Table of Contents

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter Ended March 31, 2003		Commission file number 1-5805

J.P. MORGAN CHASE & CO.

Delaware		13-2624428
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
270 Park Avenue, New York, New York		10017
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code (212) 270-6000

     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 [   ]

     Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

Yes [X]   No [   ]

Common Stock, $1 Par Value		2,031,239,980

Number of shares outstanding of each of the issuer’s classes of common stock on April 30, 2003.

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Part I
	Item 1
		CONSOLIDATED STATEMENT OF INCOME (Unaudited)
		CONSOLIDATED BALANCE SHEET
		CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
		CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
	Item 2
		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3 Quantitative and Qualitative Disclosures about Market Risk
	Item 4 Controls and Procedures
Part II — OTHER INFORMATION
	Item 1 Legal Proceedings
	Item 2 Changes in Securities and Use of Proceeds
	Item 6 Exhibits and Reports on Form 8-K
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CERTIFICATION
CERTIFICATION
CERTIFICATION PURSUANT TO SECTION 906

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Table of Contents

FORM 10-Q

TABLE OF CONTENTS

						Page
Part I — Financial Information
Item 1		Consolidated Financial Statements — J.P. Morgan Chase & Co.:
				Consolidated Statement of Income (Unaudited) for the three months ended March 31, 2003, and March 31, 2002		3
				Consolidated Balance Sheet at March 31, 2003 (Unaudited), and December 31, 2002		4
				Consolidated Statement of Changes in Stockholders’ Equity (Unaudited) for the three months ended March 31, 2003, and March 31, 2002		5
				Consolidated Statement of Cash Flows (Unaudited) for the three months ended March 31, 2003, and March 31, 2002		6
				Notes to Consolidated Financial Statements (Unaudited)		7-21
Item 2		Management’s Discussion and Analysis of Financial Condition and Results of Operations				22-66
		Glossary of Terms				67
		Important Factors That May Affect Future Results				68
Item 3		Quantitative and Qualitative Disclosures about Market Risk				68
Item 4		Controls and Procedures				68
Part II — Other Information
Item 1		Legal Proceedings				68-70
Item 2		Changes in Securities and Use of Proceeds				70
Item 6		Exhibits and Reports on Form 8-K				71

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The Management’s Discussion and Analysis included in this Form 10-Q contains statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of J.P. Morgan Chase & Co.’s management and are subject to significant risks and uncertainties. These risks and uncertainties could cause J.P. Morgan Chase & Co.’s results to differ materially from those set forth in such forward-looking statements. Such risks and uncertainties are described herein and in J.P. Morgan Chase & Co.’s Annual Report on Form 10-K for the year-ended December 31, 2002, filed with the Securities and Exchange Commission and available at the Securities and Exchange Commission’s internet site (www.sec.gov), to which reference is hereby made.

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Table of Contents

Part I
Item 1

J.P. MORGAN CHASE & CO.
CONSOLIDATED STATEMENT OF INCOME (Unaudited)
(in millions, except per share data)

		Three Months Ended
		March 31,
		2003				2002
Noninterest Revenue
Investment Banking Fees		$	616			$	755
Trading Revenue			1,232				1,299
Fees and Commissions			2,598				2,584
Private Equity Gains (Losses)			(221	)			(238	)
Securities Gains			485				114
Other Revenue			481				157
Total Noninterest Revenue			5,191				4,671
Interest Income			6,263				6,286
Interest Expense			3,048				3,359
Net Interest Income			3,215				2,927
Revenue before Provision for Credit Losses			8,406				7,598
Provision for Credit Losses			743				753
Total Net Revenue			7,663				6,845
Noninterest Expense
Compensation Expense			3,174				2,823
Occupancy Expense			496				338
Technology and Communications Expense			637				665
Amortization of Intangibles			74				69
Other Expense			1,160				1,208
Merger and Restructuring Costs			—				255
Total Noninterest Expense			5,541				5,358
Income before Income Tax Expense			2,122				1,487
Income Tax Expense			722				505
Net Income		$	1,400			$	982
Net Income Applicable to Common Stock		$	1,387			$	969
Average Common Shares Outstanding
Basic			2,000				1,978
Diluted			2,022				2,006
Net Income per Common Share
Basic		$	0.69			$	0.49
Diluted			0.69				0.48
Cash Dividends per Common Share			0.34				0.34

The Notes to Consolidated Financial Statements (Unaudited) are an integral part of these Statements.

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Table of Contents

Part I
Item 1 (continued)

J.P. MORGAN CHASE & CO.
CONSOLIDATED BALANCE SHEET
(in millions, except share data)

						March 31,				December 31,
						2003				2002
						(Unaudited)
ASSETS
Cash and Due from Banks						$	22,229			$	19,218
Deposits with Banks							6,896				8,942
Federal Funds Sold and Securities Purchased under Resale Agreements							69,764				65,809
Securities Borrowed							39,188				34,143
Trading Assets:
		Debt and Equity Instruments (including assets pledged of $81,670 at March 31, 2003, and $88,900 at December 31, 2002)					146,783				165,199
		Derivative Receivables					86,649				83,102
Securities:
		Available-for-Sale (including assets pledged of $47,868 at March 31, 2003, and $50,468 at December 31, 2002)					84,819				84,032
		Held-to-Maturity (Fair Value: $380 at March 31, 2003, and $455 at December 31, 2002)					359				431
Loans (Net of Allowance for Loan Losses of $5,215 at March 31, 2003, and $5,350 at December 31, 2002)							212,256				211,014
Private Equity Investments							8,170				8,228
Accrued Interest and Accounts Receivable							12,962				14,137
Premises and Equipment							6,719				6,829
Goodwill							8,122				8,096
Mortgage Servicing Rights							3,235				3,230
Other Intangibles:
		Purchased Credit Card Relationships					1,205				1,269
		All Other Intangibles					294				307
Other Assets							45,506				44,814
TOTAL ASSETS						$	755,156			$	758,800
LIABILITIES
Deposits:
		U.S.:
			Noninterest-Bearing			$	70,304			$	74,664
			Interest-Bearing				112,936				109,743
		Non-U.S.:
			Noninterest-Bearing				7,518				7,365
			Interest-Bearing				109,909				112,981
		Total Deposits					300,667				304,753
Federal Funds Purchased and Securities Sold under Repurchase Agreements							160,221				169,483
Commercial Paper							14,039				16,591
Other Borrowed Funds							12,848				8,946
Trading Liabilities:
		Debt and Equity Instruments					64,427				66,864
		Derivative Payables					64,804				66,227
Accounts Payable, Accrued Expenses and Other Liabilities (including the Allowance for Lending-Related
		Commitments of $436 at March 31, 2003, and $363 at December 31, 2002)					46,776				38,440
Long-Term Debt							42,851				39,751
Guaranteed Preferred Beneficial Interests in the Firm’s Junior Subordinated Deferrable Interest Debentures							5,439				5,439
TOTAL LIABILITIES							712,072				716,494
Commitments and Contingencies (see Note 19)
STOCKHOLDERS’ EQUITY
Preferred Stock							1,009				1,009
Common Stock (Authorized 4,500,000,000 Shares, Issued 2,032,182,163 Shares at March 31, 2003, and 2,023,566,387 Shares at December 31, 2002)							2,032				2,024
Capital Surplus							12,477				13,222
Retained Earnings							26,538				25,851
Accumulated Other Comprehensive Income							1,113				1,227
Treasury Stock, at Cost (2,144,160 Shares at March 31, 2003, and 24,859,844 Shares at December 31, 2002)							(85	)			(1,027	)
TOTAL STOCKHOLDERS’ EQUITY							43,084				42,306
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY						$	755,156			$	758,800

The Notes to Consolidated Financial Statements (Unaudited) are an integral part of these Statements.

