-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, r4y7pg1Gq18MSUdR4z0iyCd9mPOAOMbEWSYJtTmkmC3tckISf1pH6AzcTrUvUJje chlj0ATWGY8PszothlfU9g== 0000068100-95-000023.txt : 19950509 0000068100-95-000023.hdr.sgml : 19950508 ACCESSION NUMBER: 0000068100-95-000023 CONFORMED SUBMISSION TYPE: 10-Q/A PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 19940930 FILED AS OF DATE: 19950117 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: MORGAN J P & CO INC CENTRAL INDEX KEY: 0000068100 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 132625764 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q/A SEC ACT: 1934 Act SEC FILE NUMBER: 001-05885 FILM NUMBER: 95501737 BUSINESS ADDRESS: STREET 1: 60 WALL ST CITY: NEW YORK STATE: NY ZIP: 10260 BUSINESS PHONE: 2124832323 MAIL ADDRESS: STREET 1: P O BOX 271 STREET 2: C/O WILLIAM D HALL CITY: WILMINGTON STATE: DE ZIP: 19899 10-Q/A 1 AMENDED THIRD QUARTER FORM 10-Q 1 FORM 10-Q/A SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark one) (x) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1994 OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number: 1-5885 J.P. MORGAN & CO. INCORPORATED (Exact name of registrant as specified in its charter) Delaware 13-2625764 (State or other jurisdiction (I.R.S. Employer of incorporation or Identification No.) organization) 60 Wall Street, New York, NY (Address of principal executive offices) 10260-0060 (Zip Code) (212) 483-2323 (Registrant's telephone number, including area code) This Form 10-Q/A amends the following Items: Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - Foreign-Country- Related Outstandings 2 PART I -- FINANCIAL INFORMATION Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Discussion of the financial condition and results of operations; Statements of consolidated average balances and net interest earnings of J.P. Morgan & Co. Incorporated ("J.P. Morgan") for the three months and nine months ended September 30, 1994; Table of asset and liability management derivatives; and Table of interest rate sensitivity are set forth on pages 3 through 16 herein. SIGNATURES 17 3 PART I ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS J.P. Morgan & Co. Incorporated reported 1994 third-quarter net income of $327 million, 30% lower than net income of $468 million earned in the third quarter of 1993. Earnings per share were $1.63, versus $2.30 in the same period of 1993. For the nine months ended September 30, 1994, J.P. Morgan earned $1.022 billion, compared with income (before the cumulative effect of an accounting change) of $1.331 billion in the same period last year. Earnings per share for the first nine months were $5.05, versus $6.57 (before the cumulative effect of an accounting change) in the 1993 period. SUMMARY OF EARNINGS
($ in millions, Third quarter Nine months except per share data) 1994 1993 1994 1993 _____________________________________________________________________________ _____ Net interest revenue $ 526 $ 439 $ 1,463 $ 1,295 Noninterest revenue 906 1,174 2,826 3,341 Operating expenses (941) (882) (2,729) (2,557) Income taxes (164) (263) (538) (748) _____________________________________________________________________________ _____ Income before cumulative effect of accounting change 327 468 1,022 1,331 Cumulative effect of accounting change -- -- -- (137) Net income 327 468 1,022 1,194 _____________________________________________________________________________ _____ PER COMMON SHARE Third quarter Nine months 1994 1993 1994 1993 _____________________________________________________________________________ _____ Income before cumulative effect of accounting change $1.63 $2.30 $5.05 $6.57 Cumulative effect of accounting change -- -- -- (0.68) _____________________________________________________________________________ _____ Net income 1.63 2.30 5.05 5.89 _____________________________________________________________________________ _____ Dividends declared $0.68 $0.60 $2.04 $1.80 _____________________________________________________________________________ _____
4 SUMMARY OF RESULTS IN THE 1994 THIRD QUARTER: - -Total revenue was $1.432 billion, compared with $1.613 billion in last year's third quarter. - - Total net interest revenue was $526 million, versus $439 million in the 1993 third quarter. - -Total noninterest revenue was $906 million, compared with $1.174 billion in the third quarter a year ago. - Trading revenue was $282 million, versus last year's third-quarter results of $464 million. - Corporate finance revenue was $108 million, compared with $140 million a year ago. - Credit-related fees were $49 million, compared with $55 million in the 1993 third quarter. - Investment management fees were $133 million, compared with $116 million last year. - Operational service fees were $135 million, compared with $122 million a year ago. - Net investment securities losses were $27 million in the quarter. - Other revenue in the quarter was $226 million. - - Operating expenses were $941 million in the quarter, versus $882 million in the third quarter of 1993. 