 |
|
|
|
42,754 |
|
|
|
80 |
|
|
|
77,116 |
|
|
|
42,754 |
|
|
|
80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity gains (losses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains |
|
$ |
194 |
|
|
$ |
430 |
|
|
|
(55 |
) |
|
$ |
969 |
|
|
$ |
1,618 |
|
|
|
(40 |
) |
Write-ups / (write-downs) |
|
|
(21 |
) |
|
|
(71 |
) |
|
|
70 |
|
|
|
(85 |
) |
|
|
2 |
|
|
|
NM |
|
Mark-to-market gains (losses) |
|
|
25 |
|
|
|
(64 |
) |
|
|
NM |
|
|
|
78 |
|
|
|
(306 |
) |
|
|
NM |
|
|
|
|
|
|
|
|
|
|
|
|
Total direct investments |
|
|
198 |
|
|
|
295 |
|
|
|
(33 |
) |
|
|
962 |
|
|
|
1,314 |
|
|
|
(27 |
) |
Third-party fund investments |
|
|
28 |
|
|
|
18 |
|
|
|
56 |
|
|
|
50 |
|
|
|
88 |
|
|
|
(43 |
) |
|
|
|
|
|
|
|
|
|
|
|
Total private equity gains(b) |
|
$ |
226 |
|
|
$ |
313 |
|
|
|
(28 |
) |
|
$ |
1,012 |
|
|
$ |
1,402 |
|
|
|
(28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Private equity portfolio information |
|
|
|
|
|
|
|
|
|
Direct investments |
September 30, 2006 |
|
December 31, 2005 |
|
Change |
|
|
Publicly-held securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
$ |
696 |
|
|
|
|
$ |
479 |
|
|
|
|
|
45 |
% |
|
Cost |
|
|
|
539 |
|
|
|
|
|
403 |
|
|
|
|
|
34 |
|
|
Quoted public value |
|
|
|
1,022 |
|
|
|
|
|
683 |
|
|
|
|
|
50 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Privately-held direct securities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
|
4,241 |
|
|
|
|
|
5,028 |
|
|
|
|
|
(16 |
) |
|
Cost |
|
|
|
5,482 |
|
|
|
|
|
6,463 |
|
|
|
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Third-party fund investments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value |
|
|
|
682 |
|
|
|
|
|
669 |
|
|
|
|
|
2 |
|
|
Cost |
|
|
|
1,000 |
|
|
|
|
|
1,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total private equity portfolio Carrying
value |
|
|
$ |
5,619 |
|
|
|
|
$ |
6,176 |
|
|
|
|
|
(9 |
) |
|
Total private equity portfolio Cost |
|
|
$ |
7,021 |
|
|
|
|
$ |
7,869 |
|
|
|
|
|
(11 |
) |
|
|
|
|
|
(a) |
|
Gains/losses reflect repositioning of the Treasury investment securities portfolio.
Excludes gains/losses on securities used to manage risk associated with MSRs. |
|
(b) |
|
Included in Principal transactions. |
The carrying value of the private equity portfolio at September 30, 2006, was $5.6 billion,
down $557 million from December 31, 2005. The portfolio decline was primarily due to sales
activity. The portfolio represented 8.0% of the Firms stockholders equity less goodwill at
September 30, 2006, down from 9.7% at December 31, 2005.
43
BALANCE SHEET ANALYSIS
|
|
|
|
|
|
|
|
|
Selected balance sheet data (in millions) |
September 30, 2006 |
|
December 31, 2005 |
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
36,279 |
|
|
$ |
36,670 |
|
Deposits with banks |
|
|
17,130 |
|
|
|
21,661 |
|
Federal funds sold and securities purchased under resale
agreements |
|
|
156,194 |
|
|
|
133,981 |
|
Securities borrowed |
|
|
89,222 |
|
|
|
74,604 |
|
Trading assets: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
289,891 |
|
|
|
248,590 |
|
Derivative receivables |
|
|
58,265 |
|
|
|
49,787 |
|
Securities: |
|
|
|
|
|
|
|
|
Available-for-sale |
|
|
86,485 |
|
|
|
47,523 |
|
Held-to-maturity |
|
|
63 |
|
|
|
77 |
|
Interests in purchased receivables |
|
|
|
|
|
|
29,740 |
|
Loans, net of Allowance for loan losses |
|
|
456,488 |
|
|
|
412,058 |
|
Other receivables |
|
|
27,693 |
|
|
|
27,643 |
|
Goodwill |
|
|
43,372 |
|
|
|
43,621 |
|
Other intangible assets |
|
|
14,438 |
|
|
|
14,559 |
|
All other assets |
|
|
61,124 |
|
|
|
58,428 |
|
Assets of discontinued operations held-for-sale (a) |
|
|
1,385 |
|
|
|
|
|
|
Total assets |
|
$ |
1,338,029 |
|
|
$ |
1,198,942 |
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Deposits |
|
$ |
582,115 |
|
|
$ |
554,991 |
|
Federal funds purchased and securities sold under
repurchase agreements |
|
|
188,395 |
|
|
|
125,925 |
|
Commercial paper and other borrowed funds |
|
|
34,387 |
|
|
|
24,342 |
|
Trading liabilities: |
|
|
|
|
|
|
|
|
Debt and equity instruments |
|
|
106,784 |
|
|
|
94,157 |
|
Derivative payables |
|
|
58,462 |
|
|
|
51,773 |
|
Long-term debt and capital debt securities |
|
|
139,928 |
|
|
|
119,886 |
|
Beneficial interests issued by consolidated VIEs |
|
|
16,254 |
|
|
|
42,197 |
|
All other liabilities |
|
|
73,585 |
|
|
|
78,460 |
|
Liabilities of discontinued operations held-for-sale (a) |
|
|
24,558 |
|
|
|
|
|
|
Total liabilities |
|
|
1,224,468 |
|
|
|
1,091,731 |
|
Stockholders equity |
|
|
113,561 |
|
|
|
107,211 |
|
|
Total liabilities and stockholders equity |
|
$ |
1,338,029 |
|
|
$ |
1,198,942 |
|
|
|
|
|
(a) |
|
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, small business and middle market banking businesses of The Bank of New York. As
a result of this transaction, assets and liabilities of this business were reclassified and
reported as discontinued operations for the period ended September 30, 2006. JPMorgan Chase