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Table of Contents

Part I
Item 1 (continued)

J.P. MORGAN CHASE & CO.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (Unaudited)
(in millions, except per share data)

Three Months Ended March 31,			2003				2002
Preferred Stock
Balance at Beginning of Year and End of Period			$	1,009			$	1,009
Common Stock
Balance at Beginning of Year				2,024				1,997
Issuance of Common Stock				8				19
Balance at End of Period				2,032				2,016
Capital Surplus
Balance at Beginning of Year				13,222				12,495
Shares Issued and Commitments to Issue Common Stock for Employee Stock-Based Awards and Related Tax Effects				(745	)			288
Balance at End of Period				12,477				12,783
Retained Earnings
Balance at Beginning of Year				25,851				26,993
Net Income				1,400				982
Cash Dividends Declared:
	Preferred Stock			(13	)			(13	)
	Common Stock ($0.34 per share each period)			(700	)			(684	)
Balance at End of Period				26,538				27,278
Accumulated Other Comprehensive Income (Loss)
Balance at Beginning of Year				1,227				(442	)
Other Comprehensive Income (Loss)				(114	)			(467	)
Balance at End of Period				1,113				(909	)
Treasury Stock, at Cost
Balance at Beginning of Year				(1,027	)			(953	)
Reissuances from Treasury Stock				1,021				—
Forfeitures to Treasury Stock				(79	)			(93	)
Balance at End of Period				(85	)			(1,046	)
Total Stockholders’ Equity			$	43,084			$	41,131
Comprehensive Income
Net Income			$	1,400			$	982
Other Comprehensive Income (Loss)				(114	)			(467	)
Comprehensive Income			$	1,286			$	515

The Notes to Consolidated Financial Statements (Unaudited) are an integral part of these Statements.

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Table of Contents

Part I
Item 1 (continued)

J.P. MORGAN CHASE & CO.
CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited)
(in millions)

Three Months Ended March 31,										2003				2002
Operating Activities
Net Income										$	1,400			$	982
Adjustments to Reconcile Net Income to Net Cash Provided by (Used in) Operating Activities:
		Provision for Credit Losses									743				753
		Depreciation and Amortization									1,060				631
		Private Equity Unrealized Losses and Write-offs									217				228
		Net Change in:
			Trading Assets								15,010				(18,811	)
			Securities Borrowed								(5,045	)			(4,300	)
			Accrued Interest and Accounts Receivable								1,175				751
			Other Assets								(299	)			10,465
			Trading Liabilities								(4,005	)			7,103
			Accounts Payable, Accrued Expenses and Other Liabilities								8,509				(10,662	)
			Other, Net								(159	)			302
Net Cash Provided by (Used in) Operating Activities											18,606				(12,558	)
Investing Activities
Net Change in:
	Deposits with Banks										2,046				3,052
	Federal Funds Sold and Securities Purchased under Resale Agreements										(3,955	)			(12,992	)
	Loans Due to Sales and Securitizations										31,432				22,333
	Other Loans, Net										(34,187	)			(20,331	)
	Other, Net										793				516
Held-to-Maturity Securities:				Proceeds							63				47
				Purchases							—				(32	)
Available-for-Sale Securities:				Proceeds from Maturities							2,268				1,078
				Proceeds from Sales							92,912				43,439
				Purchases							(97,507	)			(46,731	)
Cash Used in Acquisitions											(10	)			(39	)
Proceeds from Divestitures of Nonstrategic Businesses and Assets											49				36
Net Cash Used in Investing Activities											(6,096	)			(9,624	)
Financing Activities
Net Change in:
	U.S. Deposits										(1,167	)			(9,240	)
	Non-U.S. Deposits										(2,919	)			(2,373	)
	Federal Funds Purchased and Securities Sold under Repurchase Agreements										(9,262	)			24,392
	Commercial Paper and Other Borrowed Funds										1,350				11,349
	Other, Net										181				325
Proceeds from the Issuance of Long-Term Debt and Capital Securities											6,636				4,533
Repayments of Long-Term Debt											(3,873	)			(5,720	)
Net Issuance of Stock and Stock-Based Awards											205				214
Redemption of Preferred Stock of Subsidiary											—				(550	)
Cash Dividends Paid											(696	)			(684	)
Net Cash (Used in) Provided by Financing Activities											(9,545	)			22,246
Effect of Exchange Rate Changes on Cash and Due from Banks											46				(27	)
Net Increase in Cash and Due from Banks											3,011				37
Cash and Due from Banks at December 31, 2002 and 2001											19,218				22,600
Cash and Due from Banks at March 31, 2003 and 2002										$	22,229			$	22,637
Cash Interest Paid										$	3,197			$	3,277
Taxes Paid (Refunds)										$	(247	)		$	439

The Notes to Consolidated Financial Statements (Unaudited) are an integral part of these Statements.

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Table of Contents

Part I
Item 1 (continued)

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

NOTE 1 — BASIS OF PRESENTATION
The accounting and financial reporting policies of J.P. Morgan Chase & Co. (“JPMorgan Chase” or the “Firm”) and its subsidiaries conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) and prevailing industry practices for interim reporting. Additionally, where applicable, the policies conform to the accounting and reporting guidelines prescribed by bank regulatory authorities. The unaudited consolidated financial statements prepared in conformity with U.S. GAAP require management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expense, and disclosure of contingent assets and liabilities. Actual results could be different from these estimates. In addition, certain amounts have been reclassified to conform to the current presentation. In the opinion of management, all normal recurring adjustments have been included for a fair statement of this interim financial information. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements included in JPMorgan Chase’s 2002 Annual Report on Form 10-K (“2002 Annual Report”).

NOTE 2 — TRADING ASSETS AND LIABILITIES
For a discussion of the accounting policies relating to trading assets and liabilities, see Note 3 on pages 76-77 of JPMorgan Chase’s 2002 Annual Report.

The following table presents Trading Assets and Trading Liabilities for the dates indicated:

			March 31,				December 31,
			2003				2002
(in millions)
Trading Assets
Debt and Equity Instruments:
	U.S. Government, Federal Agencies and Municipal Securities		$	60,354			$	68,906
	Certificates of Deposit, Bankers’ Acceptances and Commercial Paper			4,256				4,545
	Debt Securities Issued by Non-U.S. Governments			28,568				29,709
	Corporate Securities and Other			53,605				62,039
Total Trading Assets — Debt and Equity Instruments			$	146,783			$	165,199
Derivative Receivables:
	Interest Rate		$	60,669			$	55,260
	Foreign Exchange			6,317				7,487
	Credit Derivatives			4,415				5,511
	Equity			13,225				12,846
	Commodity			2,023				1,998
Total Trading Assets — Derivative Receivables			$	86,649			$	83,102
Trading Liabilities
Debt and Equity Instruments(a)			$	64,427			$	66,864
Derivative Payables:
	Interest Rate		$	44,100			$	43,584
	Foreign Exchange			6,469				8,036
	Credit Derivatives			2,713				3,055
	Equity			10,506				10,644
	Commodity			1,016				908
Total Trading Liabilities — Derivative Payables			$	64,804			$	66,227

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(a)

Primarily represents securities sold, not yet purchased.

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Table of Contents

Part I
Item 1 (continued)

NOTE 3 — INTEREST INCOME AND INTEREST EXPENSE
The following table details the components of Interest Income and Interest Expense:

			Three Months Ended March 31,
			2003				2002
(in millions)
Interest Income
Loans			$	2,830			$	3,153
Securities				955				808
Trading Assets				1,844				1,562
Federal Funds Sold and Securities Purchased under Resale Agreements				474				490
Securities Borrowed				97				183
Deposits with Banks				63				90
	Total Interest Income			6,263				6,286
Interest Expense
Deposits				1,068				1,339
Short-Term and Other Liabilities				1,614				1,664
Long-Term Debt				366				356
	Total Interest Expense			3,048				3,359
Net Interest Income				3,215				2,927
Provision for Credit Losses(a)				743				753
Net Interest Income after Provision for Credit Losses			$	2,472			$	2,174

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(a)

Includes a provision for lending-related commitments of $73 million for the first quarter of 2003. There was no provision for lending-related commitments during the first quarter of 2002.

NOTE 4 — SECURITIES
For a discussion of the accounting policies relating to securities, see Note 7 on pages 79-80 of JPMorgan Chase’s 2002 Annual Report.