5 NET INTEREST REVENUE Net interest revenue was $526 million in the 1994 third quarter, an increase of 20% from the $439 million earned in the third quarter of 1993, principally due to higher trading-related net interest revenue. Net interest revenue for the nine-month period of 1994 was $1.463 billion, compared with $1.295 billion in the first nine months of 1993. Excluding past-due interest on Brazilian and Argentine assets and interest on income tax refunds, totaling $116 million, net interest revenue for the first nine months of 1994 was $1.347 billion. This figure compares with $1.216 billion earned in the first nine months of 1993, after excluding $79 million related to Brazilian assets. AVERAGE INTEREST-EARNING ASSETS AND YIELDS
Sept. 30 June 30 Dec. 31 Sept. 30 (for quarters ending) 1994 1994 1993 1993 _____________________________________________________________________________ _____ Average interest-earning assets ($ in billions) $129.1 $134.2 $129.7 $135.6 Net yield 1.71% 1.70 % 1.55% 1.39% NONINTEREST REVENUE Third quarter Nine months ($ in millions) 1994 1993 1994 1993 _____________________________________________________________________________ _____ Trading revenue $ 282 $ 464 $ 866 $1,453 Corporate finance revenue 108 140 312 374 Credit-related fees 49 55 160 167 Investment management fees 133 116 387 341 Operational service fees 135 122 419 359 Net investment securities gains(losses) (27) 98 99 291 Other revenue 226 179 583 356 _____________________________________________________________________________ _____ Total noninterest revenue 906 1,174 2,826 3,341 _____________________________________________________________________________ _____
Total noninterest revenue for the third quarter was $906 million, a 23% decline from the $1.174 billion reported in the third quarter of 1993. For the first nine months of 1994 noninterest revenue was $2.826 billion, versus $3.341 billion reported for the same period last year. 6 Trading revenue in the 1994 third quarter was $282 million, compared with $464 million in the 1993 third quarter. Trading revenue does not include net interest revenue derived from the firm's trading activities, which totaled $73 million in the third quarter of this year, versus $10 million in the third quarter of 1993. Swaps and other interest rate contracts and debt instruments, particularly in emerging markets, were the major contributors to trading revenue in the 1994 third quarter. In the first nine months of 1994, trading revenue was $866 million, compared with $1.453 billion in the 1993 period. Trading-related net interest revenue for the first nine months of 1994 was $192 million, compared with $89 million in the same period in 1993. The following represents an analysis of trading results, including the related amount of net interest revenue, for the three months and nine months ended September 30, 1994, in the principal markets in which J.P. Morgan participates. Swaps and Foreign other exchang e interest Debt spot Equities and rate instru- option commoditie s, In millions contracts ments contrac and other Tota ts l ________________________________________________________________________________ THIRD QUARTER 1994 Trading revenue $127 $80 $16 $59 $282 Net interest revenue (54) 127 10 (10) 73 (expense) ________________________________________________________________________________ Combined total 73 207 26 49 355 ________________________________________________________________________________ NINE MONTHS 1994 Trading revenue $519 $113 $53 $181 $ 866 Net interest revenue (39) 271 - (40) 192 (expense) ________________________________________________________________________________ Combined total 480 384 53 141 1,05 8 ________________________________________________________________________________ Corporate finance revenue in the third quarter was $108 million, compared with the previous year's third-quarter result of $140 million, because of an overall market decline in the volume of underwriting business. Underwriting revenue in the third quarter of 1994 was $22 million, compared with $56 million in the 1993 third quarter. Corporate finance revenue for the first nine months of 1994 was $312 million, compared with $374 million for the nine months of 1993. For the first nine months, underwriting revenue was $92 million, versus $180 million in the 1993 period. Lower underwriting revenue for the nine-month period was partially offset by higher advisory services fees, which increased $26 million from the same period of 1993. Credit-related fees were $49 million in the third quarter of 1994, compared with $55 million in the third quarter