JPMorgan Chase Reports Third-Quarter 2008 Net Income of $527 Million, or $0.11 Per Share, Including Estimated Losses of $640 Million or $0.18 Per Share For Washington Mutual Merger-Related Items

Business Wire, Oct 15, 2008

Net revenue was $1.1 billion, an increase of $116 million, or 11%, from the prior year. Net interest income was $737 million, up $18 million, or 3%, driven by double-digit growth in loan and liability balances, predominantly offset by spread compression in the liability and loan portfolios. Noninterest revenue was $388 million, an increase of $98 million, or 34%, from the prior year, reflecting higher deposit-related fees, investment banking fees, and other income.

Middle Market Banking revenue was $729 million, an increase of $49 million, or 7%, from the prior year. Mid-Corporate Banking revenue was $236 million, an increase of $69 million, or 41%. Real Estate Banking revenue was $91 million, a decline of $17 million, or 16%.

The provision for credit losses was $126 million, an increase of $14 million, or 13%, compared with the prior year. The current-quarter provision reflects a weakening credit environment and growth in loan balances. The allowance for loan losses to total loans retained was 2.65% for the current quarter, in line with the prior year and up from 2.61% in the prior quarter. Nonperforming loans were $572 million, up $438 million from the prior year and up $86 million from the prior quarter, reflecting increases across all businesses and the effect of a weakening credit environment. Net charge-offs were $40 million (0.22% net charge-off rate), compared with $20 million (0.13% net charge-off rate) in the prior year and $49 million (0.28% net charge-off rate) in the prior quarter.

Noninterest expense was $486 million, an increase of $13 million, or 3%, from the prior year, due to higher performance-based compensation expense.

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* Overhead ratio was 43%, an improvement from 47%.

* Gross investment banking revenue (which is shared with the Investment Bank) was $252 million, an increase of $58 million, or 30%.

* Average loan balances were $72.3 billion, up $11.0 billion, or 18%, and up $1.2 billion, or 2%, from the prior quarter.

* Average liability balances were $99.4 billion, up $11.3 billion, or 13%, and in line with the prior quarter.

TREASURY & SECURITIES SERVICES (TSS)

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Discussion of Results:

Net income was $406 million, an increase of $46 million, or 13%, from the prior year, driven by higher net revenue and the benefit of reduced deferred tax liabilities. This increase was predominantly offset by higher noninterest expense. Net income decreased by $19 million, or 4%, from the prior quarter, which benefited from seasonal activity in securities lending, depositary receipts, and foreign exchange volumes.

Net revenue was $2.0 billion, an increase of $205 million, or 12%, from the prior year. Worldwide Securities Services net revenue was $1.1 billion, an increase of $88 million, or 9%, from the prior year. The growth was driven by wider spreads on liability products and in securities lending and foreign exchange, combined with increased product usage by new and existing clients (largely in custody, fund services and alternative investment services). These benefits were offset partially by market depreciation. Treasury Services net revenue was a record $897 million, an increase of $117 million, or 15%, reflecting higher liability balances as well as volume growth in electronic funds transfer products and trade loans. TSS firmwide net revenue, which includes Treasury Services net revenue recorded in other lines of business, grew to $2.7 billion, an increase of $260 million, or 11%. Treasury Services firmwide net revenue grew to $1.6 billion, an increase of $172 million, or 12%.