The following table presents realized gains and losses from available-for-sale (“AFS”) securities:

		Three Months Ended March 31,
		2003				2002
(in millions)
Realized Gains		$	616			$	166
Realized Losses			(131	)			(52	)
Net Realized Gains		$	485			$	114

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			March 31, 2003								December 31, 2002
(in millions)
			Amortized				Fair				Amortized				Fair
			Cost				Value				Cost				Value
Available-for-Sale Securities
U.S. Government and Federal Agencies/Corporations Obligations:
	Mortgage-Backed Securities		$	42,590			$	42,699			$	40,148			$	40,456
	Collateralized Mortgage Obligations			3,351				3,437				3,271				3,313
	U.S. Treasuries			22,965				23,411				22,870				23,377
Obligations of U.S. State and Political Subdivisions				1,697				1,845				1,744				1,875
Debt Securities Issued by Non-U.S. Governments				10,790				10,811				11,873				11,912
Corporate Debt Securities				565				576				870				882
Equity Securities				1,176				1,170				1,198				1,196
Other, Primarily Asset-backed Securities(a)				874				870				978				1,021
	Total Available-for-Sale Securities		$	84,008			$	84,819			$	82,952			$	84,032
Held-to-Maturity Securities(b)			$	359			$	380			$	431			$	455

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(a)		Includes collateralized mortgage obligations of private issuers, which generally have underlying collateral consisting of obligations of U.S. government and federal agencies and corporations.
(b)		Consists primarily of mortgage-backed securities.

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Table of Contents

Part I
Item 1 (continued)

NOTE 5 — SECURITIES FINANCING ACTIVITIES
For a discussion of the accounting policies relating to Securities Financing Activities, see Note 8 on page 80 of JPMorgan Chase’s 2002 Annual Report. JPMorgan Chase enters into reverse repurchase agreements, repurchase agreements, securities borrowed transactions and securities loaned transactions primarily to finance the Firm’s inventory positions, to acquire securities that cover short positions and settle other securities obligations and to accommodate customers’ needs. Securities purchased under resale agreements and securities sold under repurchase agreements are generally treated as collateralized financing transactions and are carried on the Consolidated Balance Sheet at the amounts the securities will be subsequently sold or repurchased, plus accrued interest.

The following table details the components of securities financing activities at each of the dates indicated:

		March 31,				December 31,
		2003				2002
(in millions)
Securities Purchased under Resale Agreements		$	63,721			$	57,645
Securities Borrowed			39,188				34,143
Securities Sold under Repurchase Agreements		$	151,168			$	161,394
Securities Loaned			1,285				1,661

Similar transactions that do not meet the SFAS 140 definition of a repurchase agreement are accounted for as “buys” and “sells” rather than financing transactions. Notional amounts of transactions accounted for as purchases under SFAS 140 were $5 billion and $8 billion at March 31, 2003, and December 31, 2002, respectively. Notional amounts of transactions accounted for as sales under SFAS 140 were $9 billion and $13 billion at March 31, 2003, and December 31, 2002, respectively.

Securities borrowed and securities lent are recorded at the amount of cash collateral advanced or received. Securities borrowed consist primarily of government and equity securities. JPMorgan Chase monitors the market value of the securities borrowed and lent on a daily basis and calls for additional collateral when appropriate. Fees received or paid are recorded in Interest Income or Interest Expense.

JPMorgan Chase pledges certain financial instruments it owns to collateralize repurchase agreements and other securities financings. Pledged securities that can be sold or repledged by the secured party are identified as financial instruments owned (pledged to various parties) on the Consolidated Balance Sheet.

At March 31, 2003, the Firm had received securities as collateral that can be repledged, delivered or otherwise used with a fair value of approximately $226 billion. This collateral was generally obtained under reverse repurchase or securities borrowing agreements. Of these securities, approximately $214 billion were repledged, delivered or otherwise used, generally as collateral under repurchase agreements, securities lending agreements, or to cover short sales.

NOTE 6 — LOANS
For a discussion of the accounting policies relating to Loans, see Note 9 on pages 80-81 of JPMorgan Chase’s 2002 Annual Report.

The composition of the loan portfolio at each of the dates indicated was as follows:

				March 31, 2003				December 31, 2002
(in millions)
Commercial loans:
Commercial and industrial				$	77,458			$	80,651
Commercial real estate:
	Commercial mortgage				2,638				3,178
	Construction				1,023				895
Financial institutions					6,717				6,208
Non-U.S. governments					610				616
	Total commercial loans				88,446				91,548
Consumer loans:
1-4 family residential mortgages:
	First liens				51,711				49,357
	Home equity loans				15,363				14,643
Credit card(a)					17,509				19,677
Automobile financings					36,865				33,615
Other consumer(b)					7,577				7,524
	Total consumer loans				129,025				124,816
Total loans(c)(d)				$	217,471			$	216,364

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Table of Contents

Part I
Item 1 (continued)

(a)		Reflects the reclassification of $978 million of accrued fees on securitized credit card loans from Loans to Other Assets at March 31, 2003.
(b)		Consists of manufactured housing loans, installment loans (direct and indirect types of consumer finance), student loans, unsecured revolving lines of credit and non-U.S. consumer loans.
(c)		Loans are presented net of unearned income of $1.8 billion and $1.9 billion at March 31, 2003, and December 31, 2002, respectively.
(d)		Includes loans held for sale (principally mortgage-related loans) of $26.2 billion at March 31, 2003, and $25.0 billion at December 31, 2002. The 2003 and 2002 first quarters included $345 million and $76 million, respectively, in net gains on the sales of loans held for sale. The 2003 and 2002 first quarters included $(20) million and $4 million, respectively, in adjustments to record loans held for sale at the lower of cost or market.

Consistent with the FASB Staff Position, Accounting for Accrued Interest Receivable Related to Securitized and Sold Receivables under SFAS 140, $978 million of accrued fees on securitized credit card loans was reclassified from Loans to Other Assets at March 31, 2003. In addition, $138 million of the Allowance for Loan Losses associated with these accrued fees was reclassified to Other Assets.

NOTE 7 — ALLOWANCE FOR CREDIT LOSSES
For a discussion of accounting policies relating to the Allowance for Credit Losses, see Note 10 on page 82 of JPMorgan Chase’s 2002 Annual Report.

The table below summarizes the changes in the Allowance for Loan Losses:

				2003				2002
(in millions)
Allowance for loan losses at January 1				$	5,350			$	4,524
	Provision for loan losses				670				753
	Charge-offs				(799	)			(897	)
	Recoveries				129				144
		Net charge-offs			(670	)			(753	)
	Transfer to Other Assets(a)				(138	)			—
	Allowance related to purchased portfolios				—				481
	Other				3				—
Allowance for loan losses at March 31				$	5,215			$	5,005

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(a)

Represents the transfer of the allowance for accrued fees on securitized credit card loans at March 31, 2003.

The table below summarizes the changes in the Allowance for Lending-Related Commitments:

			2003				2002
(in millions)
Allowance for lending-related commitments at January 1			$	363			$	282
	Provision for lending-related commitments			73				—
	Other			—				(1	)
Allowance for lending-related commitments at March 31			$	436			$	281

NOTE 8 — SECURITIZATION AND VARIABLE INTEREST ENTITIES
Refer to Note 11 on pages 83-87 of JPMorgan Chase’s 2002 Annual Report for a further description of special-purpose entities (“SPEs”) and the Firm’s policy on consolidation relating to these entities. In January 2003, the FASB issued FIN 46, which establishes guidance for determining when an entity should consolidate another entity that meets the definition of a variable interest entity. Entities that would be assessed for consolidation under FIN 46 are typically SPEs, although other non-SPE-type entities may also be subject to the guidance. FIN 46 requires a variable interest entity to be consolidated by a company if that company will absorb a majority of the expected losses, will receive a majority of the expected residual returns or both. Transferors to qualified special-purpose entities (“QSPE”), which represent a majority of the Firm’s loan securitization transactions discussed below, and certain other interests in a QSPE, are not subject to the requirements of FIN 46. The Firm implemented FIN 46 for variable interest entities created or modified after January 31, 2003, in which the Firm has an interest. For variable interest entities created prior to February 1, 2003, the provisions of FIN 46 will be effective July 1, 2003.

JPMorgan Chase is involved with SPEs, or variable interest entities, in three broad categories of transactions: loan securitizations, multi-seller conduits and client intermediation.

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Part I
Item 1 (continued)

Loan Securitizations
JPMorgan Chase securitizes, sells and services residential mortgage, credit card, automobile and commercial loans. Assets sold to SPEs as part of the securitization process are not reflected in JPMorgan Chase’s Consolidated Balance Sheet (except for retained interests as described below) but are included on the balance sheet of the SPE purchasing the assets. Assets held by securitization-related SPEs as of March 31, 2003, and December 31, 2002, were as follows:

		March 31, 2003				December 31, 2002
(in billions)
Credit card receivables		$	39.8			$	40.2
Residential mortgage receivables			19.2				20.6
Commercial loans			26.3				25.2
Automobile loans			3.9				4.5
Other receivables			0.1				0.1
Total		$	89.3			$	90.6

The table below summarizes securitized loans and the resulting pre-tax gains on the securitizations of those loans for the three months ended March 31, 2003 and 2002.