has not reclassified any Assets or Liabilities of discontinued operations held-for-sale at
December 31, 2005. |
Balance sheet overview
At September 30, 2006, the Firms total assets were $1.3 trillion, an increase of $139 billion, or
12%, from December 31, 2005. Growth was primarily in Trading assetsdebt and equity instruments,
Loans, AFS securities, Federal funds sold and securities purchased under resale agreements and
Securities borrowed, partly offset by a decline in Interests in purchased receivables due to the
deconsolidation of certain multi-seller conduits in the second quarter of 2006.
At September 30, 2006, the Firms total liabilities were $1.2 trillion, an increase of $133
billion, or 12%, from December 31, 2005. Growth was primarily in Federal funds purchased and
securities sold under repurchase agreements, Deposits, Long-term debt and capital debt securities,
Trading liabilitiesdebt and equity instruments, Commercial paper and other borrowed funds, partly
offset by a decline in Beneficial interests issued by consolidated VIEs as a result of the
aforementioned deconsolidation.
44
Federal funds sold and securities purchased under resale agreements and Securities borrowed, as
well as Federal funds purchased and securities sold under repurchase agreements, Commercial paper
and Other borrowed funds
The Firm utilizes Federal funds sold and securities purchased under resale agreements and
Securities borrowed, and Federal funds purchased and securities sold under repurchase agreements
and Commercial paper and other borrowed funds as part of its liquidity management framework, in
order to manage the Firms cash positions and risk-based capital requirements, as well as to
maximize liquidity access and minimize funding costs. For additional information on the Firms
Liquidity risk management, see pages 5152 of this Form 10-Q.
Trading assets and liabilities debt and equity instruments
The Firms debt and equity trading instruments consist primarily of fixed income securities
(including government and corporate debt), equity securities and convertible cash instruments, as well as
physical commodities used for both market-making and proprietary risk-taking activities. The
increases in trading assets and liabilities over December 31, 2005, were due primarily to the more
favorable capital markets environment, with growth in client-driven market-making activities across
interest rate, credit and equity markets. For additional information, refer to Note 4 on page 75 of
this Form 10-Q.
Trading assets and liabilities derivative receivables and payables
The Firm uses various interest rate, foreign exchange, equity, credit and commodity derivatives for
market-making, proprietary risk-taking and risk-management purposes. The increases in derivative
receivables and payables from December 31, 2005, primarily reflected an increase in exchange-traded
commodity products. For additional information, refer to Credit risk management and Note 4 on pages
5263 and 75, respectively, of this Form 10-Q.
Securities
The AFS portfolio increased by $39 billion from the 2005 year end, primarily due to net purchases
in the Treasury investment securities portfolio. For additional information related to securities,
refer to the Corporate segment discussion and to Note 9 on pages 4143 and 8081, respectively,
of this Form 10-Q.
Interests
in purchased receivables and Beneficial interests issued by consolidated VIEs
Interests in purchased receivables and Beneficial interests issued by consolidated VIEs declined from
December 2005, as a result of the restructuring during the second quarter of 2006 of $33 billion of
multi-seller conduits the Firm administers. The restructuring resulted in the deconsolidation of
$29 billion of Interests in purchased receivables, $3 billion of Loans and $1 billion of AFS
securities. This decline was offset partially by the addition of $5 billion of third-party
beneficial interests in a student loan trust VIE resulting from the acquisition of Collegiate
Funding Services. For additional information related to multi-seller conduits, refer to
Offbalance sheet arrangements and contractual cash obligations on pages 4950 and Note 14 on
pages 8687 of this Form 10-Q.
Loans
The $44 billion increase in loans was due primarily to an increase of $29 billion in the wholesale
portfolio, mainly in the IB, reflecting an increase in capital markets activity, including
financings associated with acquisitions and syndications. The $15 billion increase in consumer
loans was due largely to an increase of $7 billion in CS, reflecting a reduction in credit card
securitization activity as well as the Kohls private label credit card acquisition in the second
quarter of 2006, an increase of $7 billion in home equity loans, and an increase of $6 billion in
education loans from the acquisition of Collegiate Funding Services in the first quarter of 2006.
