-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ImwMQW5Wc4rZyKArv9ub6OMW4YuMDyhCDmV5anrZ3jXV/3jrHaxfShw8hYV2J/0i YQOQxIGZAxGtKPG/sOK0+A== 0000950123-98-000452.txt : 19980123 0000950123-98-000452.hdr.sgml : 19980123 ACCESSION NUMBER: 0000950123-98-000452 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19980115 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19980122 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: 8-K SEC ACT: SEC FILE NUMBER: 001-05885 FILM NUMBER: 98510573 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 8-K 1 FORM 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 -------------- FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 -------------- Date of Report (Date of earliest event reported) January 15, 1998 J.P. MORGAN & CO. INCORPORATED (Exact name of registrant as specified in its charter) DELAWARE 1-5885 13-2625764 (State or other juris- (Commission (IRS Employer diction of incorporation) File Number) Identification No.) 60 WALL STREET, NEW YORK, NEW YORK 10260-0060 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (212) 483-2323 ----------------------------------------------------------------- (Former name or former address, if changed since last report) 2 ITEM 5. OTHER EVENTS On January 15, 1998, the Registrant issued a press release announcing that Lawrence A. Bossidy has been elected a director of J.P. Morgan & Co. Incorporated, effective February 1, 1998. A copy of such press release is attached hereto as Exhibit 99a. On January 20, 1998, the Registrant issued a press release announcing its earnings for the three-month and twelve-month periods ended December 31, 1997. A copy of such press release is filed herein as Exhibit 99b. ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS (a) Financial Statements NONE. The financial statements included in this report are not required to be filed as part of this report. (b) Pro Forma Financial Information NONE. (c) Exhibits 99a.Copy of press release of J.P. Morgan & Co. Incorporated dated January 15, 1998. 99b.Copy of press release of J.P. Morgan & Co. Incorporated dated January 20, 1998. 99c.Statement of consolidated average balances and net interest earnings for the three- and twelve-month periods ended December 31, 1997. 3 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 hereunto duly authorized. J.P. MORGAN & CO. INCORPORATED _________________________________ (REGISTRANT) /s/ Grace B. Vogel _________________________________ NAME: Grace B. Vogel TITLE: Chief Accounting Officer DATE: January 15, 1998 4 EXHIBIT INDEX 99a.Copy of press release of J.P. Morgan & Co. Incorporated dated January 15, 1998. 99b.Copy of press release of J.P. Morgan & Co. Incorporated dated January 20, 1998. 99c.Statement of consolidated average balances and net interest earnings for the three- and twelve-month periods ended December 31, 1997. EX-99.A 2 COPY OF PRESS RELEASE 1 [J.P.MORGAN LETTERHEAD] News release: IMMEDIATE January 15, 1998 J.P. Morgan elects Lawrence Bossidy as a new director Lawrence A. Bossidy, Chairman and Chief Executive Officer of AlliedSignal Inc., has been elected a director of J.P. Morgan & Co. Incorporated. His election becomes effective February 1, 1998. Mr. Bossidy, 62, has served as Chief Executive of AlliedSignal since 1991 and Chairman since 1992. Prior to joining the company, he worked for 34 years at General Electric Company, where he was Vice Chairman and Executive Officer from 1984-1991. "We are very pleased to welcome Larry Bossidy to J.P. Morgan's Board," said Douglas A. Warner, chairman and CEO of Morgan. "Larry has been a member of our International Council for a number of years, offering valuable insight, perspective, and experience on key issues. We look forward to the contribution he will make as a director of our firm." Mr. Bossidy is also a director of Merck & Co. and Champion International Corporation. He is Chairman of The Business Council and a member of The Business Roundtable. Mr. Bossidy, who has served on J.P. Morgan's International Council since 1991, has stepped down from the Council with his election to Morgan's Board. Mr. Bossidy graduated in 1957 from Colgate University, where he earned a Bachelor of Arts degree in Economics. He is married with nine children. J.P. Morgan is a global banking firm that serves clients with complex financial needs through an integrated range of advisory, financing, trading, investment, and related capabilities. # # # - -------------------------------------------------------------------------------- Press contact: Joseph Evangelisti 212-648-9589 EX-99.B 3 COPY OF PRESS RELEASE 1 News release: IMMEDIATE January 20, 1998 J.P. MORGAN REPORTS FOURTH QUARTER AND 1997 FULL YEAR RESULTS J.P. Morgan & Co. Incorporated reported net income of $271 million in the fourth quarter of 1997, 35% lower than in the fourth quarter of 1996. Earnings per share for the quarter were $1.33 versus $2.04 a year ago. Net income for 1997 totaled $1.465 billion, down 7% from 1996. Earnings per share were $7.17 in 1997 versus $7.63 in 1996. Douglas A. Warner III, chairman, said: "Fourth quarter results set back Morgan's financial performance for the year. Our momentum with clients is strong, however, and our strategy remains on track: Capitalize on leadership in global markets, continue to expand our asset management business, increase investment banking market share, and improve productivity." FOURTH QUARTER AND 1997 FULL YEAR RESULTS AT A GLANCE
Fourth Quarter Year - -------------------------------------------------------------------------------------------- In millions of dollars, except per share data 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------- Revenues $ 1,680 $ 1,805 $ 7,220 $ 6,855 Operating expenses (1,308) (1,197) (5,066) (4,523) Income taxes (101) (189) (689) (758) - -------------------------------------------------------------------------------------------- Net income 271 419 1,465 1,574 Net income per share $ 1.33 $ 2.04 $ 7.17 $ 7.63 - -------------------------------------------------------------------------------------------- Dividends declared per share $ 0.95 $ 0.88 $ 3.59 $ 3.31
REVENUES were $1.680 billion in the 1997 fourth quarter, down 7% from a year ago. For 1997, revenues were $7.220 billion, up 5%. - - Finance and Advisory revenues were $439 million in the fourth quarter, down 7% from the year-ago quarter. Strong increases in advisory and underwriting activities were more than offset by lower global credit revenues. For the full year, revenues were up 10% to $1.919 billion. - - Market Making revenues were $453 million in the fourth quarter, down 24%, reflecting losses from managing equity derivative positions and declines in fixed income activities. In 1997, Market Making revenues were $2.503 billion, compared with $2.550 billion in 1996. - - Asset Management and Servicing revenues rose 20% to $436 million in the quarter, reflecting growth in investment management and private client activities. In 1997, Asset Management and Servicing revenues increased 16% to $1.610 billion. - - Equity Investments revenues were $164 million versus $45 million in the year-ago quarter. In 1997, Equity Investments revenues were $403 million, compared with $296 million for 1996. - -------------------------------------------------------------------------------- Press contact: Christopher M. Molanphy 212/648-8213 Investor contact: Ann B. Patton 212-648-9446 2 2 - - Proprietary Investing and Trading revenues were $235 million in the quarter, versus $264 million a year earlier. In 1997, Proprietary Investing and Trading