Three Months Ended		March 31, 2003								March 31, 2002
		Securitizations				Pre-Tax Gains				Securitizations				Pre-Tax Gains
Loans		(in billions)				(in millions)				(in billions)				(in millions)
Residential mortgage		$	1.8			$	49.3			$	2.4			$	12.1
Credit card			1.5				12.7				1.0				6.9
Automobile			—				—				2.0				1.8
Commercial			1.1				15.8				—				—
Total		$	4.4			$	77.8			$	5.4			$	20.8

In addition to the amounts set forth in the table above, JPMorgan Chase sold residential mortgage loans totaling $23.0 billion and $16.4 billion during the first quarters of 2003 and 2002, respectively, primarily as GNMA, FNMA and Freddie Mac mortgage-backed securities, which resulted in pre-tax gains of $227 million and $60 million, respectively. The higher 2003 pre-tax gains, when compared with gains on residential mortgage loans sold in 2002, were attributable to higher volumes and margins.

On February 5, 2002, JPMorgan Chase acquired the Providian Master Trust, consisting of credit card receivables of approximately $7.9 billion and related relationships. Accounting principles required that all of the purchased receivables, including those that had been securitized, be initially reflected on JPMorgan Chase’s Consolidated Balance Sheet, together with a related liability to reflect the securities issued by the trust to third parties. This liability totaled $6.3 billion on February 5, 2002, and was recorded in Other Borrowed Funds. As credit card receivables revolved and new receivables were sold to investors through the securitization trust, these newly sold receivables and the related liability were removed from the Consolidated Balance Sheet as permitted by securitization accounting principles. At March 31, 2003, all of the liability had been removed from the Consolidated Balance Sheet, either through the revolving sales of new receivables to investors or the maturing of investor securities. In addition, at March 31, 2003, the Firm had, with respect to the Providian Master Trust, $2.7 billion on its Consolidated Balance Sheet relating to its undivided interest and $110 million related to its subordinated interest in accrued fees on securitized receivables.

At March 31, 2003, and December 31, 2002, JPMorgan Chase had, with respect to the Chase Credit Card Master Trust, $4.1 billion and $4.6 billion, respectively, related to its undivided interest, and $868 million and $861 million, respectively, related to its subordinated interest in accrued fees on the securitized receivables.

The Firm maintains retained interests in its securitized and sold loans, generally in the form of senior or subordinated interest-only strips, subordinated tranches, escrow accounts and servicing rights. The Firm maintains escrow accounts, up to predetermined limits for credit card and automobile securitizations, to help protect investors in the unlikely event of deficiencies in cash flows owed to them. The amounts available in such escrow accounts are recorded in Other Assets and, as of March 31, 2003, amounted to $500 million and $84 million for credit card and automobile securitizations, respectively. As of December 31, 2002, these amounts were $510 million and $94 million, respectively.

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Part I
Item 1 (continued)

The table below summarizes other retained securitization interests, which are primarily subordinated or residual interests and are carried at fair value on the Firm’s Consolidated Balance Sheet.

		March 31, 2003				December 31, 2002
(in millions)
Loans
Residential mortgage		$	666	(a)(b)		$	684
Credit card			94	(b)			92
Automobile			110	(b)			151
Commercial			108				94
Total		$	978			$	1,021

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(a)		Includes approximately $318 million of retained interests resulting from the acquisition of Advanta’s mortgage operations.
(b)		Unrealized gains (pre-tax) recorded in Stockholders’ equity that relate to these retained interests totaled $193 million, $3 million and $7 million for residential mortgage, credit card and automobile, respectively.

The table below outlines the key economic assumptions and the sensitivity of the fair values noted above at March 31, 2003, of the remaining retained interests to immediate 10% and 20% adverse changes in those assumptions:

		Mortgage		Credit Card		Automobile		Commercial
(in millions)
Weighted-average life		1.5-2.1 years		5-20 months		1.4 years		1.0-7.6 years
Prepayment rate		29.6-44.9% CPR		14.7-15.0%		1.61% WAC/WAM		NA(a)
Impact of 10% adverse change		$(26)		$(5)		$(6)		—
Impact of 20% adverse change		(48)		(6)		(13)		—
Loss assumption		0-3.6%(b)		5.5-5.8%		0.7%		NA(c)
Impact of 10% adverse change		$(31)		$(6)		$(4)		—
Impact of 20% adverse change		(62)		(11)		(7)		—
Discount rate		13.0-30.0%(d)		4.8-12.0%		3.6%		3.5-10.5%
Impact of 10% adverse change		$(18)		$(1)		$—		$(3)
Impact of 20% adverse change		(34)		(2)		(1)		(6)

(a)		Not applicable, since predominantly all of these retained interests are not subject to prepayment risk.
(b)		Expected credit losses for prime mortgage securitizations are minimal and are incorporated into other assumptions.
(c)		Not applicable, as modeling assumptions for predominantly all of the commercial retained interests consider overcollateralization coverage and cash collateralized credit default swaps.
(d)		During the first three months of 2003, the Firm sold certain residual interests of approximately $55 million from sub-prime mortgage securitizations via Net Interest Margin (“NIM”) securitizations. The Firm has retained residual interests in these and prior NIM securitizations of approximately $94 million, which are valued using a 30% discount rate.
CPR — Constant prepayment rate
WAC/WAM — Weighted-average coupon/weighted-average maturity

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Part I
Item 1 (continued)

The table below presents information about delinquencies, net credit losses, and components of reported and securitized financial assets:

										Loans 90 Days or
Type of Loan		Total Loans								More Past Due								Net Loan Charge-offs
		March 31,				Dec. 31,				March 31,				Dec. 31,				Three Months Ended March 31,
		2003				2002				2003				2002				2003				2002
(in millions)
Mortgage(a)		$	83,229			$	81,570			$	1,001			$	956			$	54			$	74
Credit card			48,908				50,399				947				1,096				732				658
Automobile			40,710				37,980				122				130				52				43
Other(b)			7,577				7,524				88				98				50				45
Consumer loans			180,424				177,473				2,158				2,280				888				820
Commercial loans			89,827				92,866				3,338				3,749				292				320
Total loans reported and securitized(c)			270,251				270,339				5,496				6,029				1,180				1,140
Less: Loans securitized(a)(d)			(52,780	)			(53,975	)			(1,385	)			(1,306	)			(510	)			(387	)
Reported		$	217,471			$	216,364			$	4,111			$	4,723			$	670			$	753

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(a)		Includes $11.9 billion of outstanding principal balances on securitized sub-prime 1-4 family residential mortgage loans as of March 31, 2003, of which $3.2 billion relates to Advanta’s mortgage operations acquired in 2001.
(b)		Includes non-U.S. consumer loans.
(c)		Represents both loans on the Consolidated Balance Sheet and loans that have been securitized, but excludes loans for which the Firm’s only continuing involvement is servicing of the assets.
(d)		Total assets held in securitization-related SPEs, as of March 31, 2003, were $89.3 billion. The $52.8 billion of loans securitized at March 31, 2003, excludes: $27.8 billion of securitized loans in which the Firm’s only continuing involvement is the servicing of the assets; $7.8 billion of seller’s interests in credit card master trusts and subordinated accrued fees on securitized credit card loans; and $0.9 billion of escrow accounts and other assets.

Multi-seller Conduits
JPMorgan Chase serves as the administrator and provides contingent liquidity support and limited credit enhancement for several commercial paper conduits. JPMorgan Chase Bank had commitments to provide liquidity to these vehicles in an amount up to $22.5 billion at March 31, 2003, and $23.5 billion at December 31, 2002. For certain multi-seller conduits, JPMorgan Chase also provides limited credit enhancement, primarily through the issuance of letters of credit. Commitments under these letters of credit totaled $3.4 billion both at March 31, 2003, and December 31, 2002. Commercial paper issued by conduits for which the Firm acts as administrator aggregated $15.2 billion at March 31, 2003, and $17.5 billion at December 31, 2002. The commercial paper issued is backed by sufficient collateral, credit enhancements and commitments to provide liquidity to support receiving at least an A-1, P-1 and, in certain cases, an F-1 rating.