of 1993. In the first nine months of this year credit-related fees were $160 million, compared with $167 million in the comparable 1993 period. Investment management fees increased 15% in the third quarter to $133 million, from $116 million in the 1993 third quarter. The nine-month total was 13% higher at $387 million, primarily because of increased assets under management from net new business. Operational service fees grew 11% to $135 million, compared with $122 million in last year's third quarter. The total grew 17% to $419 million for the first three quarters of 1994, reflecting increases in custody, clearing, and brokerage fees. Net investment securities losses were $27 million in the third quarter, principally because of sales of foreign government securities. This figure compares with gains of $98 million in the year earlier period. For the 1994 nine-month period net investment securities gains were $99 million, compared with $291 million in the 1993 period. 7 Other revenue was $226 million, compared with $179 million in the 1993 third quarter. Contributing to other revenue were $148 million of net equity investment securities gains and $54 million related to the previously announced sale of the firm's domestic corporate trust business. For the first nine months of 1994 other revenue increased by $227 million to $583 million, versus the comparable 1993 period. Net equity investment securities gains in the first nine months were $509 million, compared with $214 million for the first nine months of 1993. OPERATING EXPENSES Operating expenses rose 7% to $941 million in the third quarter, and also by 7% for the first nine months of 1994, to $2.729 billion. Increased staff levels from the year earlier period were a major driver of higher expenses. Higher technology and communications costs in the third quarter also reflected continued investments, particularly in the firm's swaps, emerging markets, and equities activities. Employee compensation and benefits expenses declined overall, as lower incentive compensation accruals more than offset higher expenses related to increased staff levels. For the first nine months of 1994 employee compensation and benefits costs, technology and communications expenditures, and other operating expenses were higher. INCOME TAXES Income taxes for the third quarter of 1994 decreased to $164 million from $263 million in the 1993 third quarter. The decline primarily reflects lower pre-tax income. The 1994 third-quarter effective tax rate was 33%, compared with 36% in the same quarter last year. For the first nine months of 1994 the effective tax rate was 35%, versus 36% for the comparable 1993 period. ASSETS Total assets were $155 billion at September 30, 1994, compared with $158 billion at June 30, 1994. Nonperforming assets were $214 million, declining from $248 million at June 30, 1994, as new classifications were more than offset by proceeds from loan repayments and charge-offs. No provision for credit losses was deemed necessary in the 1994 third quarter. The allowance for credit losses was $1.133 billion at September 30, 1994. 8 ASSET QUALITY J.P. Morgan & Co. Incorporated _____________________________________________________________________________ _____ NONPERFORMING ASSETS
Sept. 30June 30 Dec. 31 Sept. 30 Dollars in millions 1994 1994 1993 1993 _____________________________________________________________________________ _____ Nonaccrual loans: Commercial and industrial $148 $157 $182 $183 Other 62 82 92 109 _____________________________________________________________________________ _____ 210 239 274 292 Restructuring countries 2 7 8 4 _____________________________________________________________________________ _____ Total nonaccrual loans 212 246 282 296 Other nonperforming assets 2 2 13 10 _____________________________________________________________________________ _____ Total nonperforming assets 214 248 295 306 _____________________________________________________________________________ _____ ALLOWANCE FOR CREDIT LOSSES Sept. 30June 30 Dec. 31 Sept. 30 Dollars in millions 1994 1994 1993 1993 _____________________________________________________________________________ _____ Allowance for credit losses$1,133 (a) $1,141 $1,157 $1,163 _____________________________________________________________________________ _____ Third quarter Nine months 19941993 19941993 _____________________________________________________________________________ _____ Charge-offs : Commercial and industrial ($9) ($33) ($30) ($66) Restructuring countries - - (17) (34) Other (5) (2) (12) (32) Recoveries 6 10 34 37 _____________________________________________________________________________ _____