revenues were $868 million, compared with $898 million in 1996. OPERATING EXPENSES rose 9% in the fourth quarter and 12% in 1997. IN OTHER DEVELOPMENTS, during the fourth quarter of 1997 J.P. Morgan designated as nonperforming approximately $587 million of exposure to Asian counterparties. Events in the region have raised credit concerns regarding certain counterparties in Indonesia, South Korea, and Thailand, countries that are subject to International Monetary Fund support programs. In the fourth quarter, the economic impact of events involving these countries on Morgan's results included a decline in global credit revenues, as the credit quality of swap counterparties deteriorated, and a decline in the value of securities held in the firm's proprietary investment portfolio, which is reflected as a decrease to equity. In December 1997, Morgan reached an agreement in principle to sell its global trust and agency services business to Citibank. It is expected that the transaction will be completed by the second quarter of 1998 and will not have a material effect on Morgan's ongoing earnings. In January 1998, Morgan completed the previously announced purchase of a 45% economic interest in American Century Companies, Inc., the fourth largest no-load U.S. mutual fund company selling directly to individuals. The remainder of this release contains information on specific areas of results, a financial summary, and the consolidated financial statements. A summary of business sector results is included on pages 12 and 13. 3 3 REVENUES BY BUSINESS SECTOR REVENUES were $1.680 billion in the fourth quarter of 1997, down 7% from a year earlier. Revenues increased 5% for the full year to $7.220 billion. Revenues from client-focused activities, which are reported in the Finance and Advisory, Market Making, and Asset Management and Servicing sectors, totaled $1.328 billion in the fourth quarter of 1997, down 7% from $1.430 billion in the year-ago quarter. For all of 1997, revenues from client-focused activities rose 6% to $6.032 billion. FINANCE AND ADVISORY (Advisory, Debt and Equity Underwriting, and Credit) revenues were $439 million in the fourth quarter of 1997, 7% below the $471 million reported in the 1996 fourth quarter. Full-year 1997 revenues were $1.919 billion, up 10% from 1996. Revenues from advisory services and debt and equity underwriting rose 20% to $271 million in the quarter, mainly because of higher levels of equity underwriting. In 1997, advisory and underwriting revenues were $1.075 billion, up 32% from 1996, reflecting record levels of investment banking activity. For 1997, Securities Data Co. ranked J.P. Morgan sixth in U.S. debt and equity underwriting, unchanged from a year ago; market share grew to 8.0% from 7.1%. The firm ranked 10th in global equity underwriting, up from 16th; market share rose to 2.1% from 1.1%. In U.S. initial public offerings, Morgan ranked fifth in 1997, up from 12th in 1996; market share advanced to 5.4% from 2.0%. In completed mergers and acquisitions worldwide, Morgan ranked seventh in 1997, with a 10.2% market share, compared with fifth in 1996. Global credit revenues declined to $168 million in the quarter from $246 million a year ago, primarily due to the impact on the value of Morgan's swaps portfolio of a deterioration in the credit quality of Asian counterparties, particularly in South Korea and Thailand. For the year, global credit revenues were $844 million, down 9% from the previous year. MARKET MAKING (Fixed Income, Equities, Foreign Exchange, and Commodities) revenues totaled $453 million in the fourth quarter, down 24% from a year earlier. In 1997, Market Making revenues were $2.503 billion, compared with $2.550 billion in 1996. Fixed income revenues in developed markets fell 20% to $228 million in the fourth quarter of 1997, mainly the result of lower revenues from market-making in corporate securities. For the full year, fixed income revenues in developed markets were $1.092 billion, down from $1.305 billion in 1996. Compared with the previous year, 1997 results principally reflected lower swaps revenues. In emerging markets, market-making revenues were $122 million in the fourth quarter and $542 million for the full year, both essentially unchanged from the prior year. Market-making in equities produced a loss of $54 million in the fourth quarter of 1997, compared with revenues of $83 million a year ago. Losses from managing equity derivative positions during a period of significant 4 4 market volatility were primarily responsible for the quarter's result. For the full year, equities market-making generated revenues of $362 million, essentially the same as in 1996. Foreign exchange revenues advanced 45% to $128 million in the fourth quarter and 46% to $430 million in 1997, reflecting strong results across all products. Commodities revenues were $29 million in the fourth quarter of 1997, up from $19 million in the year-ago quarter. For 1997, commodities revenues were $77 million, more than double the $38 million reported in 1996. ASSET MANAGEMENT AND SERVICING (Investment Management, Private Client Services, Futures and Options Brokerage, and Euroclear System) revenues were up 20% to $436 million in the fourth quarter from a year ago. Asset Management and Servicing revenues increased 16% to $1.610 billion for the full year. Revenues generated from institutional investment management activities and services for private clients increased 14% to $277 million in the fourth quarter of 1997, and 15% to $1.035 billion in 1997. Assets under management grew 20% to approximately $250 billion at December 31, 1997, compared with $208 billion at December 31, 1996. Futures and options brokerage as well as Euroclear-related revenues also increased in the quarter and full-year periods. Private clients accounted for approximately $160 million of revenues from Morgan's client-focused activities in the fourth quarter of 1997, up 34% from the year-ago quarter. Of this amount, approximately $45 million is recorded in the Finance and Advisory and Market Making sectors. For 1997, private clients accounted for approximately $615 million of client-focused revenues, up 28% from 1996, of which approximately $180 million is recorded in the Finance and Advisory and Market Making sectors. EQUITY INVESTMENTS (Equity Portfolio Management for Morgan's own account) reported revenues of $164 million in the fourth quarter, compared with $45 million a year ago. Included in reported revenues were net gains of $161 million in the current quarter, primarily related to the sale of investments in the insurance industry, versus net gains of $31 million a year ago. Total return for Equity Investments, which combines reported revenues with the change in net unrealized appreciation, was $11 million in the 1997 fourth quarter. This compares with $254 million in the fourth quarter of 1996, when results benefited from strong appreciation in investments in the insurance industry. For 1997, Equity Investments revenues were $403 million, compared with $296 million in 1996. Total return was $374 million for 1997, versus $363 million in 1996. PROPRIETARY INVESTING AND TRADING (Market and Credit Risk Positioning and Capital and Liquidity Management) revenues totaled $235 million for the 1997 fourth quarter, compared with $264 million a year ago. Total return reported revenues plus the change in net unrealized appreciation - for the 1997 fourth quarter was $22 million, compared with $228 million in the same period a year ago, as most activities produced lower returns. Approximately 30% of the change was attributable to declines in the value of securities of obligors in Indonesia, South Korea, and Thailand. For the full year, Proprietary Investing and Trading revenues were $868 million, compared with $898 million in 1996. Total return was $619 million for 1997, versus $588 million in 1996. 