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JPMorgan Chase & Co.
Apr 14, 2010
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JPMorgan Chase Reports First-Quarter 2010 Net Income of $3.3 Billion, or $0.74 per Share, on Revenue1 of $28.2 Billion

New York, April 14, 2010 - JPMorgan Chase & Co. (NYSE: JPM) today reported first-quarter 2010 net income of $3.3 billion, compared with $2.1 billion in the first quarter of 2009. Earnings per share were $0.74, compared with $0.40 in the first quarter of 2009.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: "The Firm's net income of $3.3 billion reflected another strong quarter for the Investment Bank, particularly in Fixed Income Markets, and continued solid performance across Asset Management, Commercial Banking and Retail Banking. Unfortunately, these good results were partially offset by high losses in the consumer credit portfolios."

Regarding the balance sheet, Dimon said: "Our first-quarter earnings generated additional capital, resulting in a very strong Tier 1 Capital ratio of 11.5% and a Tier 1 Common ratio of 9.1%. Total firmwide credit reserves were more than $39 billion, or 5.6% of total loans1. We continued to see delinquencies stabilize, and in some cases improve, in our credit portfolios. Ultimately, the health of these portfolios will track the health of the economy."

Dimon further remarked: "We have continued to contribute to the economic recovery of small businesses and communities. Building on the efforts of the Obama Administration, we expanded our own efforts to support small businesses, launching an initiative to increase small-business lending to $10 billion by the end of 2010. During the quarter, we extended more than $2.1 billion in new small-business credit, with Business Banking originations nearly doubling from last year. As a company, we also aim to employ more people and create new jobs across the country and around the world, with plans to add nearly 9,000 new employees in the U.S. alone.

"Our efforts to prevent foreclosures have produced significant results. Since the beginning of 2009, we have offered approximately 750,000 trial modifications to struggling homeowners, of which nearly 25% were approved for permanent modification. We approved 64,000 modifications during this quarter alone, a 146% increase from last quarter. In addition, we recently announced our participation in the U.S. Government's second-lien mortgage program known as 2MP. While these modification programs are complex to implement and take time to build momentum, we are beginning to see success and believe they could ultimately prevent millions of foreclosures."

Looking ahead to the remainder of 2010, Dimon concluded: "While the economy still faces challenges, there have been clear and broad-based improvements in underlying trends. We believe these improvements will continue and are hopeful they will gather momentum, resulting in a strong recovery. Regardless of the economic trends, our company continues to invest for the future, building a better franchise for our clients and customers."

In the discussion below of the business segments and of JPMorgan Chase as a Firm, information is presented on a managed basis. Managed basis starts with the reported U.S. GAAP results and includes the following adjustments: (a) for each line of business and the Firm as a whole, net revenue is shown on a tax-equivalent basis; and (b) for Card Services and the Firm as a whole, certain reclassification adjustments for periods prior to January 1, 2010 that assumed credit card loans securitized by Card Services remained on the Consolidated Balance Sheet. Effective January 1, 2010, the Firm adopted new accounting guidance that required the Firm to consolidate its firm-sponsored credit card securitization trusts. As a result, reported and managed basis are equivalent for periods beginning after January 1, 2010. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see page 13.

The following discussion compares the first quarters of 2010 and 2009 unless otherwise noted.

1 Revenue on a managed basis, credit reserves, credit ratios and capital ratios reflect the impact of the January 1, 2010 adoption of the new accounting guidance that amended the accounting for transfers of financial assets and consolidation of VIEs. For notes on managed basis and other non-GAAP measures, see page 13.

Discussion of Results:
Net income was $2.5 billion, an increase of $865 million from the prior year. These results reflected strong net revenue, particularly in Fixed Income Markets, and a benefit from the provision for credit losses.

Net revenue was $8.3 billion, compared with $8.4 billion in the prior year. Investment banking fees increased by 5% to $1.4 billion, consisting of debt underwriting fees of $728 million (up 23%), equity underwriting fees of $413 million (up 34%), and advisory fees of $305 million (down 36%). Fixed Income Markets revenue was $5.5 billion, compared with $4.9 billion in the prior year, reflecting strong results across most products. Equity Markets revenue was $1.5 billion, compared with $1.8 billion in the prior year, reflecting solid client revenue and strong trading results. Credit Portfolio revenue was a loss of $53 million.