These increases were offset partially by a decline of $6 billion in auto loans and leases. For a
more detailed discussion of the loan portfolio and the Allowance for loan losses, refer to Credit
risk management on pages 5263 of this Form 10-Q.
Goodwill
The $249 million decrease in Goodwill primarily resulted from the transfer of $402 million of
goodwill to Assets of discontinued operations held-for-sale related to selected corporate trust
businesses as a result of the transaction with The Bank of New York, from purchase accounting
adjustments related to the November 2005 acquisition of the Sears Canada credit card business and
from the sale of the insurance business. These decreases were offset partially by goodwill related
to the acquisition of Collegiate Funding Services. For additional information, see Notes 3 and 15
on pages 74 and 8890 of this Form 10-Q.
45
Other intangible assets
The $121 million decrease in Other intangible assets primarily reflects declines from amortization
and the transfer of $436 million of the selected corporate trust businesses other intangibles to
Assets of discontinued operations held-for-sale as a result of the transaction with The Bank of New
York. Partially offsetting the decrease were higher MSRs due to growth in the servicing portfolio
and higher fair value due to the implementation of SFAS 156, and to a lesser extent, purchase
accounting adjustments related to the Sears Canada credit card business. For additional
information, see Notes 3 and 15 on pages 74 and 8890 of this Form 10-Q.
Assets of discontinued operations held-for-sale and Liabilities of discontinued operations
held-for-sale
The increase from December 31, 2005, reflects the October 1, 2006, acquisition of The Bank of New
Yorks consumer, small-business and middle-market banking businesses in exchange for selected
corporate trust businesses of JPMorgan Chase. Assets of discontinued operations primarily include
goodwill, other intangibles and other assets. Liabilities of discontinued operations primarily
include deposits and other liabilities. For more information, refer to the TSS segment discussion
on pages 3437 and Note 3 on page 74 of this Form 10-Q.
Deposits
Deposits increased by 5% from December 31, 2005. Growth in retail deposits reflected new account
acquisitions and the ongoing expansion of the retail branch distribution network. Wholesale
deposits were higher driven by growth in business volumes. Partially offsetting the growth in
deposits was the transfer of $24 billion of deposits to Liabilities of discontinued operations
held-for-sale related to the transaction with The Bank of New York. For more information on
deposits, refer to the RFS segment discussion and the Liquidity risk management discussion on pages
2128 and 5152, respectively, of this Form 10-Q. For more information on liability balances,
refer to the CB and TSS segment discussions on pages 3234 and 3437, respectively, of this Form
10-Q.
Long-term debt and capital debt securities
Long-term debt and capital debt securities increased by $20 billion, or 17%, from December 31,
2005, primarily due to net new issuances of long-term debt offset partially by redemption of
capital debt securities. Consistent with its liquidity management policy, the Firm has raised funds
at the parent holding company sufficient to cover its obligations and those of its nonbank
subsidiaries that mature over the next 12 months. For additional information on the Firms
long-term debt activity, see the Liquidity risk management discussion on pages 5152 of this Form
10-Q.
Stockholders equity
Total stockholders equity increased by $6 billion from year-end 2005 to $114 billion at September
30, 2006. The increase was largely the result of net income for the first nine months of 2006 and
common stock issued under employee plans. This increase was offset partially by the payment of cash
dividends and stock repurchases. For a further discussion of capital, see the Capital management
section that follows.
CAPITAL MANAGEMENT
The following discussion of JPMorgan Chases Capital Management highlights developments since
December 31, 2005, and should be read in conjunction with pages 5658 of JPMorgan Chases 2005 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.
Line of business equity
Equity for a line of business represents the amount 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.
Effective January 1, 2006, the Firm refined its methodology for allocating capital to the lines of
business. As a result of this refinement, RFS, CS, CB, TSS and AWM had higher amounts of capital
allocated to them commencing in the first quarter of 2006. The revised methodology considers for
each line of business, among other things, goodwill associated with such line of business
acquisitions since the Merger. In managements view, the revised methodology assigns responsibility
to the lines of business to generate returns on the amount of capital supporting
acquisition-related goodwill. As part of this refinement in the capital allocation methodology, the
Firm assigned to the Corporate segment an amount of equity capital equal to the then-current book
value of goodwill from and prior to the Merger. As prior periods have not been revised to reflect
the new capital allocations, capital allocated to the respective lines of business for 2006 is not
comparable to prior periods; and certain
46
business metrics, such as ROE, are not comparable to the current presentation. The Firm may revise
its equity capital-allocation methodology again in the future.