5 5 CORPORATE ITEMS (Revenues and expenses not allocated to business sectors, intercompany eliminations, taxable-equivalent adjustment, and results of sold or discontinued businesses) include a 1996 fourth quarter gain of $77 million related to the partial sale of a minority investment. OPERATING EXPENSES Operating expenses increased 9% to $1.308 billion in the fourth quarter from a year earlier. For the full year, operating expenses rose 12% to $5.066 billion, reflecting continued spending on client business capabilities and higher levels of business activity. Also contributing to the rise were expenditures related to initiatives to prepare for the Year 2000. At December 31, 1997, staff totaled 16,943 employees, compared with 16,525 employees at September 30, 1997, and 15,527 employees at December 31, 1996. Income tax expense in the fourth quarter totaled $101 million, based on an effective tax rate of 27%, compared with an effective rate of 31% in the year-earlier quarter. Income tax expense of $689 million for 1997 reflects an effective tax rate of 32%, compared with an effective tax rate of 32.5% in 1996. ASSETS Total assets were $262 billion at December 31, 1997, compared with $270 billion at September 30, 1997. CREDIT-RELATED ITEMS At December 31, 1997, Morgan's outstandings and commitments to counterparties in Indonesia, South Korea, and Thailand, countries that are subject to International Monetary Fund support programs, totaled approximately $5.4 billion, primarily consisting of loans, swaps, and debt investment securities. Exposures arising from swaps and debt investment securities will fluctuate with market movements. At December 31, 1997, approximate outstandings and commitments by country were: Indonesia, $900 million; South Korea, $3.4 billion; and Thailand, $1.1 billion. Of the total amount, $1.1 billion of exposure was to governments, $3.1 billion to banks (including government-sponsored institutions), and $1.2 billion to other corporate entities. During the fourth quarter of 1997, as a result of events in Asia, J.P. Morgan designated as nonperforming approximately $587 million of assets, primarily swaps. Nonperforming assets increased to $659 million at December 31, 1997, from $84 million at September 30, 1997. Charge-offs of $24 million were recorded in the quarter, related primarily to counterparties in Asia. The firm continues to actively monitor the effect of evolving events on its exposures. Morgan considers approximately 60% of the aggregate allowance for credit losses to relate to exposures to Indonesia, South Korea, and Thailand, as of December 31, 1997. The aggregate allowance, however, remains available to absorb losses inherent in J.P. Morgan's existing portfolio of loans, as well as other undertakings to extend credit or make payments, and all other credit exposures, including derivatives. At December 31, 1997, the aggregate allowance for credit losses was $1.081 billion, compared with $1.096 billion at September 30, 1997. In management's judgment, the aggregate allowance for credit losses remains at an adequate level. 6 6 CAPITAL At December 31, 1997, under the new Federal Reserve Board market risk capital guidelines for calculation of risk-based capital ratios, J.P. Morgan's estimated tier 1 and total risk-based capital ratios were 7.9% and 11.9%, respectively; the estimated leverage ratio was 4.4%. At September 30, 1997, under the new rules, J.P. Morgan's tier 1 and total risk-based capital ratios were 8.1% and 11.6%, respectively, and the leverage ratio was 4.5%. At December 31, 1997, stockholders' equity included approximately $432 million of net unrealized appreciation on debt investment and marketable equity investment securities, net the related deferred tax liability of $256 million. This compares with $598 million of net unrealized appreciation at September 30, 1997, net the related deferred tax liability of $353 million. The net unrealized appreciation on debt investment securities was $261 million and $343 million at December 31, 1997, and September 30, 1997, respectively. The net unrealized appreciation on marketable equity investment securities was $427 million at December 31, 1997, and $608 million at September 30, 1997. As previously reported, the Board of Directors in December declared an increase in the regular quarterly dividend to $0.95 per share from $0.88 per share on the company's common stock for the quarter ended December 31, 1997. The Board also approved the purchase of up to 7 million shares of J.P. Morgan common stock to lessen the dilutive impact on earnings per share of the firm's employee benefit plans. These purchases may be made in 1998 or beyond in the open market or through privately negotiated transactions. During 1997, the firm purchased 14 million J.P. Morgan common shares: approximately 7 million shares to lessen the dilutive impact on earnings per share of the firm's employee benefit plans, and approximately 7 million shares pursuant to the Board's December 1996 authorization to buy up to $750 million of common stock, financed principally with the proceeds of a November 1996 issue of trust preferred securities. # # # J.P. Morgan is a leading global financial firm that meets critical financial needs for business enterprises, governments, and individuals. The firm advises on corporate strategy and structure, raises capital, makes markets in financial instruments, and manages investment assets. Morgan also commits its own capital to promising enterprises and invests and trades to capture market opportunities. Attached are the financial summary; interim consolidated financial statements, which are unaudited; summary of sector results; trading and investment banking revenue tables; and asset quality tables. J.P. Morgan news releases, including quarterly financial results, are available on the Internet at www.jpmorgan.com. 7
FINANCIAL SUMMARY J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------ Dollars in millions, except share data Third Fourth Quarter Quarter Twelve Months ---------------------------- ------------ ---------------------------- 1997 1996 1997 1997 1996 ---------------------------------------------------------------------------- Net Income $ 271 $ 419 $ 396 $ 1,465 $ 1,574 PER COMMON SHARE Net income (a) Basic $ 1.44 $ 2.17 $ 2.10 $ 7.71 $ 8.11 Diluted 1.33 2.04 1.96 7.17 7.63 Dividends declared 0.95 0.88 0.88 3.59 3.31 Book value (b) 55.99 54.43 56.83 - -------------------------------------------------------------------------------------------------------------------------- Weighted-average number of common and dilutive potential common shares outstanding 197,357,488 201,537,658 197,776,475 199,318,315 202,010,237 - -------------------------------------------------------------------------------------------------------------------------- Dividends declared on common stock $ 167 $ 163 $ 157 $ 642 $ 617 Dividends declared on preferred stock 8 9 9 35 33 SELECTED RATIOS Annualized rate of return on average common stockholders' equity (c) 9.7% 15.3% 14.3% 13.4% 14.9% As % of period-end total assets: Common equity 4.1% 4.8% 4.1% Total equity 4.4 5.2 4.3 Regulatory capital ratios Tier 1 risk-based capital ratio (d) 7.9% (d) (d) 8.1% Total risk-based capital ratio (d)11.9 (d) (d)11.6 Leverage ratio (d) 4.4 (d) (d) 4.5 - -------------------------------------------------------------------------------------------------------------------------- AVERAGE BALANCES Debt investment securities (e) $ 21,375 $ 26,728 $ 24,473 $ 23,553 $ 25,023 Loans 33,151 29,267 31,201 30,636 28,021 Total interest-earning assets 209,870 185,351 201,723 199,049 171,654 Total assets 269,692 233,985 262,114 252,895 215,043 Total interest-bearing liabilities 201,381 177,783 196,271 191,361 163,250 Total liabilities 258,224 222,607 250,674 241,542 204,052 Common stockholders' equity 10,774 10,684 10,746 10,659 10,317 Total stockholders' equity 11,468 11,378 11,440 11,353 10,991 Net interest earnings (fully taxable basis) 472 505 489 1,944 1,787 Net yield on interest-earning assets 0.89% 1.08% 0.96% 0.98% 1.04% - -------------------------------------------------------------------------------------------------------------------------- Employees at period-end 16,943 15,527 16,525 - --------------------------------------------------------------------------------------------------------------------------