(a) At September 30, 1994, the allocation of the allowance for credit losses was as follows: Specific allocation - borrowers in the U.S. $131 million, Specific allocation - borrowers outside the U.S. $76 million, Allocation to general risk $926 million. On January 1, 1994, the company adopted Financial Accounting Standards Board Interpretation No. 39 (FIN No. 39), Offsetting of Amounts Related to Certain Contracts, which increased both trading-related assets and trading- related liabilities by approximately $13 billion at September 30, 1994. While implementation reduced J.P. Morgan's asset-based ratios, including the leverage ratio, net income and the risk-based capital ratios were not affected. 9 FOREIGN-COUNTRY-RELATED OUTSTANDINGS Foreign-country-related outstandings represent outstandings to foreign borrowers that are denominated in U.S. dollars or currencies other than the borrower's local currency or, in the case of a guarantee, other than the guarantor's local currency. Countries in which J.P. Morgan's outstandings exceeded 0.75% of total assets at September 30, 1994, are listed in the following table. Outstandings include loans, interest-earning deposits with banks, debt investment securities, customers' acceptance liability, securities purchased under agreements to resell, trading account securities, accrued interest, and other monetary assets. Outstandings generally are distributed according to the location of the borrower. In the case of guaranteed outstandings or when tangible, liquid collateral is held and realizable outside the obligor's country, distribution is generally made according to the location of the guarantor or the location where the collateral is held and realizable. In millions Cross-border outstandings (b) _____________________________________________________________________ United Kingdom $ 4,489 France 1,909 Switzerland 1,204 Belgium 1,175 (a ) _____________________________________________________________________ (a) Includes credit-related exposures of Morgan Guaranty's Brussels office to borrowers domiciled in various countries, which are secured by marketable securities of issuers in various countries. (b) Mexican cross-border outstandings at September 30, 1994 and June 30, 1994, were $473 million and $918 million, respectively, less than 0.75% of total assets, compared with $1,276 million at March 31, 1994. Not included in Mexican cross-border outstandings are United Mexican States (UMS) bonds, substantially all of which have been sold forward, that are collateralized by U.S. Treasury securities, which are listed in the following table. The zero- coupon U.S. Treasury collateral has a face value equal to the face value of the underlying UMS bonds. The collateral, which will only become available when the UMS bonds mature, is pledged to the holders of the bonds and is held by the Federal Reserve Bank of New York. U.S. Treasury ($ in millions) UMS collatera bonds l ___________________________ ________________ Book Face Market Fair value value value value _____________________________________________________________________________ _____________ September 30, 1994 Due in 2008 $1,117 $1,152 $1,138 $383 Due in 2019 991 1,229 1,038 153 _____________________________________________________________________________ _____________ June 30, 1994 Due in 2008 $1,093 $1,128 $1,098 $395 Due in 2019 1,029 1,314 1,028 183 _____________________________________________________________________________ _____________ March 31, 1994 Due in 2008 $1,030 $1,06 $1,028 $370 3 Due in 2019 191 233 192 33 _____________________________________________________________________________ _____________ 10 CAPITAL
Sept. 30 June 30 Dec. 31 Sept. 30 1994 1994 1993 1993 _____________________________________________________________________________ ______ Stockholders' equity ($ in billions)$9.7 $9.7 $9.9 $8.4 As a percent of total period-end assets 6.3% 6.1 % 7.4% 6.5% Risk-based capital: Tier 1 risk-based capital $ 8.1 $ 8.2 $ 7.8 $ 7.7 Total risk-based capital 12.0 11.9 10.9 11.1 Risk adjusted assets 84.5 87.9 83.3 83.0 Tier 1 9.6% 9.3 % 9.3% 9.3% Total 14.3 13.5 13.0 13.3 Leverage ratio 6.3 6.2 7.3 7.0
J.P. Morgan's risk-based capital and leverage ratios remain above the minimum standards set by the Federal Reserve Board. As of December 31, 1993, the firm adopted SFAS No. 115, Accounting for Certain Investments in Debt and Equity Securities, which requires that both debt and marketable equity investment securities be carried at fair value. The risk-based capital and leverage ratios stated above do not reflect the increase in stockholders' equity caused by the implementation of this standard. The Federal Reserve Board has requested public comment on a proposal to include this adjustment in regulatory capital, but this proposal has not been finalized. At September 30, 1994, stockholders' equity included approximately $614 million, reflecting the unrealized appreciation on debt investment securities of $249 million, and $738 million on marketable