<PAGE> 1
PAGE 1
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark one)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
J.P. MORGAN & CO. INCORPORATED
(Exact name of registrant as specified in its charter)
Delaware 1-5885 13-2625764
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation or organization) File Number) Identification No.)
60 Wall Street, New York, NY 10260-0060
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 483-2323
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Number of shares outstanding of each of the registrant's classes of common
stock at July 31, 1997:
Common Stock, $2.50 Par Value 178,909,966 Shares
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<PAGE> 2
PAGE 2
PART I -- FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
The following financial statement information for the three and six months ended
June 30, 1997, is set forth within this document on the pages indicated:
Page
Three-month Consolidated statement of income
J.P. Morgan & Co. Incorporated. . . . . . . . . . . . . 3
Six-month Consolidated statement of income
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 4
Consolidated balance sheet
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 5
Consolidated statement of changes in stockholders' equity
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 6
Consolidated statement of cash flows
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 7
Consolidated statement of condition
Morgan Guaranty Trust Company of New York . . . . . . . . . 8
Notes to Consolidated financial statements
J.P. Morgan & Co. Incorporated . . . . . . . . . . . . 9-16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Financial highlights . . . . . . . . . . . . . . . 17
Business sector analysis . . . . . . . . . . . . . . 18-22
Risk management . . . . . . . . . . . . . . . . 23
Financial review . . . . . . . . . . . . . . . . 24-27
Consolidated average balances and net interest earnings . . . 28-31
Derivatives used for purposes other-than-trading . . . . . . 32
PART II -- OTHER INFORMATION
Item 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . 33
SIGNATURES . . . . . . . . . . . . . . . . . . . . . 34
<PAGE> 3
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PART I
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
- ---------------------------------------- --------------------------------------------------------------------------------------
In millions, except per share data Three months ended
--------------------------------------------------------------------------------------
June 30 June 30 Increase/
1997 1996 (Decrease)
--------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $3,029 $2,559 $470
Interest expense 2,534 2,162 372
- ---------------------------------------- ---------------------------- ---------------------------- ----------------------------
Net interest revenue 495 397 98
NONINTEREST REVENUE
Trading revenue 477 697 (220)
Investment banking revenue 294 210 84
Investment management revenue 199 172 27
Fees and commissions 156 142 14
Investment securities revenue 114 72 42
Other revenue 56 71 (15)
- ---------------------------------------- ---------------------------- ---------------------------- ----------------------------
Total noninterest revenue 1,296 1,364 (68)
Total revenue 1,791 1,761 30
OPERATING EXPENSES
Employee compensation and
benefits 734 737 (3)
Net occupancy 104 76 28
Technology and communications 240 158 82
Other expenses 163 133 30
- ---------------------------------------- ---------------------------- ---------------------------- ----------------------------
Total operating expenses 1,241 1,104 137
Income before income taxes 550 657 (107)
Income taxes 176 217 (41)
- ---------------------------------------- ---------------------------- ---------------------------- ----------------------------
Net income 374 440 (66)
PER COMMON SHARE
Net income (a) $1.85 $2.14 ($0.29)
Dividends declared 0.88 0.81 0.07
- ---------------------------------------- ---------------------------- ---------------------------- ----------------------------
</TABLE>
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share, except for the three months ended June 30, 1997. Fully
diluted earnings per share for the three months ended June 30, 1997 were
$1.84.
See notes to consolidated financial statements.
<PAGE> 4
PAGE 4
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF INCOME
J.P. Morgan & Co. Incorporated
- ------------------------------------------------------------------------------------------------------------------------------
In millions, except per share data Six months ended
-------------------------------------------------------------------------------------
June 30 June 30 Increase/
1997 1996 (Decrease)
-------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INTEREST REVENUE
Interest revenue $5,921 $5,113 $808
Interest expense 4,976 4,320 656
- ------------------------------------------------------------------------------------------------------------------------------
Net interest revenue 945 793 152
NONINTEREST REVENUE
Trading revenue 1,174 1,455 (281)
Investment banking revenue 520 411 109
Investment management revenue 383 329 54
Fees and commissions 304 293 11
Investment securities revenue 175 150 25
Other revenue 123 70 53
- ---------------------------------------- ---------------------------- --------------------------- ----------------------------
Total noninterest revenue 2,679 2,708 (29)
Total revenue 3,624 3,501 123
OPERATING EXPENSES
Employee compensation and
benefits 1,500 1,467 33
Net occupancy 177 149 28
Technology and communications 443 316 127
Other expenses 312 257 55
- ---------------------------------------- ---------------------------- --------------------------- ----------------------------
Total operating expenses 2,432 2,189 243
Income before income taxes 1,192 1,312 (120)
Income taxes 394 433 (39)
- ---------------------------------------- ---------------------------- --------------------------- ----------------------------
Net income 798 879 (81)
PER COMMON SHARE
Net income (a) $3.89 $4.28 ($0.39)
Dividends declared 1.76 1.62 0.14
- ---------------------------------------- ---------------------------- --------------------------- ----------------------------
</TABLE>
(a) Earnings per share amounts represent both primary and fully diluted
earnings per share, except for the six months ended June 30, 1996.
Fully diluted earnings per share were $4.27 for the six months ended
June 30, 1996.
See notes to consolidated financial statements.
<PAGE> 5
PAGE 5
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------------------------------------------------
In millions, except per share data June 30 December 31
1997 1996
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 752 $ 906
Interest-earning deposits with banks 2,054 1,908
Debt investment securities available-for-sale carried at fair value (cost:
$24,642 at June 1997 and $24,610 at December 1996) 24,936 24,865
Trading account assets, net of allowance for credit losses of $350 105,825 90,980
Securities purchased under agreements to resell ($36,425 at June 1997
and $32,455 at December 1996) and federal funds sold 36,425 32,505
Securities borrowed 37,837 27,931
Loans, net of allowance for credit losses of $560 at June 1997
and $566 at December 1996 28,734 27,554
Customers' acceptance liability 175 212
Accrued interest and accounts receivable 4,446 3,789
Premises and equipment 3,194 3,137
Less: accumulated depreciation 1,353 1,272
- --------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 1,841 1,865
Other assets 7,465 9,511
- --------------------------------------------------------------------------------------------------------------------------
Total assets 250,490 222,026
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,235 1,501
In offices outside the U.S. 641 708
Interest-bearing deposits:
In offices in the U.S. 9,274 7,103
In offices outside the U.S. 45,827 43,412
- --------------------------------------------------------------------------------------------------------------------------
Total deposits 56,977 52,724
Trading account liabilities 59,436 50,919
Securities sold under agreements to repurchase ($64,322 at June 1997
and $56,117 at December 1996) and federal funds purchased 67,464 61,429
Commercial paper 4,289 4,132
Other liabilities for borrowed money 19,615 19,948
Accounts payable and accrued expenses 7,025 5,935
Liability on acceptances 175 212
Long-term debt not qualifying as risk-based capital 14,890 9,411
Other liabilities, including allowance for credit losses of $200 4,000 1,442
- --------------------------------------------------------------------------------------------------------------------------
233,871 206,152
Long-term debt qualifying as risk-based capital 4,121 3,692
Company-obligated mandatorily redeemable preferred securities
of subsidiaries 1,150 750
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities 239,142 210,594
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
Variable cumulative preferred stock, $1,000 par value (issued and
outstanding: 250,000) 250 250
Fixed cumulative preferred stock, $500 par value (issued and
outstanding: 400,000) 200 200
Common stock, $2.50 par value (authorized shares: 500,000,000;
issued: 200,689,973 at June 1997 and 200,688,123 at December 1996) 502 502
Capital surplus 1,402 1,446
Retained earnings 9,085 8,635
Net unrealized gains on investment securities, net of taxes 518 464
Other 968 826
- --------------------------------------------------------------------------------------------------------------------------
13,169 12,567
Less: treasury stock (21,633,098 shares at June 1997 and 15,765,455
shares at December 1996) at cost 1,821 1,135
- --------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 11,348 11,432
- --------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity 250,490 222,026
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 6
PAGE 6
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
J.P. Morgan & Co. Incorporated
- --------------------------------------------------------------------------------------------------------------------------------
Dollars in millions Six months ended
- --------------------------------------------------------------------------------------------------------------------------------
June 30 June 30
1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PREFERRED STOCK
Adjustable rate cumulative preferred stock balance, January 1 and June 30 $ 244 $ 244
Variable cumulative preferred stock balance, January 1 and June 30 250 250
Fixed cumulative preferred stock:
Balance, January 1 200 -
Shares issued - 200
- --------------------------------------------------------------------------------------------------------------------------------
Total preferred stock, June 30 694 694
- --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK
Balance, January 1 and June 30 502 502
- --------------------------------------------------------------------------------------------------------------------------------
CAPITAL SURPLUS
Balance, January 1 1,446 1,430
Shares issued or distributed under dividend reinvestment plan, various
employee benefit plans, and conversion of debentures and income tax
benefits associated with stock options (44) 5
- --------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 1,402 1,435
- --------------------------------------------------------------------------------------------------------------------------------
RETAINED EARNINGS
Balance, January 1 8,635 7,731
Net income 798 879
Dividends declared on preferred stock (18) (15)
Dividends declared on common stock (318) (303)
Dividend equivalents on common stock issuable (12) (11)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 9,085 8,281
- -------------------------------------------------------------------------------------------------------------------------------
NET UNREALIZED GAINS ON INVESTMENT SECURITIES, NET OF TAXES
Balance, January 1 464 566
Net change in unrealized gains, net of taxes 54 (199)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 518 367
- -------------------------------------------------------------------------------------------------------------------------------
OTHER
COMMON STOCK ISSUABLE UNDER STOCK AWARD PLANS
Balance, January 1 838 556
Deferred stock awards, net 144 133
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 982 689
- -------------------------------------------------------------------------------------------------------------------------------
FOREIGN CURRENCY TRANSLATION
Balance, January 1 (12) (4)
Translation adjustments (3) 2
Income tax benefit (expense) 1 (1)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 (14) (3)
- -------------------------------------------------------------------------------------------------------------------------------
Total Other, June 30 968 686
- -------------------------------------------------------------------------------------------------------------------------------
LESS: TREASURY STOCK
Balance, January 1 1,135 824
Purchases 1,016 291
Shares distributed under various employee benefit plans (330) (181)
- -------------------------------------------------------------------------------------------------------------------------------
Balance, June 30 1,821 934
- -------------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity, June 30 11,348 11,031
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 7
PAGE 7
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
J.P. Morgan & Co. Incorporated
- ------------------------------------------------------------------------------------------------------------------------