(a) Effective December 31, 1997, J.P. Morgan adopted Statement of Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128 supercedes Accounting Principles Board Opinion (APB) No. 15 and related pronouncements and replaces the computations of primary and fully diluted earnings per share (EPS) with basic and diluted EPS, respectively. Prior period amounts have been restated. Primary EPS was $1.33, $2.04, and $1.96 for the three months ended December 31, 1997, December 31, 1996, and September 30, 1997, respectively, and $7.17 and $7.63 for the twelve months ended December 31, 1997 and 1996, respectively. Fully diluted EPS was $1.33, $2.03, and $1.95 for the three months ended December 31, 1997, December 31, 1996 and September 30, 1997, respectively, and $7.15 and $7.56 for the twelve months ended December 31, 1997 and 1996, respectively. (b) Excluding the impact of SFAS No. 115, the book value per common share would have been $53.74, $52.08, and $53.73 at December 31, 1997, December 31, 1996, and September 30, 1997, respectively. (c) Excluding the impact of SFAS No. 115, the annualized rate of return on average common stockholders' equity would have been 10.2%, 15.9%, and 15.0% for the three months ended December 31, 1997, December 31, 1996, and September 30, 1997, respectively, and 14.1% and 15.6% for the twelve months ended December 31, 1997 and 1996, respectively. (d) As of September 30, 1997, J.P. Morgan adopted the Federal Reserve Board's new market risk capital guidelines for calculation of risk-based capital ratios, in advance of the mandatory implementation date of January 1, 1998. The new framework amended the existing guidelines by incorporating a measure of market risk for trading positions. In addition, the capital and assets of the Section 20 subsidiary, J.P. Morgan Securities Inc., are no longer excluded from the calculations; however, the effect of SFAS No. 115 continues to be excluded. Risk-based capital ratios for December 31, 1997 are estimates. Ratios at December 31, 1996 have not been restated. In accordance with the Federal Reserve Board's guidelines followed prior to September 30, 1997, ratios at December 31, 1996 exclude the equity, assets, and off-balance sheet exposures of J.P. Morgan Securities Inc. and the effect of SFAS No. 115. The tier 1 risk-based capital ratio, total risk-based capital ratio, and leverage ratio computed under such former guidelines were 8.8%, 12.2%, and 5.9%, respectively, at December 31, 1996. (e) Average debt investment securities are computed on historical amortized cost, excluding the effects of SFAS No. 115 adjustments. 8 8 CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated In millions, except share data
Three months ended -------------------------------------------------------------------- December 31 December 31 Increase/ September 30 Increase/ 1997 1996 (Decrease) 1997 (Decrease) -------------------------------------------------------------------- NET INTEREST REVENUE Interest revenue $3,271 $2,925 $ 346 $3,161 $ 110 Interest expense 2,816 2,441 375 2,689 127 - ---------------------------------------------------------------------------------------------------------- Net interest revenue 455 484 (29) 472 (17) NONINTEREST REVENUE Trading revenue 306 512 (206) 657 (351) Investment banking revenue 283 277 6 320 (37) Investment management revenue 208 182 26 201 7 Fees and commissions 179 152 27 164 15 Investment securities revenue 167 84 83 67 100 Other revenue 82 114 (32) 35 47 - ---------------------------------------------------------------------------------------------------------- Total noninterest revenue 1,225 1,321 (96) 1,444 (219) Total revenue, net of interest expense 1,680 1,805 (125) 1,916 (236) OPERATING EXPENSES Employee compensation and benefits 729 732 (3) 798 (69) Net occupancy 79 73 6 77 2 Technology and communications 305 221 84 277 28 Other expenses 195 171 24 174 21 - ---------------------------------------------------------------------------------------------------------- Total operating expenses 1,308 1,197 111 1,326 (18) Income before income taxes 372 608 (236) 590 (218) Income taxes 101 189 (88) 194 (93) - ---------------------------------------------------------------------------------------------------------- Net income 271 419 (148) 396 (125) PER COMMON SHARE Net income Basic $ 1.44 $ 2.17 ($0.73) $ 2.10 ($0.66) Diluted 1.33 2.04 (0.71) 1.96 (0.63) Dividends declared 0.95 0.88 0.07 0.88 0.07 - ----------------------------------------------------------------------------------------------------------
9 9 CONSOLIDATED STATEMENT OF INCOME J.P. Morgan & Co. Incorporated In millions, except share data
Twelve months ended --------------------------------------- December 31 December 31 Increase/ 1997 1996 (Decrease) --------------------------------------- NET INTEREST REVENUE Interest revenue $12,353 $10,713 $ 1,640 Interest expense 10,481 9,011 1,470 - -------------------------------------------------------------------------------- Net interest revenue 1,872 1,702 170 NONINTEREST REVENUE Trading revenue 2,137 2,477 (340) Investment banking revenue 1,123 921 202 Investment management revenue 792 675 117 Fees and commissions 647 582 65 Investment securities revenue 409 303 106 Other revenue 240 195 45 - -------------------------------------------------------------------------------- Total noninterest revenue 5,348 5,153 195 Total revenue, net of interest expense 7,220 6,855 365 OPERATING EXPENSES Employee compensation and benefits 3,027 2,884 143 Net occupancy 333 296 37 Technology and communications 1,025 785 240 Other expenses 681 558 123 - -------------------------------------------------------------------------------- Total operating expenses 5,066 4,523 543 Income before income taxes 2,154 2,332 (178) Income taxes 689 758 (69) - -------------------------------------------------------------------------------- Net income 1,465 1,574 (109) PER COMMON SHARE Net income Basic $ 7.71 $ 8.11 ($ 0.40) Diluted 7.17 7.63 (0.46) Dividends declared 3.59 3.31 0.28 - --------------------------------------------------------------------------------
10 10 CONSOLIDATED BALANCE SHEET J.P. Morgan & Co. Incorporated