equity investment securities, net the related deferred tax liability. The unrealized appreciation on debt investment securities decreased $120 million from $369 million at June 30, 1994, mainly because of the rising interest rate environment. In accordance with SFAS No. 107, Disclosures about Fair Value of Financial Instruments, J.P. Morgan estimates that the amount by which the aggregate net fair value of all balance-sheet and off-balance-sheet financial instruments exceeded associated net carrying values was $2.8 billion at September 30, 1994 and June 30, 1994, compared with $2.6 billion at December 31, 1993. The aggregate net fair value was primarily attributable to net loans and asset and liability management swaps. 11 CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated _____________________________________________________________________________ _______________
Dollars in millions, Three months ended interest and average rates ______________________________________________ _________ on a taxable-equivalent September 30, 1994 September 30, 1993 basis ______________________________________________ _________ Avera Averag Avera Avera ge e ge ge balan Intere rate balan Intere rate ce st ce st ______________________________________________ _________ ASSETS Interest-earning deposits with banks, $2,33 $ 50 8.50 % $2,75 $ 56 8.07 % mainly in offices outside 5 4 the U.S. Debt investment securities in offices in the U.S. (a): U.S. Treasury 1,057 17 6.38 1,653 18 4.32 U.S. state and political subdivision 2,201 66 11.90 2,112 67 12.59 Other 11,50 169 5.83 10,15 137 5.35 8 7 Debt investment securities in offices 5,493 98 7.08 9,046 161 7.06 outside the U.S. (a) Trading account assets: In offices in the U.S. 15,07 249 6.55 15,01 202 5.34 1 1 In offices outside the 21,40 461 8.54 17,20 334 7.70 U.S. 7 3 Securities purchased under agreements to resell and federal 29,32 404 5.47 34,58 405 4.65 funds sold, 6 9 mainly in offices in the U.S. Securities borrowed in offices in 15,76 160 4.03 16,61 125 2.99 the U.S. 3 5 Loans: In offices in the U.S. 7,689 117 6.04 8,000 118 5.85 In offices outside the 15,75 248 6.24 17,38 264 6.02 U.S. 9 9 Other interest-earning assets (b): In offices in the U.S. 1,082 78 * 870 40 * In offices outside the 456 55 * 159 58 * U.S. _____________________________________________________________________________ _______________ Total interest-earning 129,1 2,172 6.67 135,5 1,985 5.81 assets 47 58 Allowance for credit losses (1,14 (1,18 0) 4) Cash and due from banks 1,740 2,573 Other noninterest-earning 40,52 19,50 assets (c) 0 8 _____________________________________________________________________________ _______________ Total assets 170,2 156,4 67 55 _____________________________________________________________________________ _______________ Interest and average rates applying to the following asset categories have been adjusted to a taxable-equivalent basis: Debt investment securities in offices in the U.S., Trading account assets in offices in the U.S., and Loans in offices in the U.S. The applicable tax rate used to determine these adjustments was approximately 41% for the three months ended September 30, 1994 and 1993. (a) For the three months ended September 30, 1994, average debt investment securities are computed based on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. (b) Interest revenue includes the effect of certain off-balance-sheet transactions. (c) For the three months ended September 30, 1994, Other noninterest-earning assets include the impact of adopting FIN No. 39 and SFAS No. 115. * Not meaningful
12 CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated ____________________________________________________________________________ ________________
Dollars in millions, Three months ended interest and average rates ______________________________________________ _________ on a taxable-equivalent September 30, 1994 September 30, 1993 basis ______________________________________________ _________ Avera Averag Avera Averag ge e ge e balan Intere rate balan Intere rate ce st ce st ______________________________________________ _________ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: In offices in the U.S. $ $ 25 4.72 % $ $ 30 5.01 % 2,103 2,375 In offices outside the 39,77 492 4.91 31,24 427 5.42 U.S. 0 6 Trading account liabilities: In offices in the U.S. 8,102 131 6.41 9,904 130 5.21 In offices outside the 10,34 202 7.75 8,072 143 7.03 U.S. 6 Securities sold under agreements to repurchase and federal funds 42,30 501 4.70 55,94 590 4.18 purchased, mainly in 9 5 offices in the U.S. Commercial paper, mainly in offices 4,615 54 4.64 3,210 26 3.21 in the U.S. Other interest-bearing liabilities: In offices in the U.S. 8,044 100 4.93 8,077 70 3.44 In offices outside the 2,201 36 6.49 2,715 45 6.58 U.S. Long-term debt, mainly in offices