Dollars in millions Six months ended
- ------------------------------------------------------------------------------------------------------------------------
June 30 June 30
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME $ 798 $ 879
Adjustments to reconcile to cash used in operating activities:
Noncash items: depreciation, amortization, deferred income tax,
stock award plans, and write-downs of investment securities 423 422
(Increase) decrease in assets:
Trading account assets (14,891) 11
Securities purchased under agreements to resell (3,980) (4,336)
Securities borrowed (9,906) (5,790)
Accrued interest and accounts receivable (658) (200)
Increase (decrease) in liabilities:
Trading account liabilities 8,485 (1,038)
Securities sold under agreements to repurchase 8,197 10,797
Accounts payable and accrued expenses 1,025 693
Other changes in operating assets and liabilities, net 2,189 (5,066)
Net investment securities gains included in cash
flows from investing activities (205) (164)
- -------------------------------------------------------------------------------------------------------------------------
CASH USED IN OPERATING ACTIVITIES (8,523) (3,792)
- ------------------------------------------------------------------------------------------------------------------------
(Increase) decrease in interest-earning deposits with banks (147) 559
Debt investment securities:
Proceeds from sales 13,242 16,666
Proceeds from maturities, calls, and mandatory redemptions 1,918 4,802
Purchases (15,389) (21,025)
(Increase) decrease in federal funds sold 50 (56)
Increase in loans (1,208) (6,139)
Payments for premises and equipment (72) (72)
Other changes, net 642 1,174
- ------------------------------------------------------------------------------------------------------------------------
CASH USED IN INVESTING ACTIVITIES (964) (4,091)
- ------------------------------------------------------------------------------------------------------------------------
Decrease in noninterest-bearing deposits (333) (1,375)
Increase in interest-bearing deposits 4,568 3,380
Decrease in federal funds purchased (2,170) (786)
Increase in commercial paper 157 2,301
Other liabilities for borrowed money:
Proceeds 14,067 11,708
Payments (13,615) (11,043)
Long-term debt:
Proceeds 7,552 1,152
Payments (1,433) (391)
Proceeds from issuance of Company-obligated mandatorily
redeemable preferred securities of subsidiary 400 -
Capital stock:
Issued or distributed 181 200
Purchased (1,016) (291)
Dividends paid (340) (317)
Other changes, net 1,337 2,467
- -------------------------------------------------------------------------------------------------------------------------
CASH PROVIDED BY FINANCING ACTIVITIES 9,355 7,005
- ------------------------------------------------------------------------------------------------------------------------
Effect of exchange rate changes on cash and due from banks (22) (6)
- ------------------------------------------------------------------------------------------------------------------------
DECREASE IN CASH AND DUE FROM BANKS (154) (884)
Cash and due from banks at December 31, 1996 and 1995 906 1,535
- -------------------------------------------------------------------------------------------------------------------------
Cash and due from banks at June 30, 1997 and 1996 752 651
- ------------------------------------------------------------------------------------------------------------------------
Cash disbursements made for:
Interest $4,745 $4,180
Income taxes 479 413
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
<PAGE> 8
PAGE 8
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CONDITION
Morgan Guaranty Trust Company of New York
- --------------------------------------------------------------------------------------------------------------------------------
June 30 December 31
In millions, except per share data 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 718 $ 920
Interest-earning deposits with banks 2,056 1,910
Debt investment securities available-for-sale carried at fair value 23,827 23,510
Trading account assets, net of allowance for credit losses of $350 84,442 72,549
Securities purchased under agreements to resell and federal funds sold 26,831 21,081
Securities borrowed 11,637 6,681
Loans, net of allowance for credit losses of $558 at June 1997
and $565 at December 1996 28,560 27,378
Customers' acceptance liability 175 212
Accrued interest and accounts receivable 3,429 3,470
Premises and equipment 2,858 2,812
Less: accumulated depreciation 1,185 1,116
- --------------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 1,673 1,696
Other assets 5,144 5,406
- --------------------------------------------------------------------------------------------------------------------------------
Total assets 188,492 164,813
- --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Noninterest-bearing deposits:
In offices in the U.S. 1,235 1,495
In offices outside the U.S. 662 749
Interest-bearing deposits:
In offices in the U.S. 9,285 7,114
In offices outside the U.S. 46,711 43,716
- --------------------------------------------------------------------------------------------------------------------------------
Total deposits 57,893 53,074
Trading account liabilities 49,908 44,039
Securities sold under agreements to repurchase
and federal funds purchased 35,061 30,787
Other liabilities for borrowed money 12,678 13,215
Accounts payable and accrued expenses 5,063 4,203
Liability on acceptances 175 212
Long-term debt not qualifying as risk-based capital
(includes $1,081 at June 1997 and $942 at
December 1996 of notes payable to J.P. Morgan) 11,500 5,436
Other liabilities, including allowance for credit losses of $200 3,257 977
- --------------------------------------------------------------------------------------------------------------------------------
175,535 151,943
Long-term debt qualifying as risk-based capital
(includes $2,658 at June 1997 and $2,780
at December 1996 of notes payable to J.P. Morgan) 2,817 2,979
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities 178,352 154,922
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 6,578 6,334
Net unrealized gains on investment securities, net of taxes 156 149
Foreign currency translation (14) (12)
- --------------------------------------------------------------------------------------------------------------------------------
Total stockholder's equity 10,140 9,891
- --------------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholder's equity 188,492 164,813
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Member of the Federal Reserve System and the Federal Deposit Insurance
Corporation.
See notes to consolidated financial statements.
<PAGE> 9
PAGE 9
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Supplementary to notes in the 1996 Annual report to stockholders
1. BASIS OF PRESENTATION
The interim financial information in this report has not been audited. In the
opinion of management, all adjustments necessary for a fair presentation of the
consolidated financial position and the consolidated results of operations for
the interim periods have been made. All adjustments made were of a normal,
recurring nature. Management consults with its independent accountants on
significant accounting and reporting matters that arise during the year.
2. ACCOUNTING DEVELOPMENTS
Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, Earnings per Share. SFAS No. 128
supersedes Accounting Principles Board Opinion No. 15 and related
pronouncements, and replaces the computations of primary and fully diluted
earnings per share (EPS) with basic and diluted EPS, respectively. Basic EPS is
computed by dividing income available to common stockholders by the period's
weighted-average number of common shares outstanding, which includes
contingently issuable shares where all necessary conditions for issuance have
been satisfied. Diluted EPS includes the determinants of basic EPS and, in
addition, gives effect to dilutive potential common shares that were outstanding
during the period. SFAS No. 128 is effective for financial statements issued for
periods ending after December 15, 1997. Earlier application is not permitted.
Basic EPS and diluted EPS, computed using SFAS No. 128, for the three months
ended June 30, 1997, were approximately $1.98 and $1.85, respectively. For the
six months ended June 30, 1997, basic EPS and diluted EPS were approximately
$4.17 and $3.89, respectively.
3. INTEREST REVENUE AND EXPENSE
An analysis of interest revenue and expense derived from on-and
off-balance-sheet financial instruments is presented in the table below.
Interest revenue and expense associated with derivative financial instruments,
such as swaps, forwards, futures, options, and debt securities forwards, used as
hedges or to modify the interest rate characteristics of assets and liabilities,
is attributed to and included with the related balance sheet instrument. Net
interest revenue associated with risk-adjusting swaps that are used to meet
longer-term investment objectives, including the maximization of net interest
revenue, is not attributed to a specific balance sheet instrument, but is
included in the Other sources caption in the table below.
<TABLE>
<CAPTION>
Second quarter Six months
In millions 1997 1996 1997 1996
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST REVENUE
Deposits with banks $ 46 $ 24 $ 73 $ 51
Debt investment securities (a) 387 396 799 790
Trading account assets 1,014 682 2,085 1,437
Securities purchased under agreements
to resell and federal funds sold 504 593 959 1,170
Securities borrowed 444 318 827 581
Loans 494 440 959 880
Other sources, primarily risk-adjusting swaps 140 106 219 204
- ----------------------------------------------------------------------------------------------------------------------
Total interest revenue 3,029 2,559 5,921 5,113
- ----------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Deposits 670 619 1,333 1,269
Trading account liabilities 398 306 755 599
Securities sold under agreements to
repurchase and federal funds purchased 853 798 1,729 1,585
Other borrowed money 336 303 668 592
Long-term debt 256 136 451 275
Trust preferred securities 21 - 40 -
- ----------------------------------------------------------------------------------------------------------------------
Total interest expense 2,534 2,162 4,976 4,320
- ----------------------------------------------------------------------------------------------------------------------
Net interest revenue 495 397 945 793
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Interest revenue from debt investment securities included taxable revenue
of $364 million and $749 million and revenue exempt from U.S. income taxes of
$23 million and $50 million for the three months and six months ended June 30,
1997, respectively. Interest revenue from debt investment securities included
taxable revenue of $370 million and $733 million and revenue exempt from U.S.
income taxes of $26 million and $57 million for the three months and six months
ended June 30, 1996.
<PAGE> 10
PAGE 10
For the three months and six months ended June 30, 1997, net interest revenue
associated with derivatives used for purposes other-than-trading was
approximately $75 million and $110 million respectively, compared with
approximately $25 million and $65 million for the three months and six months
ended June 30, 1996. At June 30, 1997, approximately $215 million of net
deferred losses on closed derivative contracts used for purposes
other-than-trading were recorded on the consolidated balance sheet. Such amount
is primarily composed of net deferred losses on closed hedge contracts included
in the amortized cost of the debt investment portfolio. As discussed in Note 5
to the consolidated financial statements, Investment securities, the net
unrealized appreciation associated with the debt investment portfolio was $294
million at June 30, 1997. The amount of net deferred gains or losses on closed
derivative contracts will change from period to period, primarily due to
amortization of such amounts into net interest revenue and the execution of our
investing strategies, which may result in the sale of the underlying hedged
instruments and/or termination of hedge contracts. Net deferred losses on closed
derivative contracts at June 30, 1997, are expected to amortize into Net
interest revenue as follows: $30 million - remainder of 1997; $60 million in
1998; $40 million in 1999; $40 million in 2000; $25 million in 2001; $10 million
in 2002; and approximately $10 million thereafter.
4. TRADING REVENUE
Trading revenue disaggregated by principal product groupings for the three
months and six months ended June 30, 1997 and 1996, is presented in the
following table. For additional information, which reflects the integrated
nature of the firm's activities, refer to the Business Sector Analysis in
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE>
<CAPTION>
Second Quarter Six months
In millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed Income $250 $331 $ 596 $ 864
Equities 170 124 281 218
Foreign Exchange 72 109 192 177
Commodities 2 5 15 39
Proprietary Trading (17) 128 90 157
- -----------------------------------------------------------------------------------------
Trading revenue 477 697 1,174 1,455
- -----------------------------------------------------------------------------------------
</TABLE>
5. INVESTMENT SECURITIES
Debt investment securities
A comparison of the cost and carrying values of debt investment securities
available-for-sale and carried at fair value at June 30, 1997, follows.