The provision for credit losses was a benefit of $462 million, compared with an expense of $1.2 billion in the prior year. The current-quarter provision reflected lower loan balances, driven by repayments and loan sales. The allowance for loan losses to end-of-period loans retained was 4.9%, compared with 7.0% in the prior year. The decline in the allowance ratio was due largely to the consolidation of asset-backed commercial paper conduits in accordance with new accounting guidance, effective January 1, 2010. Net charge-offs were $697 million, compared with $36 million in the prior year. Nonperforming loans were $2.7 billion, up by $946 million from the prior year and down by $763 million from the prior quarter.

Noninterest expense was $4.8 billion, flat to the prior year, as lower performance-based compensation expense was largely offset by increased litigation reserves, including those for mortgage-related matters.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Commencing this quarter, RFS is presented as Retail Banking, Mortgage Banking & Other Consumer Lending, and Real Estate Portfolios. This change is solely intended to provide further clarity around the Real Estate Portfolios. For further information, see the JPMorgan Chase Earnings Release Financial Supplement filed by the Firm on April 14, 2010, and the Form 8-K on April 9, 2010.

Discussion of Results:
Retail Financial Services reported a net loss of $131 million, compared with net income of $474 million in the prior year.

Net revenue was $7.8 billion, a decrease of $1.1 billion, or 12%, from the prior year. Net interest income was $5.0 billion, down by $214 million, or 4%, reflecting the impact of lower loan and deposit balances, partially offset by a shift to wider-spread deposit products. Noninterest revenue was $2.8 billion, down by $845 million, or 23%, driven by lower mortgage fees and related income.

The provision for credit losses was $3.7 billion, a decrease of $144 million from the prior year and $496 million from the prior quarter. Economic pressure on consumers continued to drive losses for the mortgage and home equity portfolios. The provision included an addition of $1.2 billion to the allowance for loan losses for further estimated deterioration in the Washington Mutual purchased credit-impaired portfolios. The prior-year and prior-quarter provisions included additions to the allowance for loan losses of $1.7 billion and $1.5 billion, respectively. Home equity net charge-offs were $1.1 billion (4.59% net charge-off rate1), compared with $1.1 billion (3.93% net charge-off rate1) in the prior year. Subprime mortgage net charge-offs were $457 million (13.43% net charge-off rate1), compared with $364 million (9.91% net charge-off rate1) in the prior year. Prime mortgage net charge-offs were $459 million (3.10% net charge-off rate1), compared with $312 million (1.95% net charge-off rate1) in the prior year.

Noninterest expense was $4.2 billion, an increase of $71 million, or 2%, from the prior year.

Retail Banking reported net income of $898 million, an increase of $35 million, or 4%, compared with the prior year.

Net revenue was $4.3 billion, flat compared with the prior year. Net interest income benefited from a shift to wider-spread deposit products, largely offset by a decline in time deposit balances. The decrease in noninterest revenue was driven by declining deposit-related fees, predominantly offset by an increase in debit card income.

The provision for credit losses was $191 million, compared with $325 million in the prior year. The prior-year provision reflected a $150 million increase in the allowance for loan losses for Business Banking.

Noninterest expense was $2.6 billion, flat compared with the prior year, as efficiencies from the Washington Mutual integration offset increases in sales force and new branch builds.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Mortgage Banking & Other Consumer Lending reported net income of $257 million, compared with $730 million in the prior year. The decrease was driven by lower noninterest revenue and higher noninterest expense, partially offset by the lower provision for credit losses.

Net revenue was $1.9 billion, down by $818 million, or 30%, from the prior year. The decline was driven by lower mortgage fees and related income, partially offset by an increase in net interest income, reflecting the impact of higher auto loan balances and wider auto loan spreads. Mortgage fees and related income decreased due to lower MSR risk management results and lower mortgage production revenue, partially offset by higher mortgage operating income. MSR risk management results were $152 million, compared with $1.0 billion in the prior year. Mortgage production revenue was $1 million, compared with $481 million in the prior year, as a result of an increase in losses from the repurchase of previously-sold loans, a decline in new originations and narrower spreads. Mortgage operating revenue, which represents loan servicing revenue net of other changes in fair value of the MSR asset, was $502 million, up by $353 million. The increase was driven by other changes in the fair value of the MSR asset, partially offset by lower servicing revenue as a result of lower third-party loans serviced.