In accordance with SFAS 142, the lines of business will continue to perform the required goodwill
impairment testing. For a further discussion of goodwill and impairment testing, see Critical
accounting estimates on pages 8183 of JPMorgan Chases 2005 Annual Report, and Note 15 on pages
8890 of this Form 10-Q.
|
|
|
|
|
|
|
|
|
(in billions) |
|
Quarterly Averages |
|
Line of business equity |
|
3Q06 |
|
|
3Q05 |
|
|
Investment Bank |
|
$ |
21.0 |
|
|
$ |
20.0 |
|
Retail Financial Services |
|
|
14.3 |
|
|
|
13.5 |
|
Card Services |
|
|
14.1 |
|
|
|
11.8 |
|
Commercial Banking |
|
|
5.5 |
|
|
|
3.4 |
|
Treasury & Securities Services |
|
|
2.2 |
|
|
|
1.5 |
|
Asset & Wealth Management |
|
|
3.5 |
|
|
|
2.4 |
|
Corporate |
|
|
51.2 |
|
|
|
52.9 |
|
|
Total common stockholders
equity |
|
$ |
111.8 |
|
|
$ |
105.5 |
|
|
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
based primarily upon four risk factors: credit risk, market risk and operational risk for each
business; in addition, the Firm assigns capital based on private equity risk to the Corporate
segment in connection with the segments private equity business.
|
|
|
|
|
|
|
|
|
(in billions) |
|
Quarterly Averages |
|
Economic risk capital |
|
3Q06 |
|
|
3Q05 |
|
|
Credit risk |
|
$ |
22.3 |
|
|
$ |
22.2 |
|
Market risk |
|
|
9.6 |
|
|
|
10.3 |
|
Operational risk |
|
|
5.7 |
|
|
|
5.5 |
|
Private equity risk |
|
|
3.3 |
|
|
|
3.7 |
|
|
Economic risk capital |
|
|
40.9 |
|
|
|
41.7 |
|
Goodwill |
|
|
43.4 |
|
|
|
43.5 |
|
Other(a) |
|
|
27.5 |
|
|
|
20.3 |
|
|
Total common stockholders equity |
|
$ |
111.8 |
|
|
$ |
105.5 |
|
|
|
|
|
(a) |
|
Additional capital required to meet internal regulatory and debt rating objectives. |
Regulatory capital
The Firms federal 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 the first quarter of 2006, the federal banking regulatory agencies issued a final rule that
makes permanent an interim rule issued in 2000 that provides regulatory capital relief for certain
cash-collateralized securities-borrowed transactions. The final rule, which became effective
February 22, 2006, also broadens the types of transactions qualifying for regulatory capital relief
under the interim rule. Adoption of the rule did not have a material effect on the Firms capital
ratios.
On March 1, 2005, the FRB issued a final rule, which became effective April 11, 2005, that
continues the inclusion of trust preferred 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 five-year transition period. As an internationally
active bank holding company, JPMorgan Chase is subject to the rules limitation on restricted core
capital elements, including trust preferred securities, to 15% of total core capital elements, net
of goodwill less any associated deferred tax liability. At September 30, 2006, JPMorgan Chases
restricted core capital elements were 16.4% of total core capital elements. JPMorgan Chase expects
to be in compliance with the 15% limit by the March 31, 2009, implementation date.
47
The following table presents the risk-based capital ratios for JPMorgan Chase and its significant
banking subsidiaries at September 30, 2006, and December 31, 2005:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
|
September 30, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co.(a) |
|
$ |
79,830 |
|
|
$ |
111,670 |
|
|
$ |
926,455 |
|
|
$ |
1,257,364 |
|
|
|
8.6 |
% |
|
|
12.1 |
% |
|
|
6.3 |
% |
JPMorgan Chase Bank, N.A. |
|
|
66,439 |
|
|
|
91,263 |
|
|
|
832,127 |
|
|
|
1,111,285 |
|
|
|
8.0 |
|
|
|
11.0 |
|
|
|
6.0 |
|
Chase Bank USA, N.A. |
|
|
9,818 |
|
|
|
11,992 |
|
|
|
68,839 |
|
|
|
64,275 |
|
|
|
14.3 |
|
|
|
17.4 |
|
|
|
15.3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2005 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
JPMorgan Chase & Co.(a) |
|
$ |
72,474 |
|
|
$ |
102,437 |
|
|
$ |
850,643 |
|
|
$ |
1,152,546 |
|
|
|
8.5 |
% |
|
|
12.0 |
% |
|
|
6.3 |
% |
JPMorgan Chase Bank, N.A. |
|
|
61,050 |
|
|
|
84,227 |
|
|
|
750,397 |
|
|
|
995,095 |
|
|
|
8.1 |
|
|
|
11.2 |
|
|
|
6.1 |
|
Chase Bank USA, N.A. |
|
|
8,608 |
|
|
|
10,941 |
|
|
|
72,229 |
|
|
|
59,882 |
|
|
|
11.9 |
|
|
|
15.2 |
|
|
|
14.4 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 $316.2 billion, $301.0
billion and $10.6 billion, respectively, at September 30, 2006, and $279.2 billion, $260.0
billion and $15.5 billion, respectively, at December 31,
2005 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 subsidiaries and the total adjusted
carrying value of nonfinancial equity investments that are subject to deductions from Tier 1
capital. |
|
(e) |
|
Represents requirements for bank 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. |
Tier 1 capital was $79.8 billion at September 30, 2006, compared with $72.5 billion at
December 31, 2005, an increase of $7.4 billion. The increase was due primarily to net income of
$9.9 billion, net issuances of common stock under employee plans of $2.9 billion and $2.0 billion
of additional qualifying trust preferred securities. Offsetting these increases were changes in
equity net of other comprehensive income due to dividends declared of $3.7 billion, common share
repurchases of $2.9 billion, the redemption of preferred stock of $139 million and a $666 million
reduction in qualifying minority interests. Additional information regarding the Firms capital
ratios and the federal regulatory capital standards to which it is subject is presented in Note 24
on pages 121122 of JPMorgan Chases 2005 Annual Report.