<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Treasury $ 1,635 $ 70 $ (4) $ 1,701
U.S. government agency,
principally mortgage-backed 17,459 117 (62) 17,514
U.S. state and political subdivision 1,266 168 (13) 1,421
U.S. corporate and bank debt 480 1 - 481
Foreign government 1,413 29 (9) 1,433
Foreign corporate and bank debt 2,278 14 (18) 2,274
Other 111 1 - 112
- -------------------------------------------------------------------------------------------------------------------------
Total debt investment securities 24,642 400 (106) 24,936
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The gross unrealized gains and losses shown in the table above include the
effects of any related hedge. For additional detail of gross unrealized gains
and losses associated with open derivative contracts used to hedge debt
investment securities, see Note 7 to the consolidated financial statements,
Off-balance-sheet financial instruments.
<PAGE> 11
PAGE 11
The following table presents the realized components of Investment securities
revenue related to the debt investment securities portfolio during the three and
six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Second quarter Six months
In millions 1997 1996 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross realized gains from sales $ 8 $ 16 $ 46 $ 117
Gross realized losses from sales (7) (67) (33) (156)
- -------------------------------------------------------------------------------------------------------------
Net debt investment securities gains (losses) 1 (51) 13 (39)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Equity investment securities
Net realized gains on the sale of equity investment securities during the
quarters ended June 30, 1997 and 1996 of $124 million and $118 million,
respectively, are reflected in Investment securities revenue. For the 1997
period, this represents gross realized gains of $127 million and write-downs of
$3 million. For the 1996 period, this represents gross realized gains of $130
million and write-downs of $12 million.
Net realized gains on the sale of equity investment securities during the
six months ended June 30, 1997 and 1996 were $179 million and $182 million,
respectively. For the 1997 period, this represents gross realized gains of $192
million and write-downs of $13 million. For the 1996 period, this represents
gross realized gains of $203 million and write-downs of $21 million.
Gross unrealized gains and losses as well as a comparison of the cost, fair
value, and carrying value of marketable equity investment securities
available-for-sale at June 30, 1997, follows.
<TABLE>
<CAPTION>
Gross Gross Fair and
unrealized unrealized carrying
In millions Cost gains losses value
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
June 30, 1997 $305 $536 $ (2) $839
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Nonmarketable equity investment securities and securities held in Small Business
Investment Companies, with a carrying value of $554 million, had an estimated
fair value of $626 million at June 30, 1997.
6. TRADING ACCOUNT ASSETS AND LIABILITIES
Trading account assets and liabilities, including derivative instruments used
for trading purposes, are carried at fair value. The following table presents
the carrying value of trading account assets, before taking into consideration
the allowance for credit losses, and trading account liabilities at June 30,
1997, and the average balance for the three and six-months ended June 30, 1997.
<TABLE>
<CAPTION>
Carrying Average
Value Balance
-------------------- ---------------------------------------------
June 30 Second quarter Six months
In millions 1997 1997 1997
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TRADING ACCOUNT ASSETS (a)
U.S. Treasury $ 14,609 $ 14,374 $ 15,412
U.S. government agency 8,935 6,604 6,416
Foreign government 24,932 27,323 26,175
Corporate debt and equity 19,664 19,570 18,601
Other securities 5,155 4,908 5,709
Interest rate and currency swaps 18,321 14,838 14,621
Foreign exchange contracts 3,381 2,969 2,781
Interest rate futures and forwards 478 324 362
Commodity and equity contracts 3,212 2,764 2,653
Purchased option contracts 7,488 6,490 6,782
- -------------------------------------------------------------------------------------------------------------
Total trading account assets 106,175 100,164 99,512
- -------------------------------------------------------------------------------------------------------------
TRADING ACCOUNT LIABILITIES
U.S. Treasury 9,814 11,532 10,296
Foreign government 10,663 11,685 10,891
Corporate debt and equity 6,843 8,543 7,273
Other securities 987 2,444 2,803
Interest rate and currency swaps 13,311 11,307 11,941
Foreign exchange contracts 4,045 4,477 4,692
Interest rate futures and forwards 955 773 753
Commodity and equity contracts 3,942 2,186 2,620
Written option contracts 8,876 7,798 7,528
- -------------------------------------------------------------------------------------------------------------
Total trading account liabilities 59,436 60,745 58,797
- -------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Refer to Note 10, Aggregate allowance for credit losses.
<PAGE> 12
PAGE 12
7. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
Derivatives
Derivatives may be used either for trading or other-than-trading purposes.
Other-than-trading purposes are primarily related to our investing activities.
Accordingly, the notional amounts presented in the table below have been
identified as relating to either trading or other-than-trading purposes based on
management's intent and ongoing usage. A summary of the credit exposure, which
is represented by the positive market value associated with derivatives, after
considering the benefit of approximately $40.5 billion of master netting
agreements in effect at June 30, 1997, is also presented.
<TABLE>
<CAPTION>
Notional amounts Credit exposure
In billions
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Interest rate and currency swaps
Trading $ 2,340.1
Other-than-trading(a)(b)(c) 214.8
- ----------------------------------------------------------------------------------------------------------------
Total interest rate and currency swaps 2,554.9 $18.3
- ----------------------------------------------------------------------------------------------------------------
Foreign exchange spot, forward, and
futures contracts
Trading 700.8
Other-than-trading(a)(b) 38.3
- ----------------------------------------------------------------------------------------------------------------
Total foreign exchange spot, forward,
and futures contracts 739.1 3.4
- ----------------------------------------------------------------------------------------------------------------
Interest rate futures, forward rate
agreements, and debt securities forwards
Trading 760.5
Other-than-trading 24.3
- ----------------------------------------------------------------------------------------------------------------
Total interest rate futures, forward
rate agreements, and debt securities
forwards 784.8 0.5
- ----------------------------------------------------------------------------------------------------------------
Commodity and equity swaps, forward, and
futures contracts, all trading 69.3 3.2
- ----------------------------------------------------------------------------------------------------------------
Purchased options(d)
Trading 793.2
Other-than-trading(a) 1.6
- ----------------------------------------------------------------------------------------------------------------
Total purchased options 794.8 7.5
- ----------------------------------------------------------------------------------------------------------------
Written options, all trading(e) 1,018.3
- ----------------------------------------------------------------------------------------------------------------
Total credit exposure recorded as
assets on the consolidated balance sheet 32.9
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The majority of J.P. Morgan's derivatives used for purposes
other-than-trading are transacted with independently managed J.P. Morgan
derivatives dealers who function as intermediaries for credit and administrative
purposes.
(b) The notional amounts of derivative contracts used for purposes
other-than-trading conducted in the foreign exchange markets, primarily forward
contracts, amounted to $41.9 billion at June 30, 1997, and were primarily
denominated in the following currencies: Italian lira $11.5 billion, German
deutsche mark $5.5 billion, French franc $5.4 billion, Japanese yen $4.1
billion, and Swiss franc $2.4 billion.
(c) The notional amount of risk-adjusting swaps was $161.6 billion at June 30,
1997.
(d) At June 30, 1997, purchased options used for trading purposes included
$585.9 billion of interest rate options, $166.1 billion of foreign exchange
options, and $41.2 billion of commodity and equity options. Only interest rate
options are used for purposes other-than-trading. Purchased options executed on
an exchange amounted to $153.5 billion and those negotiated over-the-counter
amounted to $641.3 billion at June 30, 1997.
(e) At June 30, 1997, written options included $780.9 billion of interest rate
options, $189.8 billion of foreign exchange options, and $47.6 billion of
commodity and equity options. Written option contracts executed on an exchange
amounted to $278.1 billion and those negotiated over-the-counter amounted to
$740.2 billion at June 30, 1997.
<PAGE> 13
PAGE 13
Derivatives used for purposes other-than-trading
As an end user, J.P. Morgan utilizes derivative instruments in the execution of
its investing strategies. Such derivatives primarily include interest rate
swaps, foreign exchange forward contracts, interest rate futures, and debt
securities forwards. Derivatives are used to hedge or modify the interest rate
characteristics of debt investment securities, loans, deposits, other
liabilities for borrowed money, long-term debt, and other financial assets and
liabilities. In addition, we utilize derivatives to adjust our overall interest
rate risk profile through the use of risk-adjusting swaps.
Net unrealized gains associated with open derivative contracts used to
hedge or modify the interest rate characteristics of related balance sheet
instruments amounted to $182 million at June 30, 1997. Such amounts primarily
relate to interest rate and currency swaps used to hedge or modify the interest
rate characteristics of long-term debt, deposits, and debt investment
securities, principally mortgage-backed securities. See Note 8 to the
consolidated financial statements, Fair value of financial instruments. Gross
unrealized gains and gross unrealized losses associated with open derivative
contracts at June 30, 1997, are as follows:
<TABLE>
<CAPTION>
Gross Gross Net
unrealized unrealized unrealized
In millions gains (losses) gains (losses)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Long-term debt $318 ($113) $205
Debt investment securities 42 (96) (54)
Deposits 58 (20) 38
Other financial instruments 34 (41) (7)
- ------------------------------------------------------------------------------------------------------------
Total 452 (270) 182
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Net unrealized gains associated with risk-adjusting swaps that are entered into
to meet longer-term investment objectives and their related hedges approximated
$0.1 billion at June 30, 1997. The net amount is composed of $1.8 billion of
gross unrealized gains and $1.7 billion of gross unrealized losses. The
unrealized gains and losses related to the derivative contracts used to hedge
these risk-adjusting swaps, included above, were not material at June 30, 1997.
There were no material terminations of risk-adjusting swaps during the three
months and six months ended June 30, 1997.
Credit-related financial instruments
Credit-related financial instruments include commitments to extend credit,
standby letters of credit and guarantees, and indemnifications in connection
with securities lending activities. The contractual amounts of these instruments
represent the amounts at risk should the contract be fully drawn upon, the
client default, and the value of any existing collateral become worthless. The
total contractual amount of credit-related financial instruments does not
represent the expected future liquidity requirements, since a significant amount
of commitments to extend credit and standby letters of credit and guarantees are
expected to expire or mature without being drawn. The credit risk associated
with these instruments varies depending on the creditworthiness of the client
and the value of any collateral held. Commitments to extend credit generally
require the client to meet certain credit-related terms and conditions before
drawdown. Collateral is required in connection with securities lending
indemnifications. Market risk for commitments to extend credit and standby
letters of credit and guarantees, while not significant, may exist as
availability of and access to credit markets changes.
A summary of the contractual amount of credit-related financial instruments
at June 30, 1997, is presented in the following table.
<TABLE>
<CAPTION>
June 30
In billions 1997
- -------------------------------------------------------------------------
<S> <C>
Commitments to extend credit $78.3
Standby letters of credit and guarantees 15.9
Securities lending indemnifications (a) 8.1
- -------------------------------------------------------------------------
</TABLE>
(a) At June 30, 1997, J.P. Morgan held cash and other collateral in support of
securities lending indemnifications.