in the 5,976 75 4.98 5,401 50 3.67 U.S. _____________________________________________________________________________ _______________ Total interest-bearing 123,4 1,616 5.19 126,9 1,511 4.72 liabilities 66 45 Noninterest-bearing deposits: In offices in the U.S. 3,550 5,010 In offices outside the 1,163 1,091 U.S. Other noninterest-bearing 32,37 15,21 liabilities 2 9 _____________________________________________________________________________ _______________ Total liabilities 160,5 148,2 51 65 Stockholders' equity 9,716 8,190 _____________________________________________________________________________ _______________ Total liabilities and stockholders' 170,2 156,4 equity 67 55 Net yield on interest- 1.71 1.39 earning assets _____________________________________________________________________________ _______________ Net interest earnings 556 474 _____________________________________________________________________________ _______________
13 CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated _____________________________________________________________________________ _______________
Dollars in millions, Nine months ended interest and average rates ______________________________________________ _________ on a taxable-equivalent September 30, 1994 September 30, 1993 basis ______________________________________________ _________ Avera Averag Avera Averag ge e ge e balan Intere rate balan Intere rate ce st ce st ______________________________________________ _________ ASSETS Interest-earning deposits with banks, $ $ 145 8.39 % $ $ 178 8.87 % mainly in offices outside 2,310 2,683 the U.S. Debt investment securities in offices in the U.S. (a): U.S. Treasury 1,264 55 5.82 3,011 103 4.57 U.S. state and political subdivision 2,219 201 12.11 2,184 207 12.67 Other 10,21 387 5.07 8,825 345 5.23 4 Debt investment securities in offices 6,260 318 6.79 9,583 551 7.69 outside the U.S. (a) Trading account assets: In offices in the U.S. 14,46 682 6.30 13,55 568 5.60 3 9 In offices outside the 23,22 1,303 7.50 15,59 897 7.69 U.S. 0 8 Securities purchased under agreements to resell and federal 32,51 1,151 4.73 29,09 1,038 4.77 funds sold, 5 7 mainly in offices in the U.S. Securities borrowed in offices in 15,24 411 3.60 13,99 314 3.00 the U.S. 8 1 Loans: In offices in the U.S. 7,926 322 5.43 8,435 342 5.42 In offices outside the 16,22 726 5.98 18,27 928 6.79 U.S. 2 8 Other interest-earning assets (b): In offices in the U.S. 868 164 * 567 156 * In offices outside the 658 234 * 163 93 * U.S. _____________________________________________________________________________ _______________ Total interest-earning 133,3 6,099 6.11 125,9 5,720 6.07 assets 87 74 Allowance for credit losses (1,14 (1,21 6) 3) Cash and due from banks 1,822 2,385 Other noninterest-earning 39,13 18,17 assets (c) 9 7 _____________________________________________________________________________ _______________ Total assets 173,2 145,3 02 23 _____________________________________________________________________________ _______________ Interest and average rates applying to the following asset categories have been adjusted to a taxable-equivalent basis: Debt investment securities in offices in the U.S., Trading account assets in offices in the U.S., and Loans in offices in the U.S. The applicable tax rate used to determine these adjustments was approximately 41% for the nine months ended September 30, 1994 and 1993. (a) For the nine months ended September 30, 1994, average debt investment securities are computed based on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. (b) Interest revenue includes the effect of certain off-balance-sheet transactions. (c) For the nine months ended September 30, 1994, Other noninterest-earning assets include the impact of adopting FIN No. 39 and SFAS No. 115. * Not meaningful
14 CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated ____________________________________________________________________________ ________________
Dollars in millions, Nine months ended interest and average rates ______________________________________________ _________ on a taxable-equivalent September 30, 1994 September 30, 1993 basis ______________________________________________ _________ Avera Averag Avera Averag ge e ge e balan Intere rate balan Intere rate ce st ce st ______________________________________________ _________ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: In offices in the U.S. $ $ 78 4.61 % $ $ 96 5.08 % 2,261 2,525 In offices outside the 36,52 1,308 4.79 31,51 1,384 5.87 U.S. 6 6 Trading account liabilities: In offices in the U.S. 7,801 357 6.12 8,153 333 5.46 In offices outside the 10,33 537 6.95 6,587 355 7.21 U.S. 6 Securities sold under agreements to repurchase and federal funds 49,54 1,604 4.33 49,09 1,548 4.22 purchased, mainly in 7 5 offices in the U.S. Commercial