In millions, except share data December 31 September 30 December 31 1997 1997 1996 --------------------------------------- ASSETS Cash and due from banks $ 1,758 $ 813 $ 906 Interest-earning deposits with banks 2,132 1,813 1,908 Debt investment securities available-for-sale carried at fair value (cost: $22,507 at December 1997, $21,915 at September 1997, and $24,610 at December 1996) 22,768 22,258 24,865 Equity investment securities 1,085 1,363 1,290 Trading account assets, net of allowance for credit losses of $350 111,854 115,144 90,980 Securities purchased under agreements to resell ($39,002 at December 1997, $44,040 at September 1997, and $32,455 at December 1996) and federal funds sold 39,002 44,058 32,505 Securities borrowed 38,375 38,824 27,931 Loans, net of allowance for credit losses of $546 at December 1997, $546 at September 1997, and $566 at December 1996 31,032 31,449 27,554 Accrued interest and accounts receivable 4,962 5,859 6,766 Premises and equipment, net of accumulated depreciation of $1,379 at December 1997, $1,345 at September 1997, and $1,272 at December 1996 1,838 1,815 1,865 Other assets 7,353 6,199 5,456 - ------------------------------------------------------------------------------------------------------------------------------------ Total assets 262,159 269,595 222,026 - ------------------------------------------------------------------------------------------------------------------------------------ LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 1,482 1,022 1,501 In offices outside the U.S. 744 749 708 Interest-bearing deposits: In offices in the U.S. 9,232 8,970 7,103 In offices outside the U.S. 47,421 44,785 43,412 - ------------------------------------------------------------------------------------------------------------------------------------ Total deposits 58,879 55,526 52,724 Trading account liabilities 71,141 69,799 50,919 Securities sold under agreements to repurchase ($53,202 at December 1997, $69,009 at September 1997, and $56,117 at December 1996) and federal funds purchased 57,804 74,473 61,429 Commercial paper 6,622 5,267 4,132 Other liabilities for borrowed money 17,176 17,477 19,948 Accounts payable and accrued expenses 10,865 9,341 5,935 Long-term debt not qualifying as risk-based capital 18,246 17,229 9,411 Other liabilities, including allowance for credit losses of $185 at December 1997, $200 at September 1997, and $200 at December 1996 4,129 3,538 1,654 - ------------------------------------------------------------------------------------------------------------------------------------ 244,862 252,650 206,152 Long-term debt qualifying as risk-based capital 4,743 4,163 3,692 Company-obligated mandatorily redeemable preferred securities of subsidiaries 1,150 1,150 750 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities 250,755 257,963 210,594 STOCKHOLDERS' EQUITY Preferred stock (authorized shares: 10,400,000) Adjustable rate cumulative preferred stock, $100 par value (issued and outstanding: 2,444,300) 244 244 244 Variable cumulative preferred stock, $1,000 par value (issued and outstanding: 250,000) 250 250 250 Fixed cumulative preferred stock, $500 par value (issued and outstanding: 400,000) 200 200 200 Common stock, $2.50 par value (authorized shares: 500,000,000; issued: 200,692,673 at December 1997, 200,691,873 at September 1997, and 200,688,123 at December 1996) 502 502 502 Capital surplus 1,360 1,380 1,446 Retained earnings 9,398 9,308 8,635 Net unrealized gains on investment securities, net of taxes 432 598 464 Other 1,163 1,070 826 - ------------------------------------------------------------------------------------------------------------------------------------ 13,549 13,552 12,567 Less: treasury stock (24,374,944 shares at December 1997, 22,487,572 shares at September 1997, and 15,765,455 shares at December 1996) at cost 2,145 1,920 1,135 - ------------------------------------------------------------------------------------------------------------------------------------ Total stockholders' equity 11,404 11,632 11,432 - ------------------------------------------------------------------------------------------------------------------------------------ Total liabilities and stockholders' equity 262,159 269,595 222,026 - ------------------------------------------------------------------------------------------------------------------------------------
Certain prior period amounts have been reclassified to conform with the December 31, 1997 presentation. 11 11 CONSOLIDATED STATEMENT OF CONDITION Morgan Guaranty Trust Company of New York
In millions, except share data December 31 December 31 1997 1996 ---------------------------- ASSETS Cash and due from banks $ 1,663 $ 920 Interest-earning deposits with banks 2,195 1,910 Debt investment securities available-for-sale carried at fair value 20,539 23,510 Trading account assets, net of allowance for credit losses of $350 88,995 72,549 Securities purchased under agreements to resell and federal funds sold 28,045 21,081 Securities borrowed 13,831 6,681 Loans, net of allowance for credit losses of $545 at December 1997 and $565 at December 1996 30,851 27,378 Accrued interest and accounts receivable 4,534 5,858 Premises and equipment, net of accumulated depreciation of $1,208 at December 1997 and $1,116 at December 1996 1,669 1,696 Other assets 4,096 3,230 - ----------------------------------------------------------------------------------------------------------------------------- Total assets 196,418 164,813 - ----------------------------------------------------------------------------------------------------------------------------- LIABILITIES Noninterest-bearing deposits: In offices in the U.S. 1,492 1,495 In offices outside the U.S. 752 749 Interest-bearing deposits: In offices in the U.S. 10,156 7,114 In offices outside the U.S. 48,343 43,716 - ----------------------------------------------------------------------------------------------------------------------------- Total deposits 60,743 53,074 Trading account liabilities 61,562 44,039 Securities sold under agreements to repurchase and federal funds purchased 26,017 30,787 Other liabilities for borrowed money 10,433 13,215 Accounts payable and accrued expenses 7,160 4,203 Long-term debt not qualifying as risk-based capital 14,320 5,436 Other liabilities, including allowance for credit losses of $185 at December 1997 and $200 at December 1996 2,713 1,189 - ----------------------------------------------------------------------------------------------------------------------------- 182,948 151,943 Long-term debt qualifying as risk-based capital 3,037 2,979 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities 185,985 154,922 STOCKHOLDER'S EQUITY Preferred stock, $100 par value (authorized shares: 2,500,000) -- -- Common stock, $25 par value (authorized shares: 11,000,000; outstanding: 10,599,027) 265 265 Surplus 3,155 3,155 Undivided profits 6,927 6,334 Net unrealized gains on investment securities, net of taxes 108 149 Foreign currency translation (22) (12) - ----------------------------------------------------------------------------------------------------------------------------- Total stockholder's equity 10,433 9,891 - ----------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholder's equity 196,418 164,813 - -----------------------------------------------------------------------------------------------------------------------------
Member of the Federal Reserve System and the Federal Deposit Insurance Corporation. Certain prior year amounts have been reclassified to conform with the 1997 presentation. 12 12 SUMMARY OF SECTOR RESULTS J.P. Morgan & Co. Incorporated