<PAGE> 14
PAGE 14
Included in Fees and Commissions are credit-related fees of $40 million and $77
million for the three months and six months ended June 30, 1997, respectively,
and $38 million and $76 million for the three and six months ended June 30,
1996, respectively. These fees are primarily earned from commitments to extend
credit, standby letters of credit and guarantees, and securities lending
indemnifications.
Other
Consistent with industry practice, amounts receivable and payable for securities
that have not reached the contractual settlement dates are recorded net on the
consolidated balance sheet. Amounts receivable for securities sold of $37.0
billion were netted against amounts payable for securities purchased of $36.1
billion to arrive at a net trade date receivable of $0.9 billion, which was
classified as Other assets on the consolidated balance sheet at June 30, 1997.
8. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with SFAS No. 107, Disclosures about Fair Value of Financial
Instruments, J.P. Morgan estimates that the aggregate net fair value of all
balance sheet and off-balance-sheet financial instruments exceeded associated
net carrying values. At June 30, 1997, such excess was essentially unchanged
from December 31, 1996.
9. IMPAIRED LOANS AND OTHER NONPERFORMING ASSETS
Total impaired loans and other nonperforming assets, net of charge-offs, at June
30, 1997, are presented in the following table. At June 30, 1997, approximately
two thirds of the impaired loan balance is measured based upon the present value
of expected future cash flows discounted at an individual loan's effective
interest rate, and approximately one third is measured by the fair value of the
collateral or by an observable market price.
<TABLE>
<CAPTION>
June 30
In millions 1997
- --------------------------------------------------------------------------------
<S> <C>
Impaired loans:
Commercial and industrial $60
Other 44
- --------------------------------------------------------------------------------
104
Restructuring countries 2
- --------------------------------------------------------------------------------
Total impaired loans 106(a)
Other nonperforming assets 2
- --------------------------------------------------------------------------------
Total nonperforming assets 108
- --------------------------------------------------------------------------------
</TABLE>
(a) As of June 30, 1997, no reserve is required under SFAS No. 114, Accounting
by Creditors for Impairment of a Loan, for the $106 million recorded investment
in impaired loans. Charge-offs and interest applied to principal have reduced
the recorded investment values to amounts that are less than the SFAS No. 114
calculated values. For the three months and six months ended June 30, 1997, the
average recorded investment in impaired loans was $93 million and $105 million,
respectively.
An analysis of the effect of impaired loans, net of charge-offs, on interest
revenue for the three months and six months ended June 30, 1997 and 1996, is
presented in the following table.
<TABLE>
<CAPTION>
Second quarter Six months
In millions 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest revenue that would have been recorded if accruing $2 $3 $4 $7
Less interest revenue recorded 2 - 3 1
- ---------------------------------------------------------------------------------------------------------------------------
(Negative) impact of impaired loans on interest revenue - (3) (1) (6)
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
PAGE 15
10. AGGREGATE ALLOWANCE FOR CREDIT LOSSES
An analysis of the aggregate allowance for credit losses at June 30, 1997, is
presented in the following table.
<TABLE>
<CAPTION>
Second quarter Six months
In millions 1997 1997
- ---------------------------------------------------------------
<S> <C> <C>
BEGINNING OF PERIOD BALANCE $ 1,113 $ 1,116
- ---------------------------------------------------------------
Recoveries 12 22
Charge-offs:
Commercial and industrial (8) (21)
Other (7) (7)
- ---------------------------------------------------------------
Net charge-offs (3) (6)
- ---------------------------------------------------------------
BALANCE, JUNE 30, 1997 (a)(b) 1,110 1,110
- ---------------------------------------------------------------
</TABLE>
(a) In accordance with SFAS No. 5, Accounting for Contingencies, and SFAS No.
114, as amended by SFAS No. 118, an aggregate allowance is maintained that is
considered adequate to absorb losses inherent in the existing portfolios of
loans and other undertakings to extend credit, such as irrevocable unused loan
commitments, or to make payments to others for which a client is ultimately
liable, such as standby letters of credit and guarantees, commercial letters of
credit and acceptances, and all other credit exposures, including derivatives. A
judgment as to the adequacy of the aggregate allowance is made at the end of
each quarterly reporting period.
(b) At June 30, 1997, the allocation of the aggregate allowance for credit
losses was as follows: Specific allocation - borrowers in the U.S. $137
million, Specific allocation - borrowers outside the U.S. $54 million,
Allocation to general risk $919 million.
11. INVESTMENT BANKING REVENUE, OTHER REVENUE AND OTHER EXPENSES
In the second quarter of 1997 and 1996, investment banking revenue of $294
million and $210 million includes $140 million and $111 million, respectively,
of underwriting revenue. For the six months ended June 30, 1997 and 1996,
investment banking revenue of $520 million and $411 million includes
underwriting revenue of $237 million and $176 million, respectively.
Other revenue includes $9 million and $73 million for the three and six
months ended June 30, 1997, respectively, of gains on hedges of anticipated
foreign currency revenues and expenses. These gains were partially offset by the
impact of exchange rate movements on reported revenues and expenses in the
respective periods.
For the three and six month periods ended June 30, 1997, other expenses
included approximately $46 million and $86 million, respectively of travel and
entertainment expenses.
12. INCOME TAXES
Income tax expense in the 1997 second quarter reflects a 32% effective tax rate,
compared to a 33% effective tax rate in the 1996 second quarter. For the six
months ended June 30, 1997 and 1996, the effective tax rate was 33%. Income tax
expense related to net realized gains on debt and equity investment securities
was approximately $41 million and $66 million for the three and six months ended
June 30, 1997. Income tax expense related to net realized gains on debt and
equity investment securities was approximately $22 million and $51 million for
the three and six months ended June 30, 1996, respectively. The applicable tax
rate used to compute the income tax expense related to net gains on debt and
equity investment securities was approximately 37% for the three and six months
ended June 30, 1997. The applicable tax rate used to compute the income tax
expense related to net gains on debt and equity investment securities for the
three and six month periods ended June 30, 1996, was approximately 33% and 35%,
respectively.
The valuation allowance to reduce deferred tax assets to the amount
expected to be realized totaled approximately $120 million at June 30, 1997
and December 31, 1996. The valuation allowance is primarily related to the
ability to recognize tax benefits associated with foreign operations.
13. COMMITMENTS AND CONTINGENT LIABILITIES
Excluding mortgaged properties, assets carried at approximately $77.1 billion in
the consolidated balance sheet at June 30, 1997, were pledged as collateral for
borrowings, to qualify for fiduciary powers, to secure public moneys as required
by law, and for other purposes.
<PAGE> 16
PAGE 16
14. EARNINGS PER COMMON SHARE
In the calculation of primary and fully diluted earnings per common share, net
income is adjusted by adding back to net income the interest expense on
convertible debentures and the expense related to dividend equivalents on
certain deferred incentive compensation awards, net of the related income tax
effects, and subtracting from net income the preferred stock dividends to arrive
at net income applicable to common stock. Primary and fully diluted earnings per
common share are computed by dividing net income applicable to common stock by
the weighted-average number of common and common equivalent shares outstanding
during the year.
For primary and fully diluted earnings per share, the weighted-average
number of common and common equivalent shares outstanding was the sum of the
average number of shares of common stock outstanding, the average number of
shares issuable upon conversion of convertible debentures, and the average
number of shares issuable under employee benefit plans that have a dilutive
effect, as computed under the treasury stock method. Under this method, the
number of incremental shares is determined by assuming the issuance of the
outstanding stock options and certain deferred incentive compensation awards,
reduced by the number of shares assumed to be repurchased from the issuance
proceeds, using the market price of the company's common stock. For primary
earnings per share, this market price is the average market price for the
period, while for fully diluted earnings per share, it is the period-end market
price, if it is higher than the average price.
<TABLE>
<CAPTION>
Second quarter Six months
Dollars in millions 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Adjusted net income $366 $432 $781 $863
Primary earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 198,148,923 202,063,927 200,750,906 202,048,817
Fully diluted earnings per share:
Weighted-average number of common
and common equivalent shares
outstanding during the period 198,383,856 202,075,297 200,832,331 202,395,067
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Refer to Note 2, Accounting developments, for information regarding the recently
issued SFAS No. 128, Earnings per Share.
15. SUBSEQUENT EVENT
On July 30, 1997, J.P. Morgan agreed to purchase a 45% economic interest in
American Century Companies, Inc. (American Century) for cash consideration of
approximately $900 million. In addition, J.P. Morgan will have an option to
increase its economic interest to 50% at the end of three years. The transaction
is expected to close within four to six months pending approval by each firm's
Board of Directors and by U.S. regulatory agencies. American Century, the fourth
largest no-load U.S. mutual fund company selling directly to individuals,
manages $60 billion of assets in about 70 mutual funds. The investment will be
accounted for under the equity method of accounting.
<PAGE> 17
PAGE 17
PART I
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
J.P. Morgan & Co. Incorporated reported net income of $374 million in the second
quarter of 1997, compared with $440 million in the second quarter of 1996.
Earnings per share for the quarter were $1.85, compared with $2.14 a year ago.
Net income for the first six months of 1997 totaled $798 million, down from $879
million in 1996. Earnings per share in the first six months were $3.89 versus
$4.28 a year ago.
SECOND QUARTER 1997 RESULTS AT A GLANCE
<TABLE>
<CAPTION>
Second quarter First quarter
In millions of dollars, except per share data 1997 1996 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 1,791 $ 1,761 $ 1,833
Operating expenses (1,241) (1,104) (1,191)
Income taxes (176) (217) (218)
- --------------------------------------------------------------------------------------------
Net income 374 440 424
Net income per share $ 1.85 $ 2.14 $ 2.04
- --------------------------------------------------------------------------------------------
Dividends declared per share $ 0.88 $ 0.81 $ 0.88
- --------------------------------------------------------------------------------------------
</TABLE>
REVENUES were up slightly in the second quarter from a year ago.
- Finance and Advisory revenues rose 13% to $481 million on strong
results from advisory activities and debt and equity underwriting.
- Market Making revenues were $648 million, up from $639 million a
year ago, as increases in equities outpaced declines in global fixed
income results.
- Asset Management and Servicing revenues increased 12% to $392
million, reflecting growth in investment management and private
client activities.
- Equity Investments revenues were $124 million versus $126 million.
- Proprietary Investing and Trading revenues declined to $116 million
from $216 million.
OPERATING EXPENSES rose 12% in the 1997 second quarter from a year ago. The
increase reflected planned spending in areas targeted for growth and included a
charge of $28 million incurred in connection with the renovation of office space
in New York.
IN OTHER DEVELOPMENTS, on July 30, 1997, J.P. Morgan and American Century
Companies, Inc. agreed to form a business partnership to pursue growth
opportunities in asset management and personal financial services. As part of
the agreement, J.P. Morgan will purchase a 45% economic interest in American
Century for cash consideration of approximately $900 million. In addition, J.P.