The Firm would be required to provide funding under the liquidity commitments in the event that funding for such SPEs became unavailable in the commercial paper market. In addition, if JPMorgan Chase Bank were downgraded below A-1, P-1 and, in certain cases, F-1, the Firm could also be required to provide funding under these commitments, since commercial paper rated below A-1, P-1 or F-1 would generally not be issuable by the vehicle. In these circumstances, JPMorgan Chase Bank could either replace itself as liquidity provider or facilitate the sale or refinancing of the assets held in the SPE in other markets. Under the letters of credit, the Firm could be required to fund the difference between the commercial paper outstanding and amounts drawn under the liquidity commitment, if any.

For the purposes of FIN 46, the Firm’s maximum exposure to loss to multi-seller conduits is defined as the aggregate notional amounts of liquidity facilities and credit enhancement disclosed above. However, the Firm believes its credit exposure to these multi-seller conduit transactions is more limited, because, for the most part, it is not required to fund under the liquidity facilities if the assets in the SPE are in default. Additionally, the Firm’s obligations under the letters of credit are secondary to the risk of first loss provided by the client or other third parties — for example, by the overcollateralization of the SPE with the assets sold to it.

Client Intermediation
In its capacity as a financial intermediary, the Firm has created structured commercial loan vehicles that are managed by third parties. The vehicles purchased loans from third parties or the Firm’s syndication and trading functions, funded by commercial paper issuance. Investors provide collateral and have a first risk of loss up to the amount of collateral pledged. The amount of the commercial paper issued by these vehicles, as of March 31, 2003, and December 31, 2002, totaled $7.4 billion and $7.2 billion, respectively. JPMorgan Chase Bank had a commitment to provide liquidity to these SPEs in an amount up to $9.2 billion at March 31, 2003, and $12.0 billion at December 31, 2002. For purposes of FIN 46, the Firm’s maximum exposure to loss to the structured commercial loan vehicles is defined as the aggregate notional amounts of the liquidity facilities.

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Part I
Item 1 (continued)

JPMorgan Chase also structures SPEs to modify the cash flows of third-party assets to create investments with specific risk profiles, or to assist clients in the efficient management of other risks. For example, the Firm structures credit-linked notes in which an SPE purchases highly-rated assets (such as asset-backed securities) and enters into a credit derivative contract with the Firm to obtain exposure to a referenced credit not held by the SPE. Credit-linked notes are issued by the SPE to transfer the risk of the referenced credit to the investors in the SPE. As of March 31, 2003, and December 31, 2002, the aggregate assets held by the credit-linked note vehicles were $9.4 billion and $7.9 billion, respectively. The fair value of the Firm’s derivative contracts with these vehicles is $0.3 billion at March 31, 2003, and is recorded in the Consolidated Financial Statements. Additionally, JPMorgan Chase structures, on behalf of clients, vehicles in which the Firm transfers the risks and returns of the assets held by the SPE, typically debt and equity instruments, to clients through derivative contracts. The Firm’s net exposure arising from these intermediation transactions is not significant. The aggregate assets held by these client intermediation vehicles were $7.0 billion and $7.4 billion at March 31, 2003, and December 31, 2002, respectively. The Firm’s current exposure to all of these vehicles, reflected in its Consolidated Financial Statements as the fair value of the derivative contracts, are recorded in Trading Assets or Trading Liabilities, and changes in fair value are recognized in Trading Revenue.

Furthermore, the Firm structures collateralized debt obligations (“CDOs”) and similar vehicles on behalf of clients. To facilitate such transactions, the Firm may warehouse assets or act as a derivative counterparty, trustee or placement agent for these vehicles, receiving market-based fees for services rendered. In certain limited circumstances, the Firm or its affiliates also act as asset manager for the vehicles. The total amount of assets in CDOs and similar vehicles for which the Firm or its affiliates act as asset manager was approximately $2.4 billion at March 31, 2003 and December 31, 2002. The Firm had invested approximately $163 million in these vehicles at March 31, 2003. These investments are recorded as trading positions at fair value, thus the Firm’s maximum exposure to loss to these vehicles is reflected in the Consolidated Financial Statements.

Finally, the Firm may enter into transactions with SPEs structured by other parties. These transactions can include, for example, acting as derivative counterparty, liquidity provider, investor, underwriter, trustee or custodian. These transactions are conducted at arm’s length, and individual credit decisions are based upon the analysis of the specific SPE, taking into consideration the quality of the underlying assets. JPMorgan Chase records and reports these positions similar to any other third-party transaction.

FIN 46 Transition
Based upon its current interpretation, the Firm believes that the effect of applying FIN 46 to entities originated prior to February 1, 2003, could be an increase of up to $25 billion in the Firm’s assets and liabilities, assuming no restructuring of existing vehicles. The increase primarily relates to multi-seller conduits; CDOs and similar vehicles for which the Firm or its affiliates act as the asset manager; and other entities in which the Firm’s trading functions have interests that absorb a majority of the expected loss. Interests in the vehicles described above that are held in the Firm’s trading and investment portfolios are recorded at fair value; thus, the Firm’s maximum exposure to loss, the carrying value of its interests of $0.5 billion, is currently reflected in the Consolidated Financial Statements. In addition to entities that would be newly consolidated upon adoption of FIN 46, the Firm currently consolidates SPEs with assets of approximately $8.3 billion, primarily related to certain consumer securitizations, municipal bond securitizations and structured note vehicles, that would continue to be consolidated under FIN 46.

The Firm is also involved with other entities that could be deemed variable interest entities and, therefore, could be subject to FIN 46 disclosure requirements, even if they are not required to be consolidated under FIN 46. These entities could include certain majority-owned subsidiaries reported in the Firm’s Consolidated Financial Statements as well as certain third-party funds and direct investments made by JPMorgan Partners (“JPMP”). Due to the complexity of the new guidance and the evolving interpretations among accounting professionals, the Firm continues to assess the accounting and disclosure impacts of FIN 46 on all of its relationships with variable interest entities.

Upon adoption of FIN 46, the assets, liabilities and noncontrolling interests of variable interest entities would be initially measured at the amounts at which such interests would have been carried had FIN 46 been effective when the Firm first met the condition to be considered the primary beneficiary. Any difference between the net amount added to the balance sheet and the amount of any previously recognized interest in the newly consolidated entity is required to be recognized as a cumulative effect of an accounting change. If it is not practical to determine the carrying amount, fair value may be used to measure the assets, liabilities and noncontrolling interest of the variable interest entity.

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Part I
Item 1 (continued)

NOTE 9 — MORTGAGE SERVICING RIGHTS
For a further description of mortgage servicing rights (“MSRs”) and interest rate risk management of MSRs, see Note 12 on pages 87-88 of JPMorgan Chase’s 2002 Annual Report. The following table summarizes the changes in residential MSRs:

		2003				2002
(in millions)
Balance at January 1		$	4,864			$	7,749
Additions			679				497
Sales			—				—
Amortization			(369	)			(334	)
SFAS 133 Hedge Valuation Adjustments			(175	)			338
Balance at March 31			4,999				8,250
Less: Valuation Allowance			1,764				1,332
Balance at March 31, after Valuation Allowance		$	3,235			$	6,918
Estimated Fair Value at March 31		$	3,235			$	6,918
Weighted-Average Prepayment Speed Assumption		27.86		%CPR		12.45		%CPR
Weighted-Average Discount Rate			7.62	%			8.10	%

		2003				2002
(in millions)
Balance at January 1		$	1,634			$	1,170
Impairment Adjustment			130				162
Balance at March 31		$	1,764			$	1,332

NOTE 10 — PRIVATE EQUITY INVESTMENTS
For a further description of private equity investments, see Note 13 on page 88 of JPMorgan Chase’s 2002 Annual Report.

The following table presents the carrying value and cost of the private equity investment portfolio for the dates indicated:

(in millions)		March 31, 2003								December 31, 2002
		Carrying								Carrying
		value				Cost				value				Cost
Total investment portfolio		$	8,170			$	10,423			$	8,228			$	10,312

				Three Months Ended March 31,
				2003				2002
(in millions)
Direct investments
	Realized cash gains (net)			$	56			$	128
	Write-downs / write-offs				(178	)			(170	)
	Mark-to-market(a)				(5	)			(177	)
		Total direct investments			(127	)			(219	)
Third party funds (net)					(94	)			(19	)
Total private equity gains (losses)(b)				$	(221	)		$	(238	)

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(a)		Includes mark-to-market and reversals of mark-to-market due to public securities sales.
(b)		Includes the impact of portfolio hedging activities.