paper, mainly in offices 4,205 127 4.04 3,685 88 3.19 in the U.S. Other interest-bearing liabilities: In offices in the U.S. 7,769 241 4.15 8,345 219 3.51 In offices outside the 2,426 100 5.51 2,947 121 5.49 U.S. Long-term debt, mainly in offices in the 5,667 195 4.60 5,487 173 4.22 U.S. _____________________________________________________________________________ _______________ Total interest-bearing 126,5 4,547 4.80 118,3 4,317 4.88 liabilities 38 40 Noninterest-bearing deposits: In offices in the U.S. 3,965 4,607 In offices outside the 1,484 1,309 U.S. Other noninterest-bearing 31,42 13,25 liabilities 0 0 _____________________________________________________________________________ _______________ Total liabilities 163,4 137,5 07 06 Stockholders' equity 9,795 7,817 _____________________________________________________________________________ _______________ Total liabilities and stockholders' 173,2 145,3 equity 02 23 Net yield on interest- 1.56 1.49 earning assets _____________________________________________________________________________ _______________ Net interest earnings 1,552 1,403 _____________________________________________________________________________ _______________
15 ASSET AND LIABILITY MANAGEMENT DERIVATIVES The objective of asset and liability management activities is to maximize total return over the longer term. J.P. Morgan utilizes a variety of financial instruments, including derivatives, in its asset and liability management activities. J.P. Morgan believes the results of its asset and liability management activities should be considered on an integrated basis, not instrument by instrument, however, in response to requests from regulators, additional information on asset and liability management derivatives, primarily interest rate swaps, is provided below. For more information about asset and liability management activities, see Note 8, Off-balance-sheet financial instruments. The table below summarizes maturities and weighted average interest rates to be received and paid on U.S. dollar and non-U.S. dollar asset and liability management interest rate swaps at September 30, 1994. Included in the table are swaps entered into to meet longer-term asset and liability management objectives, including the maximization of net interest revenue. Also included in the table are swaps designated as hedges or used to modify the interest rate characteristics of assets and liabilities. In addition, a portion of the swaps included in the table may be hedged by other derivatives. Variable rates presented are generally based on the London Interbank Offered Rate (LIBOR) and reset at predetermined dates. The variable rates presented are those in effect at September 30, 1994. The table was prepared under the assumption that these variable interest rates remain constant. The variable interest rates to be received or paid will change to the extent that rates fluctuate. Such changes may be substantial. Other derivatives used for asset and liability management purposes, including currency swaps, foreign exchange contracts, purchased options, interest rate futures, and debt securities contracts, totaled $33.3 billion at September 30, 1994. The contractual maturities of these derivative contracts are primarily less than one year.
By expected maturities _____________________________________________________________________________ ________ Aft Aft Aft Aft er er er er one two thr fou Dollars in billions Wit yea yea ee r Aft hin r rs yea yea er one but but rs rs fiv Tota yea wit wit but but e l r hin hin wit wit yea two thr hin hin rs ee fou fiv r e _____________________________________________________________________________ _______ INTEREST RATE SWAPS - U.S. DOLLAR Receive fixed swaps Notional amount $18 $10 $5. $2. $2. $2. $41. .6 .4 5 2 6 3 6 Weighted average: Receive rate 5.9 % 6.4 % 6.1 % 8.1 % 7.6 % 7.2 % 6.37 % 4 2 0 7 5 2 Pay rate 4.8 4.9 4.9 4.9 4.9 4.9 4.92 9 5 3 2 6 4 Pay fixed swaps Notional amount $16 $11 $5. $7. $2. $4. $46. .4 .1 3 5 1 3 7 Weighted average: Receive rate 4.9 % 4.9 % 4.9 % 5.0 % 4.9 % 4.9 % 4.94 % 0 5 5 0 6 2 Pay rate 4.5 5.0 5.6 5.9 6.6 6.4 5.30 8 7 1 7 3 9 INTEREST RATE SWAPS - NON-U.S. DOLLAR Receive fixed swaps Notional amount $23 $21 $13 $8. $4. $5. $76. .0 .4 .7 8 7 3 9 Weighted average: Receive rate 6.5 % 5.6 % 6.8 % 6.3 % 5.5 % 7.3 % 6.33 % 4 5 5 9 7 7 Pay rate 4.8 4.2 5.2 4.7 3.8 5.6 4.74 5 9 2 2 6 5 Pay fixed swaps Notional amount $21 $15 $13 $8. $4. $5. $69. .2 .8 .3 6 5 7 1 Weighted average: Receive rate 4.8 % 4.2 % 5.2 % 4.7 % 3.8 % 5.6 % 4.78 % 5 9 2 2 6 5 Pay rate 6.4 6.3 6.4 5.6 5.5 7.5 6.35 8 3 1 6 3 1 _____________________________________________________________________________ ________ There is $2.0 billion and $3.9 billion of notional amounts related to currency swaps and basis swaps, respectively, not included in the table above.
