JPMorgan Chase Reports 2005 First-Quarter Net Income of $2.3 Billion after Litigation Charge of $558 Million and Merger Charge of $90 Million

Business Wire, April 20, 2005

Discussion of Historical Results:

Operating earnings were $243 million, an increase of $169 million from the prior year, primarily due to the merger.

Revenues were $850 million, an increase of $528 million, primarily due to the merger. In addition, net interest income of $625 million was positively affected by higher liability balances and spreads. Liability balances include deposits and deposits swept to on-balance sheet liabilities. Noninterest revenue of $225 million reflected lower fees in lieu of compensating balances and lower gains on the sale of assets acquired in the satisfaction of debt.

Provision for credit losses was a net benefit of $6 million for the quarter, compared to a net benefit of $13 million in the prior year. Net charge-offs for the quarter were $2 million.

Expenses increased $249 million to $458 million, primarily related to the merger and increased Treasury Services product unit costs.

Discussion of Proforma Combined Results:

Operating earnings were $243 million, a decrease of $46 million, or 16%, from the prior year, primarily driven by increases in the provision for credit losses and higher expenses, partially offset by slightly higher revenues.

Revenues were $850 million, an increase of $17 million, or 2%. Net interest income was $625 million, an increase of $42 million, or 7%, driven by higher liability balances, loans and increased spreads associated with liability balances, partially offset by lower loan spread. Noninterest revenue was $225 million, down $25 million, or 10%, primarily resulting from lower fees in lieu of compensating balances and lower gains on the sale of assets acquired in the satisfaction of debt. On a segment basis, revenue for Middle Market was $572 million, an increase of $29 million, or 5%, from the prior year, driven by higher spreads associated with liability balances. Corporate Banking revenue of $123 million was down $5 million, or 4%, from the prior year, driven by lower gains on the sale of assets acquired in the satisfaction of debt. Compared to the prior quarter, Corporate Banking revenue was down $19 million, or 13%, driven by a decline in investment banking revenue. Real Estate revenue of $119 million was flat to the prior year.

Provision for credit losses was a net benefit of $6 million, compared to a net benefit of $86 million in the prior year. Net charge-offs were $2 million, essentially flat to the prior year. Nonperforming loans were $433 million, a decrease of $347 million, or 44%, reflecting the continued favorable credit environment.

Expenses of $458 million increased $8 million, or 2%, reflecting higher Treasury Services product unit costs, partially offset by reductions in other direct expenses.

Other Highlights Include:

--Average loan balances of $50.0 billion were up $1.1 billion, or 2%, driven by 7% growth in the Middle Market segment. Decline from the prior quarter of $0.5 billion, or 1%, was driven by Real Estate and Corporate Banking.

--Average liability balances increased $5.0 billion, or 7%, to $71.6 billion, driven by growth in all customer segments.