The provision for credit losses, predominantly related to the auto and student loan portfolios, was $217 million, compared with $405 million in the prior year. The prior-year provision reflected a $150 million increase in the allowance for loan losses for student loans.

Noninterest expense was $1.2 billion, up by $109 million, or 10%, from the prior year, driven by default-related expense, partially offset by a decrease in mortgage insurance expense.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Real Estate Portfolios reported a net loss of $1.3 billion, compared with a net loss of $1.1 billion in the prior year. The deterioration was driven by lower net revenue and the higher provision for credit losses, partially offset by lower noninterest expense.

Net revenue was $1.5 billion, down by $246 million, or 14%, from the prior year. The decrease was predominantly driven by a decline in net interest income as a result of lower loan balances, reflecting portfolio run-off, as well as narrower loan spreads.

The provision for credit losses was $3.3 billion, compared with $3.1 billion in the prior year. The current-quarter provision reflected an addition of $1.2 billion to the allowance for loan losses for further estimated deterioration in the Washington Mutual prime and option ARM purchased credit-impaired portfolios. The prior-year provision was driven by an addition of $1.4 billion to the allowance for loan losses. (For further detail, see RFS discussion of the provision for credit losses.)

Noninterest expense was $419 million, down by $35 million, or 8%, from the prior year, reflecting lower foreclosed asset expense.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Discussion of Results:
Card Services reported a net loss of $303 million, compared with a net loss of $547 million in the prior year. The improved results were driven by the lower provision for credit losses, partially offset by lower net revenue.

End-of-period managed loans were $149.3 billion, a decrease of $26.9 billion, or 15%, from the prior year and $14.2 billion, or 9%, from the prior quarter. Average managed loans were $155.8 billion, a decrease of $27.6 billion, or 15%, from the prior year and $7.4 billion, or 5%, from the prior quarter.

Managed net revenue was $4.4 billion, a decrease of $682 million, or 13%, from the prior year. Net interest income was $3.7 billion, down by $793 million, or 18%. The decrease was driven by lower average managed loan balances (including run-off from the Washington Mutual portfolio), the impact of legislative changes, and a decreased level of fees, partially offset by wider loan spreads. Noninterest revenue was $758 million, an increase of $111 million, or 17%. The increase was driven by a prior-year write-down of securitization interests, partially offset by run-off from the Washington Mutual portfolio.

The managed provision for credit losses was $3.5 billion, compared with $4.7 billion in the prior year and $4.2 billion in the prior quarter. The current-quarter provision included a reduction of $1.0 billion to the allowance for loan losses, reflecting lower estimated losses, partially offset by continued high levels of charge-offs. The prior-year provision included an addition of $1.2 billion to the allowance for loan losses. The managed net charge-off rate for the quarter was 11.75%, up from 7.72% in the prior year and 9.33% in the prior quarter. The current-quarter net charge-off rate was negatively affected by approximately 60 basis points from a payment-holiday program offered in the second quarter of 2009. The 30-day managed delinquency rate was 5.62%, down from 6.16% in the prior year and 6.28% in the prior quarter. Excluding the impact of the Washington Mutual transaction, the managed net charge-off rate for the first quarter was 10.54%, and the 30-day delinquency rate was 4.99%.

Noninterest expense was $1.4 billion, an increase of $56 million, or 4%, due to higher marketing expense.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Discussion of Results:
Net income was $390 million, an increase of $52 million, or 15%, from the prior year. The increase was driven by a decrease in the provision for credit losses, lower noninterest expense and higher net revenue.

Net revenue was $1.4 billion, up by $14 million, or 1%, compared with the prior year. Net interest income was $916 million, down by $64 million, or 7%, driven by spread compression on liability products and lower loan balances, largely offset by overall growth in liability balances and wider loan spreads. Noninterest revenue was $500 million, an increase of $78 million, or 18%, reflecting higher lending-related and investment banking fees.