Morgan will have an option to increase its economic interest to 50% at the end
of three years. The transaction is expected to close within four to six months
pending approval from each firm's Board of Directors and U.S. regulatory
agencies. American Century, the fourth largest no-load U.S. mutual fund company
selling directly to individuals, manages $60 billion of assets in about 70
mutual funds.
<PAGE> 18
PAGE 18
BUSINESS SECTOR ANALYSIS
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. Two sectors comprise
proprietary activities that we conduct exclusively for our own account: Equity
Investments and Proprietary Investing and Trading. For a complete description of
our business sectors, refer to the J.P. Morgan & Co. Incorporated 1996 Annual
report. Presented below are the summary results for each sector for the three
and six months ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Propriet-
Asset Total ary Total
Finance Management Client- Equity Investing Propriet-
and Market and Focused Invest- and ary Corporate Consol-
In millions Advisory Making Servicing Activities ments Trading Activities Items idated
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
SECOND QUARTER 1997
Total revenues $ 481 $ 648 $ 392 $ 1,521 $ 124 $ 116 $ 240 $ 30 $1,791
Total expenses 351 455 320 1,126 11 45 56 59 1,241
- --------------------------------------------------------------------------------------------------------------------
Pretax income 130 193 72 395 113 71 184 (29) 550
- --------------------------------------------------------------------------------------------------------------------
SECOND QUARTER 1996
Total revenues 426 639 351 1,416 126 216 342 3 1,761
Total expenses 268 441 274 983 8 40 48 73 1,104
- -------------------------------------------------------------------------------------------------------------------
Pretax income 158 198 77 433 118 176 294 (70) 657
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS 1997
Total revenues 932 1,381 767 3,080 173 392 565 (21) 3,624
Total expenses 653 929 620 2,202 18 91 109 121 2,432
- -------------------------------------------------------------------------------------------------------------------
Pretax income 279 452 147 878 155 301 456 (142) 1,192
- -------------------------------------------------------------------------------------------------------------------
SIX MONTHS 1996
Total revenues 842 1,410 696 2,948 192 431 623 (70) 3,501
Total expenses 527 851 545 1,923 16 76 92 174 2,189
- -------------------------------------------------------------------------------------------------------------------
Pretax income 315 559 151 1,025 176 355 531 (244) 1,312
- -------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE),
2ND QUARTER 1997 VS.
2ND QUARTER 1996
Total revenues 55 9 41 105 (2) (100) (102) 27 30
Total expenses 83 14 46 143 3 5 8 (14) 137
- --------------------------------------------------------------------------------------------------------------------
Pretax income (28) (5) (5) (38) (5) (105) (110) 41 (107)
- --------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE),
6 MONTHS 1997
VS. 6 MONTHS 1996
Total revenues 90 (29) 71 132 (19) (39) (58) 49 123
Total expenses 126 78 75 279 2 15 17 (53) 243
- --------------------------------------------------------------------------------------------------------------------
Pretax income (36) (107) (4) (147) (21) (54) (75) 102 (120)
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
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. 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. Certain prior year amounts have been
reclassified to conform with the current presentation.
<PAGE> 19
PAGE 19
FINANCE AND ADVISORY
The Finance and Advisory sector includes results of our Advisory, Debt and
Equity Underwriting, and Global Credit activities. Revenues increased 13% to
$481 million, reflecting continued growth across investment banking activities.
Revenues from advisory services and debt and equity underwriting in
both developed and emerging markets increased 31% to $255 million. The market
for advisory and underwriting activity remained strong, and Morgan assisted
clients in a number of the quarter's notable transactions. Revenues from global
credit activities were $226 million, essentially unchanged from a year ago.
For the first half of 1997, Securities Data Co. ranked J.P. Morgan
fifth in U.S. debt and equity underwriting, up from sixth a year ago. Morgan
ranked seventh in completed mergers and acquisitions transactions worldwide,
unchanged from the first six months of 1996. As an arranger of syndicated loans,
J.P. Morgan ranked second globally, according to Loan Pricing Corporation, for
the first six months of 1997, unchanged from a year earlier.
Expenses in the second quarter of 1997 increased 31% to $351 million
compared with $268 million in the second quarter of 1996. The Finance and
Advisory sector includes all of the costs associated with our global network of
senior client relationship managers who market the full spectrum of our
capabilities and provide the link between our clients' needs and J.P. Morgan's
financial, advisory, asset management, market-making, and risk management
products and services.
The Finance and Advisory sector recorded pretax income of $130
million in the second quarter of 1997 compared with $158 million a year ago.
Revenues for the six month period increased 11% to $932 million.
Expenses for the same period increased 24% to $653 million from the six months
ended June 30, 1996. Year-to-date pretax income was $279 million in 1997, as
compared to $315 million for the first six months of 1996.
MARKET MAKING
The Market Making sector includes results of our Fixed Income, Equities, Foreign
Exchange, and Commodities activities. Total revenues were $648 million, compared
with $639 million a year ago. After a brief slowdown caused by the mid-March
directional shift in U.S. monetary policy, financial markets worldwide generally
gained strength in the second quarter.
Fixed income revenues in developed markets were $267 million,
compared with $277 million in the 1996 second quarter. In emerging markets,
revenues were $123 million down from $151 million a year ago. Revenue increases
in local market activities in Eastern Europe and Asia were more than offset by
lower revenues from external debt trading. In equities, market making revenues
were up 20% to $158 million. Equity derivative revenues grew and equity
commissions increased sharply, primarily reflecting growing market share on U.S.
and European exchanges. Foreign exchange revenues rose 4% to $84 million.
Commodities revenues were $16 million versus a loss of $2 million a year ago.
Total expenses of $455 million increased 3% from the second quarter
of 1996.
The Market Making sector recorded pretax income of $193 million in
the second quarter of 1997, compared with $198 million in the second quarter of
1996.
Revenues for the six month period were $1,381 million compared with
$1,410 million a year earlier. Expenses for the same period increased 9% to $929
million from the six months ended June 30, 1996. Year-to-date pretax income was
$452 million in 1997, as compared to $559 million for the first six months of
1996.
ASSET MANAGEMENT AND SERVICING
The Asset Management and Servicing sector includes results of our Investment
Management, Private Client Services, Futures and Options Brokerage, and
Euroclear System activities. Total revenues rose 12% to $392 million in the
second quarter.
Revenues generated from institutional investment management
activities and services for private clients increased 10% to $256 million.
Assets under management were approximately $234 billion at June 30, 1997.
Futures and Options Brokerage as well as Euroclear-related revenues also
increased.
<PAGE> 20
PAGE 20
Private clients accounted for approximately $145 million of revenues
from the firm's client-focused activities in the second quarter, up 15% from
1996, $45 million of which is recorded in the Finance and Advisory and Market
Making sectors.
Expenses associated with the Asset Management and Servicing sector
were up 17%, to $320 million in the second quarter of 1997, compared with $274
million in the second quarter of 1996.
The Asset Management and Servicing sector recorded pretax income of
$72 million in the second quarter of 1997 compared with $77 million in the
year-earlier period.
Revenues for the six month period increased 10% to $767 million from
$696 million a year-earlier. Expenses for the same period increased 14% to $620
million from the six months ended June 30, 1996. Year-to-date pretax income was
$147 million, as compared to $151 million for the first six months of 1996.
EQUITY INVESTMENTS
The Equity Investments sector includes results from our proprietary equity
investment portfolio management activities. Total reported revenues were $124
million in the second quarter, compared with $126 million a year ago. Included
in reported revenues were net gains of $118 million, primarily related to the
sale of equity investments in the communications and insurance industries. A
year ago, net gains were also $118 million. Equity Investments recorded pretax
income of $113 million in the second quarter of 1997 compared with $118 million
in the second quarter of 1996.
On a total return basis, combining reported revenues with the change
in net unrealized appreciation, Equity Investments earned $212 million in the
1997 second quarter, primarily related to insurance industry investments. A year
ago, total return was $103 million. Total return for the six months ended June
30, 1997, was $187 million compared with $157 million for the six months ended
June 30, 1996. As our investment strategy covers a longer-term horizon, total
return viewed over short periods will reflect the impact of short-term market
movements, including industry specific events.
PROPRIETARY INVESTING AND TRADING
The Proprietary Investing and Trading sector includes results from our market
risk positioning and capital and liquidity management activities. Total revenues
were $116 million for the 1997 second quarter, compared with $216 million a year
ago. Trading losses were $17 million, compared with gains of $128 million in the
1996 second quarter. The Proprietary Investing and Trading sector recorded
pretax income of $71 million in the second quarter of 1997 compared with $176
million in the same period a year ago.
Total return - reported revenues plus the change in net unrealized
appreciation - for the 1997 second quarter was $59 million, compared with $89
million in 1996. Total return for the six month period ended June 30, 1997 was
$424 million compared with $195 million for the six months ended June 30, 1996.
CORPORATE ITEMS
Corporate Items includes revenues and expenses that have not been allocated to
the five business sectors, intercompany eliminations, the taxable-equivalent
adjustment and the results of sold or discontinued businesses.
Corporate Items expenses for the second quarter of 1997 includes a
charge of $28 million incurred in connection with the renovation of office space
in New York. Corporate Items also includes revenues and expenses of $39 million
and $43 million, respectively, in the second quarter of 1996, from custody and
cash processing activities, previously exited by Morgan.
<PAGE> 21
PAGE 21
The following table summarizes revenues by major activity included within each
of our business sectors beginning with the first quarter of 1996.
<TABLE>
<CAPTION>
First Second Third Fourth Twelve First Second
Quarter Quarter Quarter Quarter Months Quarter Quarter
In millions 1996 1996 1996 1996 1996 1997 1997
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
REVENUES
Advisory & Underwriting $ 205 $ 195 $ 189 $ 225 $ 814 $ 221 $ 255
Global Credit 211 231 240 246 928 230 226
- --------------------------------------------------------------------------------------------------------------
FINANCE AND ADVISORY 416 426 429 471 1,742 451 481
- --------------------------------------------------------------------------------------------------------------
Fixed Income 456 277 286 286 1,305 264 267
Emerging Markets 124 151 153 119 547 186 123
Equities 93 132 58 83 366 152 158
Foreign Exchange 67 81 58 88 294 119 84
Commodities 31 (2) (10) 19 38 12 16
- --------------------------------------------------------------------------------------------------------------
MARKET MAKING 771 639 545 595 2,550 733 648
- --------------------------------------------------------------------------------------------------------------
Asset Management Services 216 233 211 242 902 243 256
Other 129 118 119 122 488 132 136
- --------------------------------------------------------------------------------------------------------------
ASSET MANAGEMENT
AND SERVICING 345 351 330 364 1,390 375 392
- --------------------------------------------------------------------------------------------------------------
TOTAL CLIENT-FOCUSED REVENUES 1,532 1,416 1,304 1,430 5,682 1,559 1,521
- --------------------------------------------------------------------------------------------------------------
EQUITY INVESTMENTS 66 126 59 45 296 49 124
- --------------------------------------------------------------------------------------------------------------
PROPRIETARY INVESTING
AND TRADING 215 216 203 264 898 276 116
- --------------------------------------------------------------------------------------------------------------
TOTAL PROPRIETARY REVENUES 281 342 262 309 1,194 325 240
- --------------------------------------------------------------------------------------------------------------
Corporate Items (73) 3 (17) 66 (21) (51) 30
- --------------------------------------------------------------------------------------------------------------
CONSOLIDATED REVENUES 1,740 1,761 1,549 1,805 6,855 1,833 1,791
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 22
PAGE 22
CLIENT-FOCUSED ACTIVITIES BY REGION
J.P. Morgan's clients are an increasingly global and diverse group of growing
and established companies, governments and their agencies, and privately held
firms, entrepreneurs, families, and individuals. We continue to broaden and
deepen client relationships in North America; Latin America; Europe, Middle
East, and Africa; and Asia Pacific. Regional results can be analyzed in a number
of ways. In the table below, combined results for our client-focused business
sectors are broken down by region responsible for managing the client
relationship.