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Part I
Item 1 (continued)

NOTE 11 — MERGER AND RESTRUCTURING COSTS
Restructuring costs associated with programs announced after January 1, 2002, are reflected in the related expense captions of the Consolidated Statement of Income. All merger and restructuring costs associated with various programs announced prior to January 1, 2002, were reflected in the Merger and Restructuring Costs caption of the Consolidated Statement of Income and had been incurred as of December 31, 2002. For a discussion of the Firm’s merger and restructuring costs incurred in the three months ended March 31, 2002, see Note 5 on page 10 of the Form 10-Q for the quarter ended March 31, 2002. As indicated in Note 6 on page 78 of JPMorgan Chase’s 2002 Annual Report, all previously recorded liabilities for merger charges of $1.25 billion and right-sizing charges of $300 million had been fully utilized as of December 31, 2002.

NOTE 12 — GOODWILL AND OTHER INTANGIBLES
Goodwill
For the three months ended March 31, 2003, goodwill increased by $26 million, principally in connection with purchase accounting adjustments as well as an acquisition of an institutional trust services business in February 2003. Goodwill was not impaired at March 31, 2003 or December 31, 2002, nor was any goodwill written off during the three months ended March 31, 2003 and 2002.

Goodwill by business segment is as follows:

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(in millions)			March 31, 2003				December 31, 2002
Investment Bank			$	2,054			$	2,051
Investment Management & Private Banking				4,167				4,165
Treasury & Securities Services				1,017				996
JPMorgan Partners				377				377
Chase Financial Services				507				507
	Total Goodwill		$	8,122			$	8,096

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The components of other intangible assets were as follows:

(in millions)		March 31, 2003
														1Q 2003				1Q 2002
		Gross				Accumulated				Net Carrying
		Amount				Amortization				Value				Amortization Expense
Purchased Credit Card Relationships		$	1,883			$	678			$	1,205			$	64			$	55
All Other Intangibles			672				378				294				10				14

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Amortization expense related to the net carrying amount of other intangible assets at March 31, 2003, is estimated to be $222 million for the remainder of 2003 (exclusive of the $74 million recorded in the first three months of 2003), $281 million in 2004, $268 million in 2005, $254 million in 2006, $218 million in 2007 and $148 million in 2008.

NOTE 13 — GUARANTEED PREFERRED BENEFICIAL INTERESTS IN THE FIRM’S
JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES
At March 31, 2003, 12 wholly-owned Delaware statutory business trusts established by JPMorgan Chase had issued an aggregate $5.4 billion in capital securities, net of discount. For a discussion of these business trusts, see Note 16 on pages 90-91 of JPMorgan Chase’s 2002 Annual Report. There were no issuances or redemptions of capital securities during the first quarter of 2003.

NOTE 14 — PREFERRED STOCK OF SUBSIDIARY
On February 28, 2002, Chase Preferred Capital Corporation redeemed all 22 million outstanding shares of its 8.10% Cumulative Preferred Stock, Series A, at a redemption price per share of $25 plus accrued and unpaid dividends.

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Part I
Item 1 (continued)

NOTE 15 — EARNINGS PER SHARE
For a discussion of the computation of basic and diluted earnings per share (“EPS”), see Note 20 on page 92 of JPMorgan Chase’s 2002 Annual Report. The following table presents the calculation of basic and diluted EPS for the three months ended March 31, 2003, and 2002:

		Three Months Ended
		March 31, 2003				March 31, 2002
(in millions, except per share amounts)
Basic Earnings per Share
Net Income		$	1,400			$	982
Less: Preferred Stock Dividends			13				13
Net Income Applicable to Common Stock		$	1,387			$	969
Weighted-average Basic Shares Outstanding			1,999.8				1,978.2
Net Income per Share		$	0.69			$	0.49
Diluted Earnings per Share
Net Income Applicable to Common Stock		$	1,387			$	969
Weighted-average Basic Shares Outstanding			1,999.8				1,978.2
Additional Shares Issuable upon Exercise of Stock Options for Dilutive Effect			22.1				27.6
Weighted-average Diluted Shares Outstanding			2,021.9				2,005.8
Net Income per Share(a)		$	0.69			$	0.48

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(a)

Options issued under employee benefit plans to purchase 400 million and 353 million shares of common stock were outstanding for the first quarters of 2003 and 2002, respectively, but were not included in the computation of diluted EPS, because the result would have been anti-dilutive.

NOTE 16 — COMPREHENSIVE INCOME
Comprehensive income is composed of net income and Other Comprehensive Income (“OCI”), which includes the after-tax change in unrealized gains and losses on AFS securities, cash flow hedging activities and foreign currency translation adjustments (including the impact of related derivatives).

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		Unrealized								Cash				Accumulated Other
(in millions)		Gains (Losses)				Translation				Flow				Comprehensive
		on AFS Securities(a)				Adjustments				Hedges				Income (Loss)
Three Months Ended March 31, 2003
Beginning Balance		$	731			$	(6	)		$	502			$	1,227
Net Change during Period			(65	)(b)			—	(c)			(49	)(e)			(114	)
Ending Balance		$	666			$	(6	)(d)		$	453			$	1,113
Three Months Ended March 31, 2002
Beginning Balance		$	(135	)		$	(2	)		$	(305	)		$	(442	)
Net Change during Period			(463	)(b)			1	(c)			(5	)(e)			(467	)
Ending Balance		$	(598	)		$	(1	)(d)		$	(310	)		$	(909	)

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(a)		Primarily represents the after-tax difference between the fair value and amortized cost of the AFS securities portfolio.
(b)		The net change is due primarily to sales of AFS Securities in the 2003 first quarter and to rising rates in the 2002 first quarter.
(c)		At March 31, 2003, includes $53 million of after-tax gains on foreign currency translation from operations for which the functional currency is other than the U.S. dollar, which are offset by $53 million of after-tax losses on hedges. At March 31, 2002, includes $1 million of after-tax gains on hedges.
(d)		Includes after-tax gains and losses on foreign currency translation including related hedge results from operations for which the functional currency is other than the U.S. dollar.
(e)		The net change for the three months ended March 31, 2003, includes $197 million of after-tax gains recognized in income and $148 million of after-tax gains representing the net change in derivative fair values that were recorded in comprehensive income. The net change for the three months ended March 31, 2002, includes $10 million of after-tax losses recognized in income and $15 million of after-tax losses representing the net change in derivative fair values that were reported in comprehensive income.

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Part I
Item 1 (continued)

NOTE 17 — CAPITAL
For a discussion of the calculation of risk-based capital ratios, see Note 26 on pages 99-100 of JPMorgan Chase’s 2002 Annual Report.

The following table presents the risk-based capital ratios for JPMorgan Chase and its significant banking subsidiaries. At March 31, 2003, the Firm and each of its depository institutions, including those listed in the table below, were “well-capitalized” as defined by banking regulators.

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						Significant Banking Subsidiaries
		JPMorgan Chase(a)				JPMorgan Chase Bank				Chase USA
March 31, 2003 (in millions, except ratios)
Tier 1 Capital		$	38,442			$	32,774			$	4,334
Total Capital			55,702				44,343				6,251
Risk-Weighted Assets(b)			455,549				391,794				43,140
Adjusted Average Assets			764,677				628,435				31,527
Tier 1 Capital Ratio			8.44	%			8.37	%			10.05	%
Total Capital Ratio			12.23				11.32				14.49
Tier 1 Leverage Ratio			5.03				5.22				13.75

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(a)		Assets and capital amounts for JPMorgan Chase’s banking subsidiaries reflect intercompany transactions, whereas the respective amounts for JPMorgan Chase reflect the elimination of intercompany transactions.
(b)		Risk-weighted assets of JPMorgan Chase, JPMorgan Chase Bank and Chase USA include off-balance sheet risk-weighted assets in the amounts of $172.1 billion, $152.4 billion and $12.1 billion, respectively, at March 31, 2003.

NOTE 18 — EMPLOYEE STOCK-BASED INCENTIVES
For a discussion of the accounting policies relating to employee stock-based compensation, see Note 24 on pages 96-99 of JPMorgan Chase’s 2002 Annual Report.