Dividends
The Firms common stock dividend policy reflects JPMorgan Chases earnings outlook, desired payout
ratios, need to maintain an adequate capital level and alternative investment opportunities. In the
third quarter of 2006, JPMorgan Chase declared a quarterly cash dividend on its common stock of
$0.34 per share, payable October 31, 2006, to stockholders of record at the close of business on
October 6, 2006. The Firm continues to target a dividend payout ratio of approximately 3040% of
net income over time.
Stock repurchases
On March 21, 2006, the Board of Directors approved a stock repurchase program which authorizes the
repurchase of up to $8 billion of the Firms common shares. The amount authorized includes shares
to be repurchased to offset issuances under the Firms employee stock-based plans. The actual
amount of shares repurchased is subject to various factors, including: market conditions; legal
considerations affecting the amount and timing of repurchase activity; the Firms capital position
(taking into account goodwill and intangibles); internal capital generation; and alternative
potential investment opportunities. The repurchase program does not include specific price targets
or timetables; may be executed through open market purchases or privately negotiated transactions,
or utilizing Rule 10b5-1 programs; and may be suspended at any time.
For the three and nine months ended September 30, 2006, under the respective stock repurchase
programs then in effect, the Firm repurchased a total of 20.0 million shares and 69.5 million
shares for $900 million and $2.9 billion at an average price per share of $44.88 and $42.22,
respectively. Of the $2.9 billion of shares repurchased in the first nine months of 2006, $1.1
billion was repurchased during the first quarter under the original $6 billion stock repurchase
program, and $1.8 billion was repurchased in the first nine months of 2006 under the new $8 billion
stock repurchase program. For the three and nine months ended September 30, 2005, under the
original $6 billion stock repurchase program then in effect, the Firm repurchased 14.4 million
shares and 67.2 million shares for $500 million and $2.4 billion at an average price per share of
$34.61 and $35.84, respectively. As of September 30, 2006, $6.2 billion of authorized repurchase
capacity remained under the new stock repurchase program.
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 106107 of this Form
10-Q.
48
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, use of SPEs is 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 a further discussion of SPEs and the Firms accounting for these types of
exposures, see Note 1 on page 91, Note 13 on pages 108111 and Note 14 on pages 111113 of
JPMorgan Chases 2005 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 amount of
these liquidity commitments was $73.9 billion and $71.3 billion at September 30, 2006, and December
31, 2005, respectively. Alternatively, if JPMorgan Chase Bank 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.
Of its $73.9 billion in liquidity commitments to SPEs at September 30, 2006, $73.8 billion was
included in the Firms other unfunded commitments to extend credit and asset purchase agreements,
included in the table on the following page. Of the $71.3 billion of liquidity commitments to SPEs
at December 31, 2005, $38.9 billion was included in the Firms other unfunded commitments to extend
credit and asset purchase agreements. As a result of the Firms consolidation of multi-seller
conduits in accordance with FIN 46R, $0.1 billion of these commitments are excluded from the table
at September 30, 2006, compared with $32.4 billion at December 31, 2005, as the underlying assets
of the SPEs have been included on the Firms Consolidated balance sheets. The decrease from
year-end is due to the deconsolidation during the 2006 second quarter of several multi-seller
conduits administered by the Firm. For further information, refer to Note 14 on pages 8687 of
this Form 10-Q.
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. Such MTM gains
and losses are not included in the revenue amounts reported in the table below.
The following table summarizes certain revenue information related to consolidated and
nonconsolidated variable interest entities (VIEs) with which the Firm has significant
involvement, and to qualifying SPEs (QSPEs). The revenue reported in the table below primarily
represents servicing and credit fee income. For a further discussion of VIEs and QSPEs, see Note 1,
Note 13 and Note 14, on pages 91, 108111 and 111113, respectively, of JPMorgan Chases 2005
Annual Report.
Revenue from VIEs and QSPEs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
(in millions) |
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
VIEs |
|
|
QSPEs |
|
|
Total |
|
|
2006 |
|
$ |
55 |
|
|
$ |
788 |
|
|
$ |
843 |
|
|
$ |
162 |
|
|
$ |
2,366 |
|
|
$ |
2,528 |
|
2005(a) |
|
|
57 |
|
|
|
738 |
|
|
|
795 |
|
|
|
167 |
|
|
|
2,194 |
|
|
|
2,361 |
|
|
|
|
|
(a) |
|
Prior period results have been restated to reflect current methodology. |
Off-balance 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 fulfill its obligation under the guarantee, and the counterparty subsequently fails 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 a further discussion of lending-related
commitments and guarantees and the Firms accounting for them, see Credit risk management on pages
6372 and Note 27 on pages 124125 of JPMorgan Chases 2005 Annual Report.