<TABLE>
<CAPTION>
Europe, Total
North Latin Middle East Asia Client-
In millions America America and Africa Pacific Focused
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SECOND QUARTER 1997
Revenues $747 $172 $472 $130 $1,521
Expenses 595 55 356 120 1,126
- ----------------------------------------------------------------------------------
Pretax Income 152 117 116 10 395
- ----------------------------------------------------------------------------------
SECOND QUARTER 1996
Revenues 681 160 435 140 1,416
Expenses 507 48 321 107 983
- ----------------------------------------------------------------------------------
Pretax Income 174 112 114 33 433
- ----------------------------------------------------------------------------------
SIX MONTHS 1997
Revenues 1,482 308 949 341 3,080
Expenses 1,158 105 700 239 2,202
- ----------------------------------------------------------------------------------
Pretax Income 324 203 249 102 878
- ----------------------------------------------------------------------------------
SIX MONTHS 1996
Revenues 1,361 295 987 305 2,948
Expenses 1,000 94 619 210 1,923
- ----------------------------------------------------------------------------------
Pretax Income 361 201 368 95 1,025
- ----------------------------------------------------------------------------------
</TABLE>
The firm's management reporting system was used to determine the revenues and
expenses attributable to each region. For finance and advisory products, this is
the location of the client's head office; for most other products, it is based
on the location where activity is transacted. Market-making revenues that cannot
be specifically attributable to individual clients (i.e., gains/losses arising
from client-related positions) and earnings on stockholders' equity are
generally allocated based on the proportion of other regional revenues. Expenses
are allocated based on the estimated cost associated with servicing the client
base in the region.
North American client revenues increased 9% in the six months ended June 30,
1997, compared with the corresponding period of the prior year. Increases in
market making were driven by higher equities and foreign exchange revenues,
partially offset by lower fixed income results. In addition, both finance and
advisory and asset management servicing revenues grew.
Client revenues in Latin America were 4% higher in the six months
ended June 30, 1997 than a year ago, as increases in finance and advisory and
asset management and servicing offset declines in the market making sector.
Client revenues in Europe were 4% lower for the year-to-date period
ended June 30, 1997, compared with the same 1996 period. Market making revenues
decreased as lower fixed income revenues more than offset strong increases in
equities. Finance and advisory revenues were flat; asset management and
servicing revenues grew.
Asia Pacific revenues grew 12% in the six months ended June 30, 1997,
compared with the corresponding period of the prior year driven by increases in
volumes and client demand in all three client sectors.
<PAGE> 23
PAGE 23
RISK MANAGEMENT
The major risks inherent in J.P. Morgan's businesses are market, liquidity,
credit, and operating risk. Comprehensive risk management processes have been
established to facilitate, control, and monitor risk-taking. These processes are
built on a foundation of early identification and analytically rigorous
measurement of risks by each of our businesses. Refer to the 1996 Annual report
for further information.
Market Risk Profiles
The firm's primary measure of value at risk is referred to as "Daily Earnings at
Risk" (DEaR). This measure takes into account numerous variables that may cause
a change in the value of our portfolios, including interest rates, foreign
exchange rates, securities and commodities prices, and their volatilities, as
well as correlations among these variables. DEaR measures potential losses that
are expected to occur within a 95% confidence level, implying that a loss might
exceed DEaR approximately 5% of the time.
The following presents the market risk profiles for the firm for the twelve
months ended June 30, 1997. The level of market risk, which is measured on a
diversified basis, will vary with market factors, the level of client activity,
and our expectations of price and market movements.
Aggregate Market Risk Activities
For the twelve months ended June 30, 1997, average DEaR for our aggregate
trading and investing activities across all market risks was approximately $29
million and ranged from $23 million to $40 million. For the twelve months ended
December 31, 1996, average DEaR for our aggregate trading and investing
activities across all market risks was approximately $31 million and ranged from
$24 million to $44 million.
Trading Market Risk Activities
For the twelve months ended June 30, 1997, average DEaR for our trading
activities was approximately $20 million and ranged from $13 million to $28
million. Such DEaR represented the combination of interest rate risk of
approximately $16 million, foreign exchange rate risk of approximately $5
million, equities risk of approximately $6 million, commodity risk of
approximately $2 million and all other market risks of approximately $7 million,
offset by approximately ($16) million reflecting additional diversification
among these risks. For the twelve months ended December 31, 1996, average DEaR
for our trading activities was approximately $21 million and ranged from $13
million to $28 million.
We evaluate the reasonableness of DEaR by comparing DEaR to actual trading
results. The number of occurrences where daily revenue fell short of expected
daily results by amounts greater than related DEaR estimates was consistent with
statistical expectations.
Proprietary Investing Activities
The primary sources of market risk associated with our proprietary investing
activities relate to interest rate risk associated with fixed income securities
and interest rate swaps and spread risk associated with our mortgage-backed
securities portfolio. For the twelve month period ended June 30, 1997, average
DEaR for proprietary investing activities was approximately $20 million and
ranged from $12 million to $33 million. For the twelve months ended December 31,
1996, average DEaR for proprietary investing activities was approximately $22
million and ranged from $10 million to $37 million.
Due to the longer-term nature of our investing activities, we use a weekly
time horizon to evaluate our risk estimates relative to total return. For the
twelve month period ended June 30, 1997, the number of occurrences where total
return fell short of expected weekly results by amounts greater than related
weekly risk estimates was consistent with statistical expectations.
<PAGE> 24
PAGE 24
FINANCIAL REVIEW
REVENUES
Revenues were $1.791 billion in the second quarter of 1997, compared with $1.761
billion in the year ago quarter. For the six months ended June 30, 1997,
revenues were $3.624 billion versus $3.501 billion in the same period a year
ago.
Net interest revenue, the aggregate of interest revenue and expense generated
from the firm's client-focused and proprietary activities using a variety of
asset, liability, and off-balance-sheet instruments, increased 25% to $495
million from the second quarter of 1996. This increase resulted primarily from
higher trading-related net interest revenue from our market-making activities,
partially offset by a decline in net interest revenue from proprietary investing
and trading positions, as a result of the continuing maturity of higher-yielding
investments, principally interest rate swaps. For the first six months of 1997,
net interest revenue increased 19% to $945 million from the corresponding 1996
period.
Trading revenue was $477 million in the second quarter of 1997 compared with
$697 million a year ago. Year-to-date trading revenue decreased to $1,174
million from $1,455 million for the first six months of 1996, down 19%. The
following table presents trading revenue only, disaggregated by principal
product groupings, and does not reflect the integrated nature of our activities
as described in Business Sector Analysis.
<TABLE>
<CAPTION>
Fixed Foreign Commod- Proprietary
In millions Income Equities Exchange ities Trading Total
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Second Quarter 1997 $250 $170 $ 72 $ 2 ($ 17) $ 477
Second Quarter 1996 331 124 109 5 128 697
Six Months 1997 596 281 192 15 90 1,174
Six Months 1996 864 218 177 39 157 1,455
- -------------------------------------------------------------------------------------------
</TABLE>
Fixed income trading revenue declined to $250 million from $331 million in the
year-earlier quarter, primarily due to lower debt trading revenues in emerging
markets. Trading revenue from equities grew 37% to $170 million on higher
revenues from equity derivatives and positioning gains. Foreign exchange trading
revenue decreased 34% to $72 million from $109 million a year ago. Trading
revenue from commodities was $2 million, down from $5 million in the second
quarter of 1996. Proprietary trading losses were $17 million, compared with
gains of $128 million in the 1996 second quarter.
Investment banking revenue rose 40% to a record $294 million in the second
quarter of 1997, compared to a year ago. The market for advisory and
underwriting activity remained strong, and the firm assisted clients in a number
of the quarter's notable transactions. Underwriting revenue grew to $140 million
from $111 million in the year earlier quarter. Advisory and syndication fees
rose to $154 million from $99 million a year ago. Investment banking revenue for
the first six months of 1997 was $520 million, compared with $411 million for
the first six months of 1996. Underwriting revenue for the first half of 1997
was $237 million, versus $176 million for the same 1996 period. Advisory and
syndication fees for the first half were $283 million, compared to $235 million
for the same period of 1996.
Investment management revenue increased 16% to $199 million in the second
quarter of 1997, as compared with the prior year. Assets under management were
$234 billion at June 30, 1997, versus $190 billion at June 30, 1996. Investment
management revenue for the first six months of 1997 increased 16% to $383
million, over the same 1996 period.
Fees and commissions were $156 million, up 10% from $142 million in the year
ago quarter, primarily due to higher equity commissions reflecting growing
market share on U.S. and European exchanges. For the first six months of 1997,
fees and commissions revenue was $304 million, compared to $293 million in the
same 1996 period.
<PAGE> 25
PAGE 25
Investment securities revenue was $114 million in the second quarter of 1997
and $72 million in the prior year. Net gains from positions associated with our
Equity Investment activities were $118 million in the current quarter and
primarily related to the sale of investments in the communications and insurance
industries. A year ago, such net gains were also $118 million, but related to
sales of investments in the biotechnology and health-care-related industries.
Also included in investment securities revenue were net realized gains of $1
million and losses of $51 million in the current and year ago quarters,
respectively. For the current six month period, investment securities revenue
was $175 million, versus $150 million for the first six months of 1996.
Other revenue was $56 million in the second quarter, compared with $71
million a year earlier. Other revenue for the first half of 1997 was $123
million, compared with $70 million for the first six months of 1996.
OPERATING EXPENSES
Operating expenses increased 12% to $1.241 billion in the 1997 second quarter
and included a charge of $28 million incurred in connection with the renovation
of office space in New York. Expense increases were concentrated in two business
sectors - Finance and Advisory, and Asset Management and Servicing - where
Morgan is investing to expand market share and business capacity. Higher levels
of business activity also contributed to the overall rise in expenses, as did
initiatives to prepare for the year 2000 and the anticipated conversion to a
single European currency. For the six months ended June 30, 1997, operating
expenses increased approximately 11% to $2.432 billion, as compared to the
first six months of 1996.
