JPMorgan Chase Reports Second-Quarter 2008 Net Income of $2.0 Billion, or $0.54 Per Share; Net Income of $2.5 Billion Excluding Losses of $540 Million for Bear Stearns Merger-Related Items

Business Wire, July 17, 2008

Auto Finance net income was $83 million, a decrease of $2 million, or 2%, from the prior year. Net revenue was $498 million, up $48 million, or 11%, driven by higher loan balances and increased automobile operating lease revenue. The provision for credit losses was $117 million, up $25 million, reflecting higher estimated losses. The net charge-off rate was 1.07%, compared with 0.61% in the prior year. Noninterest expense of $243 million increased by $24 million, or 11%, driven by increased depreciation expense on owned automobiles subject to operating leases.

Key Metrics and Business Updates:

((All comparisons to the prior-year quarter except as noted))

* Auto loan originations were $5.6 billion, up 6%.

* Average loans were $44.7 billion, up 11%.

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Discussion of Results:

Net income was $250 million, a decline of $509 million, or 67%, from the prior year. The decrease was driven by a higher provision for credit losses.

End-of-period managed loans of $155.4 billion grew by $7.4 billion, or 5%, from the prior year and $4.4 billion, or 3%, from the prior quarter. Average managed loans of $152.8 billion increased $5.4 billion, or 4%, from the prior year and were flat from the prior quarter, reflecting seasonal patterning. The increase from the prior year in both end-of-period and average managed loans reflects organic portfolio growth.

Managed net revenue was $3.8 billion, an increase of $58 million, or 2%, from the prior year. Net interest income was $3.0 billion, up $56 million, or 2%, from the prior year. The increase in net interest income was driven by higher average managed loan balances, an increased level of fees and wider loan spreads. These benefits were offset largely by the effect of higher revenue reversals associated with higher charge-offs. Noninterest revenue of $764 million was flat compared with the prior year. Increased interchange income (the result of charge volume growth of 6%), higher revenue from fee-based products, and higher securitization income were offset by increased rewards expense and higher volume-driven payments to partners (both of which are netted against interchange income).

The managed provision for credit losses was $2.2 billion, an increase of $863 million, or 65%, from the prior year, due to a higher level of charge-offs and an increase of $300 million in the allowance for loan losses. The managed net charge-off rate for the quarter was 4.98%, up from 3.62% in the prior year and 4.37% in the prior quarter. The 30-day managed delinquency rate was 3.46%, up from 3.00% in the prior year and down from 3.66% in the prior quarter, reflecting seasonal patterning.

Noninterest expense of $1.2 billion was flat compared with the prior year.

Key Metrics and Business Updates:

((All comparisons to the prior-year quarter except as noted))

* Return on equity was 7%, down from 22%.

* Pretax income to average managed loans (ROO) was 1.04%, compared with 3.26% in the prior year and 2.52% in the prior quarter.

* Net interest income as a percentage of average managed loans was 7.92%, down from 8.04% in the prior year and 8.34% in the prior quarter.