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

Noninterest expense was $12.2 billion, up $1.1 billion, or 10%, from the prior year. The increase was driven by higher compensation expense, the acquisition of Bear Stearns (including merger-related costs) and higher mortgage production and servicing expense.

Key Metrics and Business Updates:

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

* Tier 1 capital ratio was 9.1% at June 30, 2008 (estimated), 8.3% at March 31, 2008, and 8.4% at June 30, 2007.

* Closed the acquisition of The Bear Stearns Companies Inc. on May 30, 2008. The agreement called for each share of Bear Stearns common stock to be exchanged for 0.21753 shares of JPMorgan Chase common stock.

* Headcount of 195,594 grew 15,930 since June 30, 2007, predominantly reflecting the Bear Stearns acquisition.

Notes:

1. In addition to analyzing the firm's results on a reported basis, management analyzes the firm's and the lines of business' results on a managed basis, which is a non-GAAP financial measure. The firm's definition of managed basis starts with the reported U.S. GAAP results and includes the following adjustments: First, for Card Services and the firm, managed basis excludes the impact of credit card securitizations on total net revenue, the provision for credit losses, net charge-offs and loan receivables. The presentation of Card Services results on a managed basis assumes that credit card loans that have been securitized and sold in accordance with SFAS 140 still remain on the balance sheet and that the earnings on the securitized loans are classified in the same manner as the earnings on retained loans recorded on the balance sheet. JPMorgan Chase uses the concept of managed basis to evaluate the credit performance and overall financial performance of the entire managed credit card portfolio. Operations are funded and decisions are made about allocating resources, such as employees and capital, based upon managed financial information. In addition, the same underwriting standards and ongoing risk monitoring are used for both loans on the balance sheet and securitized loans. Although securitizations result in the sale of credit card receivables to a trust, JPMorgan Chase retains the ongoing customer relationships, as the customers may continue to use their credit cards; accordingly, the customer's credit performance will affect both the securitized loans and the loans retained on the balance sheet. JPMorgan Chase believes managed basis information is useful to investors, enabling them to understand both the credit risks associated with the loans reported on the balance sheet and the firm's retained interests in securitized loans. Second, managed revenue (noninterest revenue and net interest income) for each of the segments and the firm is presented on a tax-equivalent basis. Accordingly, revenue from tax-exempt securities and investments that receive tax credits is presented in the managed results on a basis comparable to taxable securities and investments. This methodology allows management to assess the comparability of revenue arising from both taxable and tax-exempt sources. The corresponding income tax impact related to these items is recorded within income tax expense. See page 6 of JPMorgan Chase's Earnings Release Financial Supplement (second quarter of 2008) for a reconciliation of JPMorgan Chase's income statement from a reported to managed basis.