At June 30, 1997, staff totaled 15,776 employees, compared with 15,391
employees at June 30, 1996.
Income tax expense in the second quarter totaled $176 million, based on an
effective tax rate of 32%, compared with 33% in the year earlier quarter.
ASSETS
Total assets were $250 billion at June 30, 1997, compared with $226 billion at
March 31, 1997. At June 30, 1997, the aggregate allowance for credit losses was
$1.110 billion versus $1.113 billion at March 31, 1997. Nonperforming assets
decreased to $108 million at June 30, 1997, from $110 million at March 31, 1997,
as assets newly classified as nonperforming were more than offset by assets
returned to performing status, repayments, and charge-offs. No provision for
credit losses was deemed necessary in the 1997 second quarter.
<PAGE> 26
PAGE 26
FOREIGN-COUNTRY-RELATED OUTSTANDINGS
Foreign-country-related outstandings represent outstandings to foreign borrowers
that are denominated in U.S. dollars or currencies other than the borrower's
local currency or, in the case of a guarantee, other than the guarantor's local
currency. Outstandings include loans, interest-earning deposits with banks,
investment securities, customers' acceptance liability, securities purchased
under agreements to resell, trading account securities, accrued interest, and
other monetary assets. Outstandings generally are distributed according to the
location and category of the borrower. In the case of guaranteed outstandings,
or when tangible, liquid collateral is held and realizable outside the obligor's
country, distribution is generally made according to the location and category
of the guarantor or the location where the collateral is held and realizable.
Countries in which J.P. Morgan's outstandings exceeded 1.0% of total assets at
June 30, 1997, are listed in the following table.
<TABLE>
<CAPTION>
Cross-border
In millions outstandings
- ----------------------------------------------------------------------
<S> <C>
France $4,409
United Kingdom 4,203
Switzerland 2,535
- ----------------------------------------------------------------------
</TABLE>
<PAGE> 27
PAGE 27
CAPITAL
<TABLE>
<CAPTION>
June 30 March 31 December 31 June 30
Dollars in billions 1997 1997 1996 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total stockholders' equity $ 11.3 $ 11.2 $ 11.4 $ 11.0
Annualized rate of return on average common
stockholders' equity(a)(b) 14.1% 15.7% 15.3% 17.1%
As percent of period-end total
assets:
Common equity 4.3 4.6 4.8 5.2
Total equity 4.5 4.9 5.2 5.5
Book value per common share(c) $ 55.37 $ 54.05 $ 54.43 $ 52.40
Risk-based capital(d)
J.P. Morgan
Tier 1 risk-based capital $ 11.1 $ 11.0 $ 10.9 $ 9.7
Total risk-based capital 15.6 15.7 15.1 14.1
Risk adjusted assets 137.2 127.1 123.9 120.3
Capital ratios(d)
J.P. Morgan
Tier 1 ratio 8.1% 8.7% 8.8% 8.1%
Total ratio 11.4 12.4 12.2 11.7
Leverage ratio 5.9 5.9 5.9 6.2
Morgan Guaranty(e)
Tier 1 ratio 7.7% 8.2% 8.2% 7.7%
Total ratio 10.5 11.4 11.5 10.7
Leverage ratio 5.5 5.5 5.3 5.7
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Represents the annualized rate of return on average common stockholders'
equity for the three months ended June 30, 1997, March 31, 1997, December 31,
1996, and June 30, 1996. Excluding the impact of SFAS No. 115, the annualized
rate of return on average common stockholders' equity would have been 14.7%,
16.5%, 15.9%, and 17.8% for the three months ended June 30, 1997, March 31,
1997, December 31, 1996, and June 30, 1996, respectively.
(b) The annualized rate of return on average common stockholders' equity for the
six months ended June 30, 1997 and 1996 was 14.9% and 17.1%, respectively.
Excluding the impact of SFAS No. 115, the annualized rate of return on average
common stockholders' equity would have been 15.6% and 18.0% for the six months
ended June 30, 1997 and 1996, respectively.
(c) Excluding the impact of SFAS No. 115, the book value per common share would
have been $52.68, $51.98, $52.08, and $50.54 for the three months ended June 30,
1997, March 31, 1997, December 31, 1996, and June 30, 1996, respectively.
(d) In accordance with Federal Reserve Board guidelines, the risk-based capital
and leverage amounts and ratios exclude the equity, assets and off-balance-sheet
exposures of J.P. Morgan Securities Inc. and the effect of SFAS No. 115.
(e) In accordance with Federal Reserve Board guidelines, the ratios exclude the
effect of SFAS No. 115.
The capital of J.P. Morgan and Morgan Guaranty Trust Company of New York (Morgan
Guaranty) remained well above the minimum standards set by regulators at June
30, 1997. Further, the capital ratios of J.P. Morgan and Morgan Guaranty
exceeded the minimum standards for a "well capitalized" bank holding company and
bank, respectively, at June 30, 1997.
At June 30, 1997, stockholders' equity included approximately $518 million of
net unrealized appreciation on debt investment and marketable equity investment
securities, net the related deferred tax liability of $310 million. The net
unrealized appreciation on debt investment securities was $294 million at June
30, 1997. The net unrealized appreciation on marketable equity investment
securities was $534 million at June 30, 1997.
During the second quarter of 1997, the firm completed the purchase of J.P.
Morgan common stock in the open market pursuant to the Board of Directors'
December 1996 authorization of the purchase of up to $750 million of shares. In
addition, the firm continues its program of purchasing J.P. Morgan shares to
lessen the dilutive impact on earnings per share of the firm's employee benefit
plans.
<PAGE> 28
PAGE 28
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Dollars in millions,
Interest and average rates Three months ended
on a taxable-equivalent basis ------------------------------------------------------------------
June 30, 1997 June 30, 1996
------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. $ 2,019 $ 46 9.14% $1,812 $ 24 5.33%
Debt investment securities in
offices in the U.S. (a):
U.S. Treasury 1,277 24 7.54 922 18 7.85
U.S. state and political
subdivision 1,234 37 12.03 1,651 47 11.45
Other 17,036 273 6.43 19,685 292 5.97
Debt investment securities in offices
outside the U.S. (a) 3,399 66 7.79 3,622 57 6.33
Trading account assets:
In offices in the U.S. 23,320 363 6.24 14,343 224 6.28
In offices outside the U.S. 39,937 652 6.55 22,911 460 8.08
Securities purchased under agreements
to resell and federal funds sold:
In offices in the U.S. 16,728 227 5.44 28,039 355 5.09
In offices outside the U.S. 23,666 277 4.69 17,355 238 5.52
Securities borrowed, mainly in
offices in the U.S. 35,334 444 5.04 26,042 318 4.91
Loans:
In offices in the U.S. 4,840 94 7.79 7,020 114 6.53
In offices outside the U.S. 24,594 404 6.59 21,494 328 6.14
Other interest-earning assets (b):
In offices in the U.S. 657 42 * 1,126 26 *
In offices outside the U.S. 791 98 * 1,065 80 *
- ------------------------------------------------------------------------------------------------------------
Total interest-earning assets 194,832 3,047 6.27 167,087 2,581 6.21
Allowance for credit losses (c) (912) (1,122)
Cash and due from banks 765 785
Other noninterest-earning assets 48,540 42,941
- ------------------------------------------------------------------------------------------------------------
Total assets 243,225 209,691
- ------------------------------------------------------------------------------------------------------------
</TABLE>
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 June 30, 1997 and 1996.
(a) For the three months ended June 30, 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 June 30, 1997 is based on the portions of the aggregate
allowance for credit losses related only to loans and trading account assets.
See Note 10, Aggregate Allowance for Credit Losses. Average amount at June 30,
1996 is based on the aggregate allowance for credit losses.
* Not meaningful
<PAGE> 29
PAGE 29
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Dollars in millions, Three months ended
Interest and average rates -------------------------------------------------------------------------------
on a taxable-equivalent basis
June 30, 1997 June 30, 1996
-------------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
In offices in the U.S. $ 10,145 $ 141 5.57% $ 2,177 $ 24 4.43%
In offices outside the U.S. 44,592 529 4.76 46,008 595 5.20
Trading account liabilities:
In offices in the U.S. 11,196 186 6.66 7,921 124 6.30
In offices outside the U.S. 14,325 212 5.94 9,665 182 7.57
Securities sold under agreements to
repurchase and federal funds
purchased, mainly in offices in
the U.S. 65,330 853 5.24 62,286 798 5.15
Commercial paper, mainly in offices
in the U.S. 3,562 49 5.52 4,274 57 5.36
Other interest-bearing liabilities:
In offices in the U.S. 15,217 228 6.01 14,270 200 5.64
In offices outside the U.S. 3,803 59 6.22 1,899 46 9.74
Long-term debt,
mainly in offices in the U.S. 16,145 256 6.36 9,623 136 5.69
Company-obligated mandatorily
redeemable preferred securities of
subsidiaries 1,150 21 7.68 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 185,465 2,534 5.48 158,123 2,162 5.50
Noninterest-bearing deposits:
In offices in the U.S. 966 2,329
In offices outside the U.S. 490 933
Other noninterest-bearing
liabilities 45,197 37,422
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 232,118 198,807
Stockholders' equity 11,107 10,884
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity 243,225 209,691
Net yield on interest-earning assets 1.06 1.01
- ----------------------------------------------------------------------------------------------------------------------------
Net interest earnings 513 419
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 30
PAGE 30
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Dollars in millions, Six months ended
Interest and average rates ---------------------------------------------------------------------------------------
on a taxable-equivalent basis June 30, 1997 June 30, 1996
---------------------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning deposits with banks,
mainly in offices outside the U.S. $ 1,968 $ 73 7.48% $ 1,803 $ 51 5.69%
Debt investment securities in
offices in the U.S.(a):
U.S. Treasury 1,353 50 7.45 970 37 7.67
U.S. state and political
subdivision 1,350 79 11.80 1,672 96 11.55
Other 17,406 558 6.46 18,182 561 6.20
Debt investment securities in offices
outside the U.S.(a) 4,083 141 6.96 4,272 131 6.17
Trading account assets:
In offices in the U.S. 22,619 714 6.37 15,825 474 6.02
In offices outside the U.S. 40,528 1,373 6.83 24,913 966 7.80
Securities purchased under agreements
to resell and federal funds sold:
In offices in the U.S. 15,649 423 5.45 27,573 686 5.00
In offices outside the U.S. 23,466 536 4.61 16,004 484 6.08
Securities borrowed, mainly in
offices in the U.S. 33,118 827 5.04 23,408 581 4.99
Loans:
In offices in the U.S. 4,909 191 7.85 6,849 226 6.64
In offices outside the U.S. 24,161 775 6.47 21,071 660 6.30
Other interest-earning assets(b):
In offices in the U.S. 710 62 * 1,132 59 *
In offices outside the U.S. 869 157 * 1,180 145 *
- -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 192,189 5,959 6.25 164,854 5,157 6.29
Allowance for credit losses(c) (913) (1,126)
Cash and due from banks 983 1,019
Other noninterest-earning assets 47,413 42,537
- -----------------------------------------------------------------------------------------------------------------------------------
Total assets 239,672 207,284
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 six months ended June 30, 1997 and 1996.