Revenue from Middle Market Banking was $746 million, a decrease of $6 million, or 1%, from the prior year. Revenue from Commercial Term Lending was $229 million, an increase of $1 million. Revenue from Mid-Corporate Banking was $263 million, an increase of $21 million, or 9%. Revenue from Real Estate Banking was $100 million, a decrease of $20 million, or 17%.

The provision for credit losses was $214 million, compared with $293 million in the prior year. Net charge-offs were $229 million (0.96% net charge-off rate), compared with $134 million (0.48% net charge-off rate) in the prior year and $483 million (1.92% net charge-off rate) in the prior quarter. The increase from the prior year was driven by continued weakness in commercial real estate. The allowance for loan losses to end-of-period loans retained was 3.15%, up from 2.65% in the prior year and 3.12% in the prior quarter. Nonperforming loans were $3.0 billion, up by $1.5 billion from the prior year and $195 million from the prior quarter, reflecting increases in each client segment.

Noninterest expense was $539 million, a decrease of $14 million, or 3%, compared with the prior year, reflecting lower headcount-related1 expense, lower volume-related expense and lower FDIC insurance premiums, largely offset by higher performance-based compensation.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Discussion of Results:
Net income was $279 million, a decrease of $29 million, or 9%, from the prior year. The results reflected lower net revenue and a benefit from the provision for credit losses.

Net revenue was $1.8 billion, a decrease of $65 million, or 4% from the prior year. Worldwide Securities Services net revenue was $874 million, a decrease of $16 million, or 2%. The decrease reflected lower spreads in securities lending, lower liability balances, and the impact of lower volatility on foreign exchange, partially offset by the effects of higher market levels and net inflows on assets under custody. Treasury Services net revenue was $882 million, a decrease of $49 million, or 5%. The decrease reflected lower deposit spreads, partially offset by higher trade loan and card product volumes.

TSS generated firmwide net revenue1 of $2.5 billion, including $1.6 billion by Treasury Services; of that amount, $882 million was recorded in Treasury Services, $638 million was recorded in Commercial Banking and $56 million was recorded in other lines of business. The remaining $874 million of net revenue was recorded in Worldwide Securities Services.

The provision for credit losses was a benefit of $39 million, up $33 million from the prior year.

Noninterest expense was $1.3 billion, flat compared with the prior year.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Discussion of Results:
Net income was $392 million, an increase of $168 million, or 75%, from the prior year. These results reflected higher net revenue offset partially by higher noninterest expense.

Net revenue was $2.1 billion, an increase of $428 million, or 25%, from the prior year. Noninterest revenue was $1.8 billion, up by $474 million, or 36%, due to the effect of higher market levels, higher placement fees, net inflows to products with higher margins, and higher performance fees. Net interest income was $357 million, down by $46 million, or 11%, primarily due to narrower deposit spreads.

Revenue from the Private Bank was $698 million, up 20% from the prior year. Revenue from Institutional was $566 million, up 23%. Revenue from Retail was $415 million, up 64%. Revenue from Private Wealth Management was $343 million, up 10%. Revenue from JPMorgan Securities was $109 million, up 15%.

Assets under supervision were $1.7 trillion, an increase of $243 billion, or 17%, from the prior year. Assets under management were $1.2 trillion, an increase of $104 billion, or 9%. The increases were due to the effect of higher market levels and inflows in fixed income and equity products offset largely by outflows in liquidity products. Custody, brokerage, administration and deposit balances were $488 billion, up by $139 billion, or 40%, due to the effect of higher market levels on custody and brokerage balances, and custody inflows in the Private Bank.

The provision for credit losses was $35 million, an increase of $2 million from the prior year.

Noninterest expense was $1.4 billion, an increase of $144 million, or 11%, from the prior year, reflecting higher performance-based compensation and higher headcount-related1 expense.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

Discussion of Results:
Net income was $228 million, compared with a net loss of $262 million in the prior year.