- ---------------------------------------------------------------------------------------------------------------------------------- Asset TOTAL Finance Manage- CLIENT- Equity Proprietary TOTAL and Market ment and FOCUSED Invest- Investing PROPRIETARY Corporate CONSOL- In millions Advisory Making Servicing ACTIVITIES ments and Trading ACTIVITIES Items IDATED - ---------------------------------------------------------------------------------------------------------------------------------- FOURTH QUARTER 1997 Total revenues $ 439 $ 453 $ 436 $ 1,328 $ 164 $ 235 $ 399 $ (47) $ 1,680 Total expenses 320 558 372 1,250 13 38 51 7 1,308 - ---------------------------------------------------------------------------------------------------------------------------------- Pretax income 119 (105) 64 78 151 197 348 (54) 372 - ---------------------------------------------------------------------------------------------------------------------------------- FOURTH QUARTER 1996 Total revenues 471 595 364 1,430 45 264 309 66 1,805 Total expenses 320 468 313 1,101 11 44 55 41 1,197 - ---------------------------------------------------------------------------------------------------------------------------------- Pretax income 151 127 51 329 34 220 254 25 608 - ---------------------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), FOURTH QUARTER 1997 VS FOURTH QUARTER 1996 Total revenues (32) (142) 72 (102) 119 (29) 90 (113) (125) Total expenses -- 90 59 149 2 (6) (4) (34) 111 - ---------------------------------------------------------------------------------------------------------------------------------- Pretax income (32) (232) 13 (251) 117 (23) 94 (79) (236) - ---------------------------------------------------------------------------------------------------------------------------------- THIRD QUARTER 1997 Total revenues 548 669 407 1,624 66 241 307 (15) 1,916 Total expenses 343 528 339 1,210 10 49 59 57 1,326 - ---------------------------------------------------------------------------------------------------------------------------------- Pretax income 205 141 68 414 56 192 248 (72) 590 - ---------------------------------------------------------------------------------------------------------------------------------- INCREASE/(DECREASE), FOURTH QUARTER 1997 VS THIRD QUARTER 1997 Total revenues (109) (216) 29 (296) 98 (6) 92 (32) (236) Total expenses (23) 30 33 40 3 (11) (8) (50) (18) - ---------------------------------------------------------------------------------------------------------------------------------- Pretax income (86) (246) (4) (336) 95 5 100 18 (218) - ----------------------------------------------------------------------------------------------------------------------------------
BUSINESS SECTORS: We describe the activities of J.P. Morgan using five business sectors. Three of these sectors - Finance and Advisory, Market Making, and Asset Management and Servicing - focus on services we provide for clients, including positions taken to facilitate client transactions. Two sectors comprise proprietary activities that we conduct exclusively for our own account: Equity Investments and Proprietary Investing and Trading. The Finance and Advisory sector includes results of our Advisory, Debt and Equity Underwriting, and Credit activities. The Market Making sector includes results of our Fixed Income, Equities, Foreign Exchange, and Commodities activities. The Asset Management and Servicing sector includes results of our Investment Management, Private Client Services, Futures and Options Brokerage, and Euroclear System activities. Corporate Items includes revenues and expenses that have not been allocated to the five business sectors, intercompany eliminations, and the taxable-equivalent adjustment. For a complete description of our business sectors, please refer to the J.P. Morgan & Co. Incorporated 1996 Annual report. METHODOLOGY: The firm's management reporting system and policies were used to determine the revenues and expenses directly attributable to each business sector. Earnings on stockholders' equity were allocated based on management's assessment of the inherent risk of the components of each sector. In addition, certain overhead expenses not allocated for management reporting purposes were allocated to each business sector. Overhead expenses were allocated based primarily on staff levels and represent costs associated with various support functions that exist for the benefit of the firm as a whole. Certain prior year amounts have been reclassified to conform with the 1997 presentation. Effective January 1, 1997, as compensation for managing the firm's credit risk, Global Credit receives fees from other Morgan businesses. Such fees are included as revenues in the Finance and Advisory sector and as a reduction in revenues reported by businesses on whose behalf such credit risk is managed. 13 13 SUMMARY OF SECTOR RESULTS J.P. Morgan & Co. Incorporated
- ------------------------------------------------------------------------------------------------------------------------------------ Asset Total Finance Manage- Client- Equity Proprietary Total and Market ment and Focused Invest- Investing Proprietary Corporate Consol- In millions Advisory Making Servicing Activities ments and Trading Activities Items idated - ------------------------------------------------------------------------------------------------------------------------------------ TWELVE MONTHS 1997 Total revenues $1,919 $2,503 $1,610 $6,032 $403 $868 $1,271 ($83) $7,220 Total expenses 1,316 2,015 1,331 4,662 41 178 219 185 5,066 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 603 488 279 1,370 362 690 1,052 (268) 2,154 - ------------------------------------------------------------------------------------------------------------------------------------ TWELVE MONTHS 1996 Total revenues 1,742 2,550 1,390 5,682 296 898 1,194 (21) 6,855 Total expenses 1,108 1,739 1,140 3,987 34 153 187 349 4,523 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income 634 811 250 1,695 262 745 1,007 (370) 2,332 - ------------------------------------------------------------------------------------------------------------------------------------ INCREASE/(DECREASE), TWELVE MONTHS 1997 VS. TWELVE MONTHS 1996 Total revenues 177 (47) 220 350 107 (30) 77 (62) 365 Total expenses 208 276 191 675 7 25 32 (164) 543 - ------------------------------------------------------------------------------------------------------------------------------------ Pretax income (31) (323) 29 (325) 100 (55) 45 102 (178) - ------------------------------------------------------------------------------------------------------------------------------------
Fourth Fourth Third Twelve Twelve Quarter Quarter Increase/ Quarter Increase/ Months Months Increase/ In millions 1997 1996 (Decrease) 1997 (Decrease) 1997 1996 (Decrease) - ------------------------------------------------------------------------------------------------------------------------------------ REVENUES Advisory & Underwriting $271 $225 $46 $328 ($57) $1,075 $814 $261 Global Credit 168 246 (78) 220 (52) 844 928 (84) - ------------------------------------------------------------------------------------------------------------------------------------ FINANCE AND ADVISORY 439 471 (32) 548 (109) 1,919 1,742 177 - ------------------------------------------------------------------------------------------------------------------------------------ Fixed Income 228 286 (58) 333 (105) 1,092 1,305 (213) Emerging Markets 122 119 3 111 11 542 547 (5) Equities (54) 83 (137) 106 (160) 362 366 (4) Foreign Exchange 128 88 40 99 29 430 294 136 Commodities 29 19 10 20 9 77 38 39 - ------------------------------------------------------------------------------------------------------------------------------------ MARKET MAKING 453 595 (142) 669 (216) 2,503 2,550 (47) - ------------------------------------------------------------------------------------------------------------------------------------ Asset Management Services (a) 277 242 35 259 18 1,035 902 133 Securities and Futures Services 159 122 37 148 11 575 488 87 - ------------------------------------------------------------------------------------------------------------------------------------ ASSET MANAGEMENT AND SERVICING 436 364 72 407 29 1,610 1,390 220 - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL CLIENT-FOCUSED REVENUES 1,328 1,430 (102) 1,624 (296) 6,032 5,682 350 - ------------------------------------------------------------------------------------------------------------------------------------ EQUITY INVESTMENTS 164 45 119 66 98 403 296 107 - ------------------------------------------------------------------------------------------------------------------------------------ PROPRIETARY INVESTING AND TRADING 235 264 (29) 241 (6) 868 898 (30) - ------------------------------------------------------------------------------------------------------------------------------------ TOTAL PROPRIETARY REVENUES 399 309 90 307 92 1,271 1,194 77 - ------------------------------------------------------------------------------------------------------------------------------------ CORPORATE ITEMS (47) 66 (113) (15) (32) (83) (21) (62) - ------------------------------------------------------------------------------------------------------------------------------------ CONSOLIDATED REVENUES 1,680 1,805 (125) 1,916 (236) 7,220 6,855 365 - ------------------------------------------------------------------------------------------------------------------------------------
(a) Includes Institutional Investment Management and Private Client Services The activities of our Fixed Income, Emerging Markets, and Equities businesses are reflected across several sectors. Aggregate revenues for these businesses for the twelve months ended December 31 follows: Fixed Income - $1,582 million (1997) and $1,747 million (1996); Emerging Markets - $630 million (1997) and $579 million (1996); and, Equities - $700 million (1997) and $579 million (1996). 14 14
TRADING REVENUE AND RELATED NET INTEREST REVENUE J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------------- In millions - ----------------------------------------------------------------------------------------------------------------------------------- TOTAL NET FIXED FOREIGN PROPRIETARY TRADING INTEREST COMBINED INCOME EQUITIES EXCHANGE COMMODITIES TRADING REVENUE REVENUE TOTAL - ----------------------------------------------------------------------------------------------------------------------------------- Fourth Quarter 1997 $126 ($142) $202 $32 $88 $306 $110 $416 Fourth Quarter 1996 273 69 84 10 76 512 113 625 - ----------------------------------------------------------------------------------------------------------------------------------- Third Quarter 1997 416 51 78 17 95 657 118 775 - ----------------------------------------------------------------------------------------------------------------------------------- Twelve Months 1997 1,138 190 472 64 273 2,137 509 2,646 Twelve Months 1996 1,540 330 320 34 253 2,477 250 2,727 - -----------------------------------------------------------------------------------------------------------------------------------
INVESTMENT BANKING REVENUE J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------------ In millions - ------------------------------------------------------------------------------------------------------------------------------------ ADVISORY AND UNDERWRITING TOTAL INVESTMENT SYNDICATION FEES REVENUE BANKING REVENUE - ------------------------------------------------------------------------------------------------------------------------------------ Fourth Quarter 1997 $166 $117 $283 Fourth Quarter 1996 183 94 277 Twelve Months 1997 637 486 1,123 Twelve Months 1996 568 353 921 - -----------------------------------------------------------------------------------------------------------------------------------
15 15
ASSET QUALITY J.P. Morgan & Co. Incorporated - -------------------------------------------------------------------------------------- NONPERFORMING ASSETS December 31 September 30 December 31 In millions 1997 1997 1996 ---- --- ---- Impaired loans: Commercial and industrial $ 55 $46 $ 89 Banks and other financial institutions 30 5 -- Other 28 29 31 - --------------------------------------------------------------------------------------- Total impaired loans 113 80 120 Other nonperforming assets, primarily swaps 546 4 -- - --------------------------------------------------------------------------------------- Total nonperforming assets 659 84 120 - ---------------------------------------------------------------------------------------
AGGREGATE ALLOWANCE FOR CREDIT LOSSES December 31 September 30 December 31 In millions 1997 1997 1996 ----------- ------------ ----------- Aggregate allowance for credit losses $1,081 $1,096 $1,116 - ------------------------------------------------------------------------------------------------------------------
Fourth Quarter Twelve Months --------------- ---------------- 1997 1996 1997 1996 ---- ---- --- ---- Charge-offs: Commercial and industrial ($21) ($2) ($60) ($30) Banks and other financial institutions (3) -- (17) -- Other -- (2) (2) (9) Recoveries 9 7 45 25 Translation adjustment -- -- (1) -- - ---------------------------------------------------------------------------------------
EX-99.C 4 CONS. AVERAGE BALANCES AND NET INTEREST EARNINGS 1 1
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated - ------------------------------------------------------------------------------------------------------------------------------------ Dollars in millions, Interest and average rates on a taxable-equivalent basis Three months ended ---------------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 ---------------------------------------------------------------------------------------- Average Average Average Average balance Interest rate balance Interest rate ---------------------------------------------------------------------------------------- ASSETS Interest-earning deposits with banks, mainly in offices outside the U.S. $ 2,305 $ 75 12.91% $ 2,071 $ 29 5.57% Debt investment securities in offices in the U.S. (a): U.S. Treasury 1,219 22 7.16 3,002 44 5.83 U.S. state and political subdivision 1,174 34 11.49 1,496 43 11.43 Other 15,957 247 6.14 16,708 275 6.55 Debt investment securities in offices outside the U.S. (a) 3,025 57 7.48 5,522 74 5.33 Trading account assets: In offices in the U.S. 30,292 484 6.34 19,100 280 5.83 In offices outside the U.S. 37,935 676 7.07 38,328 740 7.68 Securities purchased under agreements to resell and federal funds sold, In offices in the U.S. 15,372 247 6.37 18,148 250 5.48 In offices outside the U.S. 26,705 310 4.61 22,318 265 4.72 Securities borrowed, mainly in offices in the U.S. 41,221 500 4.81 27,899 365 5.20 Loans: In offices in the U.S. 5,712 100 6.95 5,546 92 6.60 In offices outside the U.S. 27,439 455 6.58 23,721 371 6.22 Other interest-earning assets (b): In offices in the U.S. 943 37 * 675 51 * In offices outside the U.S. 571 44 * 817 67 * - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 209,870 3,288 6.22 185,351 2,946 6.32 Allowance for credit losses (c) (897) (1,113) Cash and due from banks 775 1,082 Other noninterest-earning assets 59,944 48,665 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets 269,692 233,985 - -----------------------------------------------------------------------------------------------------------------------------------