49
The following table presents offbalance sheet lending-related financial instruments and
guarantees for the periods indicated:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2006 |
|
|
Dec. 31, 2005 |
|
By remaining maturity |
|
|
|
|
|
1-<3 |
|
|
3-5 |
|
|
|
|
|
|
|
|
|
|
|
|
(in millions) |
|
< 1 year |
|
|
years |
|
|
years |
|
|
> 5 years |
|
|
Total |
|
|
Total |
|
|
Lending-related |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consumer(a) |
|
$ |
658,880 |
|
|
$ |
3,742 |
|
|
$ |
3,648 |
|
|
$ |
58,615 |
|
|
$ |
724,885 |
|
|
$ |
655,596 |
|
Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other unfunded commitments to extend credit(b)(c)(d) |
|
|
88,525 |
|
|
|
47,053 |
|
|
|
61,801 |
|
|
|
15,686 |
|
|
|
213,065 |
|
|
|
208,469 |
|
Asset purchase agreements(e) |
|
|
23,078 |
|
|
|
34,081 |
|
|
|
7,573 |
|
|
|
1,556 |
|
|
|
66,288 |
|
|
|
31,095 |
|
Standby letters of credit and guarantees(c)(f)(g) |
|
|
26,936 |
|
|
|
19,481 |
|
|
|
37,341 |
|
|
|
5,659 |
|
|
|
89,417 |
|
|
|
77,199 |
|
Other letters of credit(c) |
|
|
4,562 |
|
|
|
839 |
|
|
|
232 |
|
|
|
14 |
|
|
|
5,647 |
|
|
|
4,346 |
|
|
Total wholesale |
|
|
143,101 |
|
|
|
101,454 |
|
|
|
106,947 |
|
|
|
22,915 |
|
|
|
374,417 |
|
|
|
321,109 |
|
|
Total lending-related |
|
$ |
801,981 |
|
|
$ |
105,196 |
|
|
$ |
110,595 |
|
|
$ |
81,530 |
|
|
$ |
1,099,302 |
|
|
$ |
976,705 |
|
|
Other guarantees |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities lending guarantees(h) |
|
$ |
317,575 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
317,575 |
|
|
$ |
244,316 |
|
Derivatives qualifying as guarantees(i) |
|
|
13,909 |
|
|
|
6,697 |
|
|
|
24,453 |
|
|
|
23,191 |
|
|
|
68,250 |
|
|
|
61,759 |
|
|
|
|
|
(a) |
|
Includes Credit card lending-related commitments of $638 billion at September 30, 2006,
and $579 billion at December 31, 2005, which 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 $35.4 billion at September 30, 2006, and
$28.3 billion at December 31, 2005, 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 $37.8 billion at September
30, 2006, and $29.3 billion at December 31, 2005. |
|
(d) |
|
Excludes unfunded commitments to private third-party equity funds of $654 million and $242
million at September 30, 2006, and December 31, 2005, respectively. |
|
(e) |
|
Represents asset purchase agreements with the Firms administered multi-seller asset-backed
commercial paper conduits, which excludes $0.1 billion and $32.4 billion at September 30,
2006, and December 31, 2005, respectively, related to conduits that were consolidated in
accordance with FIN 46R, as the underlying assets of the conduits are reported in the Firms
Consolidated balance sheets. It also includes $1.2 billion and $1.3 billion of asset purchase
agreements to other third-party entities at September 30, 2006, and December 31, 2005,
respectively. Certain of the Firms administered multi-seller conduits were deconsolidated as
of June 2006; the assets deconsolidated were approximately $33 billion. |
|
(f) |
|
JPMorgan Chase held collateral relating to $12.3 billion and $9.0 billion of these
arrangements at September 30, 2006, and December 31, 2005, respectively. |
|
(g) |
|
Includes unused commitments to issue standby letters of credit of $46.4 billion and $37.5
billion at September 30, 2006, and December 31, 2005, respectively. |
|
(h) |
|
Collateral held by the Firm in support of securities lending indemnification agreements was
$316 billion at September 30, 2006, and $245 billion at December 31, 2005, respectively. |
|
(i) |
|
Represents notional amounts of derivatives qualifying as guarantees. For a further discussion
of guarantees, see Note 27 on pages 124125 of JPMorgan Chases 2005 Annual Report. |
RISK MANAGEMENT
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 reputational risk, fiduciary risk and private
equity risk.
For a further discussion of these risks see pages 6080 of JPMorgan Chases 2005 Annual Report.
50
LIQUIDITY RISK MANAGEMENT
The following discussion of JPMorgan Chases liquidity management framework highlights developments
since December 31, 2005, and should be read in conjunction with pages 6162 of JPMorgan Chases
2005 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 enables the Firm to
replace maturing obligations when due and fund assets at appropriate maturities and rates. To
accomplish this task, management uses a variety of liquidity risk measures that take into
consideration market conditions, prevailing interest rates, liquidity needs and the desired
maturity profile of liabilities.
Funding
Sources of funds
Consistent with its liquidity management policy, the Firm has raised funds at the parent holding
company sufficient to cover its obligations and those of its nonbank subsidiaries that mature over
the next 12 months. Long-term funding needs for the parent holding company over the next several
quarters are expected to be consistent with prior periods.
As of September 30, 2006, the Firms liquidity position remained strong based upon its liquidity
metrics. JPMorgan Chases long-dated funding, including core deposits, exceeds illiquid assets, and
the Firm believes its obligations can be met even if access to funding is impaired.