Effective January 1, 2003, JPMorgan Chase adopted SFAS 123 using the prospective transition method. SFAS 123 requires all stock-based compensation awards, including stock options, to be accounted for at fair value. Under the prospective transition method, all new awards granted to employees on or after January 1, 2003, are accounted for at fair value, and awards that were outstanding as of December 31, 2002, if not subsequently modified, continue to be accounted for under APB 25. Fair value is based on a Black-Scholes valuation model with compensation expense recognized in earnings over the required service period.

Pre-tax employee stock-based compensation expense recognized in reported earnings totaled $249 million in the first quarter of 2003 and $154 million in the first quarter of 2002. Compensation expense for the first quarter of 2003 included expense of $65 million related to the adoption of SFAS 123. Compensation expense for the first quarter of 2002 included the reversal of previously accrued expenses in the amount of $32 million related to certain forfeitable key employee stock awards granted in 1999.

The following table presents net income and basic and diluted earnings per share as reported, and as if all outstanding awards were accounted for at fair value in each period. The lower expense from applying SFAS 123 in the first quarter of 2003 compared with the first quarter of 2002 resulted from a decrease in 2003 in the number of outstanding stock-based compensation awards, a lower common stock price, lower Black-Scholes option fair values and longer service period requirements.

				Three Months Ended March 31,
(in millions, except per share data)				2003				2002
Net Income as reported				$	1,400			$	982
Add:		Employee stock-based compensation expense included in reported net income, net of related tax effects			150				93
Deduct:		Employee stock-based compensation expense determined under the fair value method for all awards, net of related tax effects			(263	)			(354	)
Pro Forma Net Income				$	1,287			$	721
Earnings Per Share:
		Basic                         As reported		$	0.69			$	0.49
		Pro forma			0.64				0.36
		Diluted                      As reported			0.69				0.48
		Pro forma			0.63				0.35

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Part I
Item 1 (continued)

NOTE 19 — COMMITMENTS AND CONTINGENCIES
For a discussion of legal proceedings, see Part II, Item 1.

NOTE 20 — ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
The majority of JPMorgan Chase’s derivatives are entered into for trading purposes. The Firm also uses derivatives as an end user to hedge market exposures, modify the interest rate characteristics of related balance sheet instruments or meet longer-term investment objectives. Both trading and end-user derivatives are recorded in trading assets and liabilities. For a further discussion of the Firm’s use of derivative instruments, see pages 50-53 and Note 28 on pages 101-102 of JPMorgan Chase’s 2002 Annual Report.

The following table presents derivative instrument- and hedging-related activities for the periods indicated:

		Three Months Ended
		March 31,
		2003				2002
(in millions)
Fair Value Hedge Ineffective Net Gains(a)		$	268			$	95
Cash Flow Hedge Ineffective Net Gains(a)			—				—
Cash Flow Hedging Gains on Forecasted Transactions that Failed to Occur			—				—
Expected Reclassification from OCI to Earnings(b)			314				(132	)

---

(a)		Includes ineffectiveness and the components of hedging instruments that have been excluded from the assessment of hedge effectiveness.
(b)		Represents the reclassification of net after-tax gains (losses) on derivative instruments from OCI to earnings that are expected to occur over the next 12 months. The maximum length of time over which forecasted transactions are hedged is 10 years, related to core lending and borrowing activities.

NOTE 21 — OFF-BALANCE SHEET LENDING-RELATED FINANCIAL INSTRUMENTS AND GUARANTEES
For a further discussion of off-balance sheet lending-related financial instruments and guarantees and the Firm’s related accounting policies, see Note 29 on pages 102-103 of JPMorgan Chase’s 2002 Annual Report.

JPMorgan Chase utilizes lending-related financial instruments (i.e., commitments and guarantees) to meet the financing needs of its customers. The contractual amount of these financial instruments represents the maximum possible credit risk should the counterparty draw upon the commitment or should the Firm fulfill its obligation under the guarantee and the counterparty subsequently fails to perform according to the terms of the contract. Most of these commitments and guarantees expire without a default occurring or without being drawn. As a result, the total contractual amount of these instruments is not, in the Firm’s view, representative of the Firm’s actual future credit exposure or funding requirements. Further, certain commitments, primarily related to consumer financings, are cancelable, upon notice, at the option of the Firm. To provide for the risk of loss inherent in commercial-related contracts, an allowance for credit losses on lending-related commitments is maintained. See Note 7 for a further discussion on the allowance for credit losses on lending-related commitments.

The following table summarizes the contractual amounts relating to off-balance sheet lending-related financial instruments and guarantees and the related allowance for credit losses on lending-related commitments at March 31, 2003, and December 31, 2002:

			Contractual Amount								Allowance for Lending-Related Commitments
			March 31,				December 31,				March 31,				December 31,
			2003				2002				2003				2002
(in millions)
Consumer-related			$	163,392			$	151,138			NA				NA
Commercial-related:
	Other unfunded commitments to extend credit(a)(b)(c)		$	192,131			$	196,654			$	244			$	213
	Standby letters of credit and guarantees(a)(d)			36,337				38,848				187				147
	Other letters of credit(a)			2,230				2,618				5				3
Total commercial-related			$	230,698			$	238,120			$	436			$	363
Customers’ securities lent(e)			$	118,275			$	101,503			NA				NA

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(a)		Net of risk participations totaling $16 billion at March 31, 2003 and December 31, 2002.
(b)		Includes unused advised lines of credit totaling $22 billion at March 31, 2003 and December 31, 2002. In regulatory filings with the Federal Reserve Board, unused advised lines are not reportable.
(c)		Includes certain asset purchase agreements of $31 billion at March 31, 2003, and $36 billion at December 31, 2002. The allowance for credit losses on lending-related commitments related to these agreements was insignificant at March 31, 2003, and December 31, 2002.
(d)		Collateral held by the Firm in support of these agreements was $7 billion at March 31, 2003, and $8 billion at December 31, 2002.
(e)		Collateral held by the Firm in support of these agreements was $125 billion at March 31, 2003, and $110 billion at December 31, 2002.

NA — Not applicable

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Part I
Item 1 (continued)

In November 2002, the FASB issued FIN 45, which requires a guarantor to recognize, at the inception of a guarantee, a liability in an amount equal to the fair value of the obligation undertaken in issuing the guarantee. As of January 1, 2003, newly issued or modified guarantees that are not derivative contracts have been recorded on the Firm’s Consolidated Balance Sheet at their fair value at inception. The Firm considers the following off-balance sheet lending arrangements to be guarantees under FIN 45: certain asset purchase agreements, standby letters of credit and financial guarantees and securities lending indemnifications. See Note 29 on pages 102-103 of JPMorgan Chase’s 2002 Annual Report for further information regarding these guarantees and for a description of the Firm’s obligations under indemnification agreements.

The fair value of the obligation undertaken in issuing the guarantee at inception is typically equal to the net present value of the future amount of premium receivable under the contract. The Firm has recorded this amount in Other Liabilities with an offsetting entry recorded in Other Assets. As cash is received under the contract, it is applied to the premium receivable recorded in Other Assets, and the fair value of the liability recorded at inception is amortized into income as Fees and Commissions over the life of the guarantee contract. The amount of the liability related to guarantees recorded at March 31, 2003, excluding the allowance for credit losses on lending-related commitments and derivative contracts discussed below, was approximately $8 million.

In addition to the contracts noted above, there are certain derivative contracts to which the Firm is a counterparty that meet the characteristics of a guarantee under FIN 45. For a description of the derivatives the Firm considers to be guarantees, see Note 29 on pages 102-103 of JPMorgan Chase’s 2002 Annual Report. These derivatives are recorded on the Consolidated Balance Sheet at fair value. The total notional value of the derivatives that the Firm deems to be guarantees was $48 billion and $47 billion at March 31, 2003, and December 31, 2002, respectively. The fair value related to these contracts was a derivative receivable of $143 million and a derivative payable of $750 million at March 31, 2003. The fair value of these contracts was a derivative receivable of $141 million and a derivative payable of $814 million at December 31, 2002.

NOTE 22 — FAIR VALUE OF FINANCIAL INSTRUMENTS
Refer to Note 31 on pages 104-106 of JPMorgan Chase’s 2002 Annual Report for a further description of the fair value methodologies by product. For those financial instruments that are not recorded on the Consolidated Balance Sheet at fair value, fair value is based on quoted market prices, where available. If listed prices or quotes are not available, fair value is based on internally developed models that primarily use market-based or independent information as inputs. Primary market prices are used to determine the fair value of certain of the Firm’s financial instruments, such as loans and lending-related commitments, as they provide an estimate of prices at which such financial instruments could currently be originated.