Private Equity reported net income of $55 million, compared with a net loss of $280 million in the prior year. Net revenue was $115 million, an increase of $564 million, reflecting Private Equity gains of $136 million, compared with losses of $462 million. Noninterest expense was $30 million, an increase of $41 million.

Corporate net income was $173 million, compared with $18 million in the prior year. Net revenue was $2.2 billion, reflecting continued elevated levels of net interest income and trading and securities gains from the investment portfolio. Noninterest expense reflected an increase of $2.3 billion for litigation reserves, including those for mortgage-related matters.

Discussion of Results:
Net income was $3.3 billion, up by $1.2 billion, or 55%, from the prior year. The increase in earnings was driven by the lower provision for credit losses and higher net revenue, partially offset by higher noninterest expense.

Managed net revenue was $28.2 billion, an increase of $1.3 billion, or 5%, from the prior year. Noninterest revenue was $14.4 billion, up by $2.9 billion. The increase was driven by higher principal transactions revenue, including higher trading revenue and higher private equity gains (compared with losses in the prior year), partially offset by lower MSR risk management results. Net interest income was $13.8 billion, down by $1.7 billion, or 11%, largely driven by lower loan balances. Partially offsetting these declines were wider loan spreads and higher investment portfolio net interest income.

The provision for credit losses was $7.0 billion, down by $3.1 billion, or 30%, from the prior-year managed provision. The resulting firmwide allowance for loan losses to end-of-period loans retained1 was 5.64%, compared with 4.53% in the prior year. The total consumer-managed provision for credit losses was $7.2 billion, compared with $8.5 billion, reflecting a lower addition to the allowance for credit losses, partially offset by a higher provision related to net charge-offs across most consumer portfolios. Consumer-managed net charge-offs were $7.0 billion, compared with $5.7 billion, resulting in managed net charge-off rates1 of 6.61% and 4.90%, respectively. The wholesale provision for credit losses was a benefit of $236 million, compared with an expense of $1.5 billion, reflecting a reduction in the allowance for loan losses due to repayments and loan sales, partially offset by a higher provision related to net charge-offs. Wholesale net charge-offs were $959 million, compared with $191 million, resulting in net charge-off rates of 1.84% and 0.32%, respectively, mainly related to continued weakness in commercial real estate. The Firm's nonperforming assets totaled $19.0 billion at March 31, 2010, up from the prior-year level of $14.7 billion and down from the prior quarter by $722 million.

Noninterest expense was $16.1 billion, up by $2.8 billion, or 21%, reflecting increased litigation reserves, including those for mortgage-related matters.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

1. Notes on non-GAAP financial measures:

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.1 trillion and operations in more than 60 countries. The Firm is a leader in investment banking, financial services for consumers, small-business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world's most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

JPMorgan Chase & Co. will host a conference call today at 9:00 a.m. (Eastern Time) to review first-quarter financial results. The general public can access the call by dialing (866) 541-2724, or (877) 368-8360 in the U.S. and Canada, and (706) 634-7246 for international participants. The live audio webcast and presentation slides will be available at the Firm's website, www.jpmorganchase.com, under Investor Relations, Investor Presentations.

A replay of the conference call will be available beginning at approximately noon on Wednesday, April 14, through midnight, Friday, April 30, by telephone at (800) 642-1687 (U.S. and Canada) or (706) 645-9291 (international); use Conference ID #62485460. The replay will also be available via webcast on www.jpmorganchase.com under Investor Relations, Investor Presentations. Additional detailed financial, statistical and business-related information is included in a financial supplement. The earnings release and the financial supplement are available at www.jpmorganchase.com.

This earnings release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of JPMorgan Chase & Co.'s management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. Factors that could cause JPMorgan Chase & Co.'s actual results to differ materially from those described in the forward-looking statements can be found in JPMorgan Chase & Co.'s Annual Report on Form 10-K for the year ended December 31, 2009, which has been filed with the U.S. Securities and Exchange Commission and is available on JPMorgan Chase & Co.'s website (www.jpmorganchase.com) and on the Securities and Exchange Commission's website (www.sec.gov). JPMorgan Chase & Co. does not undertake to update the forward-looking statements to reflect the impact of circumstances or events that may arise after the date of the forward-looking statements.