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 AWM
lines of business are a stable and consistent source of funding for JPMorgan Chase Bank. As of
September 30, 2006, total deposits for the Firm were $582 billion, which represented 62% of the
Firms funding liabilities. A significant portion of the Firms retail deposits are core
deposits, which are less sensitive to interest rate changes and therefore are considered more
stable than market-based deposits. Core deposits include all U.S. deposits insured by the FDIC, up
to the legal limit of $100,000 per depositor. Throughout the first nine months of 2006, core bank
deposits remained at approximately the same level as at the 2005 year-end. In addition to core
retail deposits, the Firm benefits from substantial, geographically diverse corporate liability
balances originated by TSS and CB through the normal course of business. These franchise-generated
core liability balances are also a stable and consistent source of funding due to the nature of the
businesses from which they are generated. For a further discussion of deposit and liability balance
trends, see Business Segment Results and Balance Sheet Analysis on pages 1516 and 4446,
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 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 a cost-effective and diversified source of funds and are a
critical component 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; these relationships include retained interests in securitization
trusts, liquidity facilities and derivative transactions. For further details, see Offbalance
sheet arrangements and contractual cash obligations and Notes 13 and 20 on pages 4950, 8386 and
9293, respectively, of this Form 10-Q.
51
Issuance
During the third quarter of 2006, JPMorgan Chase issued approximately $11.2 billion of long-term
debt and capital debt securities. These issuances were offset partially by $8.5 billion of
long-term debt and capital debt securities that matured or were redeemed. During the third quarter
of 2006, the Firm securitized approximately $4.2 billion of residential mortgage loans and
approximately $1.1 billion of credit card loans, resulting in pretax gains on securitizations of $7
million and $7 million, respectively. In addition, the Firm securitized approximately $1.2 billion
of automobile loans resulting in a small loss.
During the first nine months of 2006, JPMorgan Chase issued approximately $43.4 billion of
long-term debt and capital debt securities. These issuances were offset partially by $25.2 billion
of long-term debt and capital debt securities that matured or were redeemed. During the first nine
months of 2006, the Firm securitized approximately $11.3 billion of residential mortgage loans and
$6.8 billion of credit card loans, resulting in pretax gains on securitizations of $8 million and
$45 million, respectively. In addition, the Firm securitized approximately $2.4 billion of
automobile loans resulting in a small gain. For a further discussion of loan securitizations, see
Note 13 on pages 8386 of this Form 10-Q.
In connection with the issuance of certain of its 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. Currently the Firms covered debt is its 5.875% Junior Subordinated
Deferrable Interest Debentures, Series O, due 2035. For more information regarding these covenants,
see Forms 8-K filed by the Firm on August 17, 2006 and September 28, 2006.
Credit ratings
The credit ratings of JPMorgan Chases parent holding company and each of its significant banking
subsidiaries were, as of September 30, 2006, as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term debt |
|
|
Senior long-term debt |
|
|
|
Moodys |
|
|
S&P |
|
|
Fitch |
|
|
Moodys |
|
|
S&P |
|
|
Fitch |
|
|
JPMorgan Chase & Co. |
|
|
P-1 |
|
|
|
A-1 |
|
|
|
F1 |
|
|
Aa3 |
|
A+ |
|
|
A+ |
|
JPMorgan Chase Bank, National
Association |
|
|
P-1 |
|
|
|
A-1+ |
|
|
|
F1+ |
|
|
Aa2 |
|
AA- |
|
|
A+ |
|
Chase Bank USA, National
Association |
|
|
P-1 |
|
|
|
A-1+ |
|
|
|
F1+ |
|
|
Aa2 |
|
AA- |
|
|
A+ |
|
|
The cost and availability of unsecured financing are influenced by credit ratings. A reduction in
these ratings could adversely affect 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 strong 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.
In the current environment, the Firm believes a downgrade is unlikely. 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 49 and Ratings profile
of derivative receivables MTM on page 57, of this Form 10-Q.
CREDIT RISK MANAGEMENT
The following discussion of JPMorgan Chases credit portfolio as of September 30, 2006, highlights
developments since December 31, 2005, and should be read in conjunction with pages 6374 and page
81, and Notes 11, 12, 27, and 28 of JPMorgan Chases 2005 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 1215 of this Form 10-Q.