(a) For the six months ended June 30, 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 June 30, 1997 is based on the portions of the aggregate
allowance for credit losses related only to loans and trading account assets.
See Note 10, Aggregate Allowance for Credit Losses. Average amount at June 30,
1996 is based on the aggregate allowance for credit losses.
* Not meaningful
<PAGE> 31
PAGE 31
CONSOLIDATED AVERAGE BALANCES AND NET INTEREST EARNINGS
J.P. Morgan & Co. Incorporated
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
Six months ended
Dollars in millions, -------------------------------------------------------------------------------
Interest and average rates June 30, 1997 June 30,1996
on a taxable-equivalent basis
- ----------------------------------------------------------------------------------------------------------------------------
Average Average Average Average
balance Interest rate balance Interest rate
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits: $ 9,489 $ 261 5.55% $ 2,054 $ 47 4.60%
In offices in the U.S. 45,304 1,072 4.77 45,764 1,222 5.37
In offices outside the U.S.
Trading account liabilities: 10,285 350 6.86 7,923 241 6.12
In offices in the U.S. 13,072 405 6.25 10,654 358 6.76
In offices outside the U.S.
Securities sold under agreements to
repurchase and federal funds
purchased, mainly in offices in
the U.S. 66,586 1,729 5.24 60,804 1,585 5.24
Commercial paper, mainly in offices
in the U.S. 3,927 107 5.49 3,980 108 5.46
Other interest-bearing liabilities:
In offices in the U.S. 15,323 451 5.94 13,827 392 5.70
In offices outside the U.S. 3,730 110 5.95 1,916 92 9.66
Long-term debt,
mainly in offices in the U.S. 14,979 451 6.07 9,526 275 5.81
Company-obligated mandatorily
redeemable preferred securities of
subsidiaries 1,077 40 7.68 -- -- --
- ----------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 183,772 4,976 5.46 156,448 4,320 5.55
Noninterest-bearing deposits:
In offices in the U.S. 1,091 2,674
In offices outside the U.S. 309 1,015
Other noninterest-bearing
liabilities 43,249 36,367
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities 228,421 196,504
Stockholders' equity 11,251 10,780
- ----------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders'
equity 239,672 207,284
Net yield on interest-earning assets 1.03 1.02
- ----------------------------------------------------------------------------------------------------------------------------
Net interest earnings 983 837
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 32
PAGE 32
DERIVATIVES USED FOR PURPOSES OTHER-THAN-TRADING
The objective of J.P. Morgan's investing activities is to create
longer-term value through the management of interest rate risk related to J.P.
Morgan's nontrading assets, liabilities, and off-balance-sheet activities. J.P.
Morgan utilizes a variety of financial instruments, including derivatives, in an
integrated manner to achieve these objectives. Additional information on
derivatives used for purposes other-than-trading, primarily interest rate swaps,
is provided below. For more information about investing activities, see Note 7
to the consolidated financial statements, Off-balance-sheet financial
instruments.
The table below summarizes maturities and weighted-average interest rates
to be received and paid on U.S. dollar and non-U.S. dollar interest rate swaps
used for purposes other-than-trading at June 30, 1997. The majority of
nontrading interest rate swaps, as presented below, are risk-adjusting swaps.
Also included in the table are swaps designated as hedges or used to modify the
interest rate characteristics of assets and liabilities. Variable rates, which
reset at predetermined dates, are generally presented based on the London
Interbank Offered Rate (LIBOR) in effect on the swaps at June 30, 1997. The
table was prepared under the assumption that these variable interest rates
remain constant. The variable interest rates to be received or paid will change
to the extent that rates fluctuate. Such changes may be substantial.
Not included in the table below are other derivatives used for purposes
other-than-trading, such as currency swaps, basis swaps, foreign exchange
contracts, interest rate futures, forward rate agreements, debt securities
forwards, and purchased options, totaling $72.5 billion at June 30, 1997. The
contractual maturities of these derivative contracts are primarily less than one
year.
<TABLE>
<CAPTION>
By expected maturities After one After two After three After four
Within one year but years but years but years but After five
Dollars in billions year within two within three within four within five years Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST RATE SWAPS - U. S. DOLLAR
Receive fixed
swaps
Notional amount 24.8 6.4 4.2 2.5 1.8 12.6 52.3
Weighted average:
Receive rate 5.8 6.8 6.9 6.2 6.8 6.1 6.2
Pay rate 5.8 5.8 6.0 5.9 5.8 5.8 5.8
Pay fixed swaps
Notional amount 20.2 5.9 9.2 6.3 0.8 9.9 52.3
Weighted average:
Receive rate 5.8 5.8 5.8 5.8 5.9 5.8 5.8
Pay rate 5.5 5.8 6.6 6.3 6.9 6.7 6.1
INTEREST RATE SWAPS - NON - U.S. DOLLAR
Receive fixed
swaps
Notional amount 25.7 9.6 7.3 4.0 3.2 4.8 54.6
Weighted average:
Receive rate 5.1 5.7 6.0 5.3 6.3 6.4 5.5
Pay rate 3.0 3.4 4.3 2.6 3.8 3.2 3.3
Pay fixed swaps
Notional amount 20.2 9.6 7.1 3.8 2.3 4.3 47.3
Weighted average:
Receive rate 3.5 3.3 4.3 2.8 3.8 3.0 3.5
Pay rate 5.7 5.2 6.1 6.0 6.4 6.6 5.8
- ------------------------------------------------------------------------------------------------------------------------------------
Total notional amount 90.9 31.5 27.8 16.6 8.1 31.6 206.5
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Not included in the table above are $3.7 billion and $4.6 billion of notional
amounts related to currency swaps and basis swaps, respectively.
<PAGE> 33
PAGE 33
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
12. Statement re computation of ratios
27. Financial data schedule
(b) Reports on Form 8-K
The following reports on Form 8-K were filed with the Securities and
Exchange Commission during the quarter ended June 30, 1997:
April 10, 1997 (Items 5 and 7)
Reported the issuance by J.P. Morgan of a press release announcing
its earnings for the three-month period ended March 31, 1997.
<PAGE> 34
PAGE 34
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 thereunto duly authorized.
J.P. MORGAN & CO. INCORPORATED
(Registrant)
/s/ DAVID H. SIDWELL
-----------------------------------
NAME: DAVID H. SIDWELL
TITLE: MANAGING DIRECTOR AND CONTROLLER
(PRINCIPAL ACCOUNTING OFFICER)
DATE: August 14, 1997
<PAGE> 35
PAGE 1
LIST OF EXHIBITS
EXHIBIT
12. Statement re computation of ratios
27. Financial data schedule
<PAGE> 1
PAGE 2
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six months
Dollars in millions 1997
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 798
Add: income taxes 394
Less: equity in undistributed income of all affiliates
accounted for by the equity method 17
Add: fixed charges, excluding interest on deposits 3,657
- --------------------------------------------------------------------------------
Earnings available for fixed charges, excluding
interest on deposits 4,832
Add: interest on deposits 1,333
- --------------------------------------------------------------------------------
Earnings available for fixed charges, including
interest on deposits 6,165
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on deposits 3,643
Interest factor in net rental expense 14
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest on deposits 3,657
Add: interest on deposits 1,333
- --------------------------------------------------------------------------------
Total fixed charges, including interest on deposits 4,990
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges:
Excluding interest on deposits 1.32
Including interest on deposits 1.24
- --------------------------------------------------------------------------------
</TABLE>
<PAGE> 2
PAGE 3
Exhibit 12
Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends
J.P. Morgan & Co. Incorporated
Consolidated
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Six months
Dollars in millions 1997
- --------------------------------------------------------------------------------
<S> <C>
Earnings:
Net income $ 798
Add: income taxes 394
Less: equity in undistributed income of all affiliates
accounted for by the equity method 17
Add: fixed charges, excluding interest on deposits
and preferred stock dividends 3,657
- --------------------------------------------------------------------------------
Earnings available for fixed charges, excluding
interest on deposits 4,832
Add: interest on deposits 1,333
- --------------------------------------------------------------------------------
Earnings available for fixed charges, including
interest on deposits 6,165
- --------------------------------------------------------------------------------
Fixed charges:
Interest expense, excluding interest on deposits 3,643
Interest factor in net rental expense 14
Preferred stock dividends 27
- --------------------------------------------------------------------------------
Total fixed charges, excluding interest on deposits 3,684
Add: interest on deposits 1,333
- --------------------------------------------------------------------------------
Total fixed charges, including interest on deposits 5,017
- --------------------------------------------------------------------------------
Ratio of earnings to fixed charges and preferred stock dividends:
Excluding interest on deposits 1.31
Including interest on deposits 1.23
- --------------------------------------------------------------------------------
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS AS OF AND FOR THE QUARTER ENDED
JUNE 30, 1997 INCLUDED IN THE J.P. MORGAN & CO. INCORPORATED FORM 10-Q.
</LEGEND>
<MULTIPLIER> 1,000,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 752
<INT-BEARING-DEPOSITS> 2,054
<FED-FUNDS-SOLD> 36,425
<TRADING-ASSETS> 105,825
<INVESTMENTS-HELD-FOR-SALE> 24,936
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 29,294
<ALLOWANCE> 560
<TOTAL-ASSETS> 250,490
<DEPOSITS> 56,977
<SHORT-TERM> 91,368
<LIABILITIES-OTHER> 71,786
<LONG-TERM> 19,011
0
694
<COMMON> 502
<OTHER-SE> 10,152
<TOTAL-LIABILITIES-AND-EQUITY> 250,490
<INTEREST-LOAN> 494
<INTEREST-INVEST> 387
<INTEREST-OTHER> 2,148
<INTEREST-TOTAL> 3,029
<INTEREST-DEPOSIT> 670
<INTEREST-EXPENSE> 2,534
<INTEREST-INCOME-NET> 495
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 125
<EXPENSE-OTHER> 1,241
<INCOME-PRETAX> 550
<INCOME-PRE-EXTRAORDINARY> 374
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 374
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 1.06
<LOANS-NON> 106
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,113
<CHARGE-OFFS> 15
<RECOVERIES> 12
<ALLOWANCE-CLOSE> 1,110
<ALLOWANCE-DOMESTIC> 137
<ALLOWANCE-FOREIGN> 54
<ALLOWANCE-UNALLOCATED> 919
</TABLE>