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 December 31, 1997 and 1996. (a) For the three months ended December 31, 1997 and 1996, 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) Average amount at December 31, 1997 is based on the portions of the aggregate allowance for credit losses related only to loans and trading account assets. Average amount at December 31, 1996 is substantially based on the aggregate allowance for credit losses. * Not meaningful. 2 2
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------- Dollars in millions, Interest and average rates Three months ended on a taxable-equivalent basis --------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 --------------------------------------------------------------------------------- Average Average Average Average balance Interest rate balance Interest rate --------------------------------------------------------------------------------- LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: In offices in the U.S. $ 9,900 $ 137 5.49% $ 7,944 $ 109 5.46% In offices outside the U.S. 47,620 573 4.77 45,049 537 4.74 Trading account liabilities: In offices in the U.S. 13,142 236 7.12 8,127 127 6.22 In offices outside the U.S. 16,149 238 5.85 11,812 218 7.34 Securities sold under agreements to repurchase and federal funds purchased, mainly in offices in the U.S. 68,364 915 5.31 69,511 911 5.21 Commercial paper, mainly in offices in the U.S. 6,086 84 5.48 4,082 56 5.46 Other interest-bearing liabilities: In offices in the U.S. 14,410 234 6.44 15,772 231 5.83 In offices outside the U.S. 3,111 56 7.14 2,856 59 8.22 Long-term debt, mainly in offices in the U.S. 22,599 343 6.02 12,630 193 6.08 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 201,381 2,816 5.55 177,783 2,441 5.46 Noninterest-bearing deposits: In offices in the U.S. 1,028 1,872 In offices outside the U.S. 594 481 Other noninterest-bearing liabilities 55,221 42,471 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 258,224 222,607 Stockholders' equity 11,468 11,378 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 269,692 233,985 Net yield on interest-earning assets 0.89 1.08 - -------------------------------------------------------------------------------------------------------------------------- Net interest earnings 472 505 - --------------------------------------------------------------------------------------------------------------------------
3 3
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------------- Dollars in millions, Interest and average rates Twelve months ended on a taxable-equivalent basis -------------------------------------------------------------------------------------- December 31, 1997 December 31, 1996 -------------------------------------------------------------------------------------- Average Average Average Average balance Interest rate balance Interest rate -------------------------------------------------------------------------------------- ASSETS Interest-earning deposits with banks, mainly in offices outside the U.S. $ 2,035 $ 199 9.78% $ 2,022 $ 110 5.44% Debt investment securities in offices in the U.S.(a): U.S. Treasury 1,296 95 7.33 1,581 106 6.70 U.S. state and political subdivision 1,264 148 11.71 1,591 183 11.50 Other 17,260 1,095 6.34 17,399 1,109 6.37 Debt investment securities in offices outside the U.S.(a) 3,733 273 7.31 4,452 271 6.09 Trading account assets: In offices in the U.S. 25,245 1,587 6.29 16,591 994 5.99 In offices outside the U.S. 39,367 2,693 6.84 29,656 2,285 7.71 Securities purchased under agreements to resell and federal funds sold, In offices in the U.S. 15,660 895 5.72 24,653 1,269 5.15 In offices outside the U.S. 24,785 1,164 4.70 18,411 985 5.35 Securities borrowed, mainly in offices in the U.S. 36,287 1,784 4.92 25,310 1,284 5.07 Loans: In offices in the U.S. 5,146 381 7.40 6,227 418 6.71 In offices outside the U.S. 25,490 1,661 6.52 21,794 1,371 6.29 Other interest-earning assets (b): In offices in the U.S. 774 168 * 940 139 * In offices outside the U.S. 707 282 * 1,027 274 * - ----------------------------------------------------------------------------------------------------------------------------------- Total interest-earning assets 199,049 12,425 6.24 171,654 10,798 6.29 Allowance for credit losses (c) (911) (1,119) Cash and due from banks 797 935 Other noninterest-earning assets 53,960 43,573 - ----------------------------------------------------------------------------------------------------------------------------------- Total assets 252,895 215,043 - -----------------------------------------------------------------------------------------------------------------------------------
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 twelve months ended December 31, 1997 and 1996. (a) For the twelve months ended December 31, 1997 and 1996, 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) Average amount at December 31, 1997 is based on the portions of the aggregate allowance for credit losses related only to loans and trading account assets. Average amount at December 31, 1996 is substantially based on the aggregate allowance for credit losses. * Not meaningful. 4 4
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS J.P. Morgan & Co. Incorporated - ----------------------------------------------------------------------------------------------------------------------------- Dollars in millions, Interest and average rates Twelve months ended on a taxable-equivalent basis ------------------------------------------------------------------------------------ December 31, 1997 December 31, 1996 ------------------------------------------------------------------------------------ Average Average Average Average balance Interest rate balance Interest rate ------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Interest-bearing deposits: In offices in the U.S. $ 9,676 $ 538 5.56% $ 3,962 $ 204 5.15% In offices outside the U.S. 46,254 2,215 4.79 45,148 2,337 5.18 Trading account liabilities: In offices in the U.S. 11,390 785 6.89 8,295 522 6.29 In offices outside the U.S. 14,291 867 6.07 11,056 780 7.05 Securities sold under agreements to repurchase and federal funds purchased, mainly in offices in the U.S. 67,121 3,532 5.26 63,424 3,295 5.20 Commercial paper, mainly in offices in the U.S. 4,858 262 5.39 4,133 225 5.44 Other interest-bearing liabilities: In offices in the U.S. 15,590 958 6.14 14,331 819 5.71 In offices outside the U.S. 4,026 227 5.64 2,258 204 9.03 Long-term debt, mainly in offices in the U.S. 18,155 1,097 6.04 10,643 625 5.87 - -------------------------------------------------------------------------------------------------------------------------- Total interest-bearing liabilities 191,361 10,481 5.48 163,250 9,011 5.52 Noninterest-bearing deposits: In offices in the U.S. 1,033 2,298 In offices outside the U.S. 452 737 Other noninterest-bearing liabilities 48,696 37,767 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities 241,542 204,052 Stockholders' equity 11,353 10,991 - -------------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity 252,895 215,043 Net yield on interest-earning assets 0.98 1.04 - -------------------------------------------------------------------------------------------------------------------------- Net interest earnings 1,944 1,787 - --------------------------------------------------------------------------------------------------------------------------
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