52
CREDIT PORTFOLIO
The following table presents JPMorgan Chases credit portfolio as of September 30, 2006, and
December 31, 2005. Total credit exposure at September 30, 2006, increased by $140 billion from
December 31, 2005, reflecting an increase of $61 billion and $79 billion in the wholesale and
consumer credit portfolios, respectively, as described in the following pages. 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 Other income. However, these HFS loans are excluded from the average
loan balances used for the net charge-off rate calculations.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Credit exposure |
|
|
Nonperforming assets(j) |
|
|
|
September 30, |
|
|
December 31, |
|
|
September 30, |
|
|
December 31, |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Total credit portfolio |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported(a) |
|
$ |
463,544 |
|
|
$ |
419,148 |
|
|
$ |
2,070 |
(k) |
|
$ |
2,343 |
(k) |
Loans securitized(b) |
|
|
65,245 |
|
|
|
70,527 |
|
|
|
|
|
|
|
|
|
|
Total managed loans(c) |
|
|
528,789 |
|
|
|
489,675 |
|
|
|
2,070 |
|
|
|
2,343 |
|
Derivative receivables(d) |
|
|
58,265 |
|
|
|
49,787 |
|
|
|
35 |
|
|
|
50 |
|
Interests in purchased receivables(e) |
|
|
|
|
|
|
29,740 |
|
|
|
|
|
|
|
|
|
|
Total managed credit-related assets |
|
|
587,054 |
|
|
|
569,202 |
|
|
|
2,105 |
|
|
|
2,393 |
|
Lending-related commitments(f) |
|
|
1,099,302 |
|
|
|
976,705 |
|
|
|
NA |
|
|
|
NA |
|
Assets acquired in loan satisfactions |
|
|
NA |
|
|
|
NA |
|
|
|
195 |
|
|
|
197 |
|
|
Total credit portfolio |
|
$ |
1,686,356 |
|
|
$ |
1,545,907 |
|
|
$ |
2,300 |
|
|
$ |
2,590 |
|
|
Net credit derivative hedges
notional(g) |
|
$ |
(37,757 |
) |
|
$ |
(29,882 |
) |
|
$ |
(18 |
) |
|
$ |
(17 |
) |
Collateral held against derivatives(h) |
|
|
(5,637 |
) |
|
|
(6,000 |
) |
|
|
NA |
|
|
|
NA |
|
Held-for-sale |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total average HFS loans |
|
|
38,383 |
|
|
|
32,086 |
|
|
|
NA |
|
|
|
NA |
|
Nonperforming purchased(i) |
|
|
273 |
|
|
|
341 |
|
|
|
NA |
|
|
|
NA |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended September 30, |
|
|
Nine months ended September 30, |
|
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
|
|
|
|
|
|
|
Average annual |
|
|
|
Net charge-offs |
|
|
net charge-off rate(m) |
|
|
Net charge-offs |
|
|
net charge-off rate(m) |
|
(in millions, except ratios) |
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
2006 |
|
|
2005 |
|
|
Total credit portfolio(l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans reported |
|
$ |
790 |
|
|
$ |
870 |
|
|
|
0.74 |
% |
|
|
0.89 |
% |
|
$ |
2,112 |
|
|
$ |
2,459 |
|
|
|
0.69 |
% |
|
|
0.87 |
% |
Loans
securitized(b) |
|
|
607 |
|
|
|
867 |
|
|
|
3.70 |
|
|
|
4.99 |
|
|
|
1,617 |
|
|
|
2,714 |
|
|
|
3.19 |
|
|
|
5.27 |
|
|
Total managed loans |
|
$ |
1,397 |
|
|
$ |
1,737 |
|
|
|
1.13 |
% |
|
|
1.51 |
% |
|
$ |
3,729 |
|
|
$ |
5,173 |
|
|
|
1.05 |
% |
|
|
1.54 |
% |
|
|
|
|
(a) |
|
Loans are presented net of unearned income of $2.4 billion and $3.0 billion at September
30, 2006, and December 31, 2005, respectively. |
|
(b) |
|
Represents securitized credit card receivables. For a further discussion of credit card
securitizations, see CS on pages 2831 of this Form 10-Q. |
|
(c) |
|
Past-due 90 days and over and accruing includes credit card receivables of $1.2 billion and
$1.1 billion at September 30, 2006, and December 31, 2005, and related credit card
securitizations of $950 million and $730 million at September 30, 2006, and December 31, 2005,
respectively. |
|
(d) |
|
Reflects net cash received under credit support annexes to legally enforceable master netting
agreements of $24 billion and $27 billion as of September 30, 2006, and December 31, 2005,
respectively. |
|
(e) |
|
As a result of restructuring certain multi-seller conduits the Firm administers, JPMorgan
Chase deconsolidated $29 billion of Interests in purchased receivables, $3 billion of Loans
and $1 billion of Securities, and recorded $33 billion of lending-related commitments during
the second quarter of 2006. |
|
(f) |
|
Includes wholesale unused advised lines of credit totaling $35.4 billion and $28.3 billion at
September 30, 2006, and December 31, 2005, 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 $638 billion and $579 billion at September 30,
2006, and December 31, 2005, 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. |
|
(g) |
|
Represents the net notional amount of protection purchased and sold of single-name and
portfolio credit derivatives used to manage the credit risk of credit exposures; these
derivatives do not qualify for hedge accounting under SFAS 133. |
|
(h) |
|
Represents other liquid securities collateral held by the Firm as of September 30, 2006, and
December 31, 2005, respectively. |
|
(i) |
|
Represents distressed HFS wholesale loans purchased as part of IBs proprietary activities,
which are excluded from nonperforming assets. |
|
(j) |
|
Includes nonperforming HFS loans of $45 million and $136 million as of September 30, 2006, and
December 31, 2005, respectively. |
|
(k) |
|
Excludes nonperforming assets related to (i) loans eligible for repurchase as well as loans
repurchased from GNMA pools that are insured by government agencies of $1.1 billion for both
September 30, 2006, and December 31, 2005, respectively, and (ii) education loans that are |
53
|
|
|
|
|
90 days past due and still accruing, which are insured by government agencies under the Federal
Family Education Loan Program, of $0.2 billion at September 30, 2006. These amounts for GNMA and
education loans are excluded, as reimbursement is proceeding normally.< |