16 INTEREST-RATE SENSITIVITY J. P. Morgan's interest-rate sensitive positions at September 30, 1994, are presented in the following table. The positions in the table include assets, liabilities, and off-balance-sheet instruments in various currencies and are reflective of J.P. Morgan's market outlook at September 30, 1994. Significant variations in interest-rate sensitivity may exist at other times during the period. Management considers a portion of net noninterest-bearing deposits to be stable and hence a constant source of funding. These noninterest-bearing deposits as well as stockholders' equity reduce the amount of purchased funds J.P. Morgan needs to fund its interest-earning as well as noninterest-earning assets.
By repricing or maturity dates _____________________________________________________________________________ _______________ Afte After Afte r six r thre month one Non- In millions: With e s but year Afte intere September 30, in mont withi but r st- 1994 thre hs n one with five bearin Tota e but year in year g l mont with five s funds hs in six _____________________________________________________________________________ _______________ ASSETS Interest-earning deposits with $ $ $ 7 - - - $ banks 2,34 130 2,47 0 7 Debt investment securities (a) 298 646 957 $ $ $ 249 18,6 5,72 10,80 81 9 2 Trading account 58,3 - - - - - 58,3 assets 47 47 Resale agreements and 25,8 - - - - - 25,8 federal funds 19 19 sold Securities 11,5 - - - - - 11,5 borrowed 17 17 Loans, net 18,3 1,78 866 1,08 510 (1,133 21,4 37 5 4 ) 49 Other assets 993 395 28 22 - 14,940 16,3 78 _____________________________________________________________________________ _________________________________ Total assets 117, 2,95 1,858 6,83 11,31 14,056 154, 651 6 5 2 668 _____________________________________________________________________________ _________________________________ LIABILITIES AND EQUITY Interest-bearing deposits 38,4 1,59 970 677 - - 41,6 07 4 48 Other money market 46,6 453 223 303 59 - 47,6 liabilities 45 83 Trading account liabilities 37,7 - - - - - 37,7 09 09 Long-term debt 1,76 262 268 1,60 2,390 - 6,28 6 1 7 Noninterest- bearing - - - - - 3,909 3,90 deposits 9 Other liabilities - - - - - 7,699 7,69 9 Stockholders' - - - - - 9,733 9,73 equity 3 _____________________________________________________________________________ _________________________________ Total liabilities and equity 124, 2,30 1,461 2,58 2,44 21,341 154, 527 9 1 9 668 _____________________________________________________________________________ _________________________________ Asset/liability interval gap (6,8 647 397 4,25 8,86 (7,285 - 76) 4 3 ) Derivatives affecting interest-rate sensitivity: Interest rate 11,2 (7,6 (1,74 990 (2,9 - - swaps 69 07) 3) 09) Other 2,98 417 (338) (926 (2,1 - - 9 ) 42) _____________________________________________________________________________ _________________________________ Total derivatives 14,2 (7,1 (2,08 64 (5,0 - - 58 90) 1) 51) _____________________________________________________________________________ _________________________________ Interest-rate -sensitivity 7,38 (6,5 (1,68 4,31 3,81 (7,285 - gap 2 43) 4) 8 2 ) _____________________________________________________________________________ _________________________________ Cumulative interest- 7,38 839 (845) 3,47 7,28 - - rate- 2 3 5 sensitivity gap _____________________________________________________________________________ _______________ (a) Mortgage-backed investment securities are included based on their weighted-average lives, reflecting anticipated future prepayments based on a consensus of dealers in the market.
17 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. (REGISTRANT) J.P. MORGAN & CO. INCORPORATED BY (SIGNATURE) /s/ JAMES T. FLYNN _______________________________________ (NAME AND TITLE) JAMES T. FLYNN CHIEF FINANCIAL OFFICER (PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER) DATE: January 17, 1995 -----END PRIVACY-ENHANCED MESSAGE-----