These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, the use of different methodologies or secondary market prices to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date; for example, the cost of credit derivatives can be used to estimate the fair value of commercial loans and lending-related commitments, rather than discounting them using primary market rates. Following such an approach, the fair value of the Firm’s commercial loans would approximate carrying value (i.e., commercial loans net of the allowance for loan losses) at March 31, 2003, and December 31, 2002. Following the same approach, the maximum incremental depreciation in fair value of the Firm’s lending-related commitments would be approximately 30 basis points and 40 basis points of the total notional value of these commitments at March 31, 2003, and December 31, 2002, respectively.

The following table presents the financial assets and liabilities valued under SFAS 107:

(in billions)		March 31, 2003												December 31, 2002
		Carrying				Estimated				Appreciation/				Carrying				Estimated				Appreciation/
		Value				Fair Value				(Depreciation)				Value				Fair Value				(Depreciation)
Total Financial Assets		$	735.7			$	738.3			$	2.6			$	739.2			$	742.4			$	3.2
Total Financial Liabilities(a)		$	710.9			$	712.9				(2.0	)		$	715.6			$	716.3				(0.7	)
Estimated Fair Value in Excess of Carrying Value										$	0.6											$	2.5

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(a)

Includes the allowance for lending-related commitments of $436 million at March 31, 2003, and $363 million at December 31, 2002. The fair value of the Firm’s lending-related commitments approximates these balances.

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Part I
Item 1 (continued)

NOTE 23 — SEGMENT INFORMATION
JPMorgan Chase is organized into five major businesses: Investment Bank, Treasury & Securities Services, Investment Management & Private Banking, JPMorgan Partners and Chase Financial Services. These businesses are segmented based on the products and services provided, or the type of customer serviced, and reflect the manner in which financial information is currently evaluated by the Firm’s management. For a further discussion concerning JPMorgan Chase’s business segments, see Segment Results on pages 31-41.

JPMorgan Chase uses Shareholder Value Added (“SVA”) and Operating Earnings as its principal measures of franchise profitability. A 12% cost of capital is used for all businesses except JPMorgan Partners, which has a 15% cost of capital. See Segment Results on pages 24-25 and Note 33 on pages 108-109 of JPMorgan Chase’s 2002 Annual Report for a further discussion of performance measurements and policies for cost of capital allocation. The following table provides a summary of the Firm’s segment results for the three months ended March 31, 2003 and 2002:

										Investment
						Treasury &				Management								Chase				Corporate/
(in millions, except ratios)		Investment				Securities				& Private				JPMorgan				Financial				Reconciling
		Bank				Services				Banking				Partners				Services				Items(a)				Total
Three Months Ended
March 31, 2003
Operating Revenue(b)		$	4,012			$	966			$	652			$	(290	)		$	3,737			$	(214	)		$	8,863
Intersegment Revenue(b)			(25	)			33				20				1				(5	)			(24	)			—
Operating Earnings (Loss)			932				147				64				(224	)			704				(223	)			1,400
Average Economic Capital			19,099				3,046				6,044				5,055				10,331				(1,717	)			41,858	(e)
Average Managed Assets(c)			523,675				19,590				33,577				9,428				202,358				21,444				810,072
Shareholder Value Added			363				56				(116	)			(413	)			396				(138	)			148
Return on Economic Capital(d)			20	%			19	%			4	%		NM					28	%		NM					13	%(e)
March 31, 2002
Operating Revenue(b)		$	3,607			$	968			$	773			$	(321	)		$	3,091			$	(199	)		$	7,919
Intersegment Revenue(b)			(57	)			38				33				2				(3	)			(13	)			—
Operating Earnings (Loss)			764				143				129				(252	)			508				(142	)			1,150
Average Economic Capital			18,890				2,943				6,108				5,609				10,142				(3,275	)			40,417	(e)
Average Managed Assets(c)			467,714				16,974				38,007				10,074				175,593				32,049				740,411
Shareholder Value Added			200				55				(53	)			(461	)			205				(5	)			(59	)
Return on Economic Capital(d)			16	%			20	%			8	%		NM					20	%		NM					11	%(e)

(a)		Corporate/Reconciling Items includes Support Units, Corporate and the net effect of management accounting policies.
(b)		Operating Revenue includes Intersegment Revenue, which includes intercompany revenue and revenue-sharing agreements, net of intersegment expenses. Transactions between business segments are primarily conducted at fair value.
(c)		Includes credit card receivables that have been securitized.
(d)		Based on annualized amounts.
(e)		Based on the Firm’s average common stockholders’ equity.

NM — Not meaningful

The table below presents a reconciliation of the combined segment information to the Firm’s reported net income as included in the Consolidated Statement of Income.

		Three Months Ended March 31,
		2003				2002
(in millions)
Consolidated Operating Earnings		$	1,400			$	1,150
Special Items and Restructuring Costs			—				(168	)
Consolidated Net Income		$	1,400			$	982

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Part 1
Item 2

MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

Financial Performance														First Quarter
														Over/(Under)
		1Q 2003				4Q 2002				1Q 2002				4Q 2002				1Q 2002
(in millions, except per share and ratio data)
Revenue		$	8,406			$	7,495			$	7,598				12	%			11	%
Noninterest Expense			5,541				7,161				5,358				(23	)			3
Provision for Credit Losses			743				921				753				(19	)			(1	)
Net Income (Loss)			1,400				(387	)			982			NM					43
Net Income (Loss) per Share — Diluted			0.69				(0.20	)			0.48			NM					44
Return on Average Common Equity (“ROCE”)			13.4	%		NM					9.7	%		NM				370		bp
Tier 1 Capital Ratio			8.4	%			8.2	%			8.6	%		20		bp		(20		)bp
Total Capital Ratio			12.2				12.0				12.5				20				(30	)
Tier 1 Leverage Ratio			5.0				5.1				5.4				(10	)			(40	)

Financial Highlights — Reported Basis: Reported net income for J.P. Morgan Chase & Co. (“JPMorgan Chase” or the “Firm”) was $1.4 billion, or $0.69 per share, in the first quarter of 2003, compared with a net loss of $387 million, or ($0.20) per share, in the fourth quarter of 2002, and net income of $982 million, or $0.48 per share, in the first quarter of 2002.

Total revenue of $8.4 billion in the first quarter of 2003 was up 12% compared with the 2002 fourth quarter and up 11% versus the year-ago quarter. The increases were driven by record revenues at Chase Financial Services, particularly at Chase Home Finance, and higher revenues at the Investment Bank, reflecting strong fixed income results and an improved performance in equities. Results were negatively affected by continued losses at JPMP and lower revenues at Investment Management & Private Banking.

Total Noninterest Expense of $5.5 billion in the first quarter of 2003 declined 23% from the 2002 fourth quarter and increased 3% over the first quarter of 2002. The fourth quarter of last year included a $400 million charge related to the Enron surety litigation settlement, the establishment of a litigation reserve of $900 million and $393 million in merger and restructuring costs; there were no such special items in the first quarter of 2003. The 3% increase from first quarter last year was primarily driven by higher compensation expenses, resulting from higher earnings-related incentive accruals, increased costs related to stock-based compensation and pension expenses, and higher occupancy-related costs.

Provision for Credit Losses for the 2003 first quarter of $743 million was down 19% from the 2002 fourth quarter and relatively flat when compared with the 2002 first quarter, reflecting lower commercial net charge-offs. The first quarter provision included a $73 million addition to the allowance for lending-related commitments.

Summary of Segment Results: In addition to analyzing the Firm’s results on a reported basis, management utilizes “operating basis” to assess each of its business segments. In the first quarter of 2003, reported results and results on an operating basis were the same, as there were no merger and restructuring costs or special items in 2003. On an operating basis, earnings were $1.2 billion, or $0.57 per share, in the first quarter of 2002 and $730 million, or $0.36 per share, in the fourth quarter of 2002. For additional information and a reconciliation between the Firm’s reported and operating results, see page 30.

•		The Investment Bank recorded operating earnings of $932 million, up 158% from the fourth quarter of 2002 and 22% from the first quarter of 2002. Strength in fixed income capital markets, improved performance in equities from the fourth quarter of 2002 and lower credit costs contributed to the higher results. The Investment Bank achieved, for the first time, top three league table status concurrently in Global Announced M&A (#3), Global Loan Syndications (#1), and Global Equity and Equity-Related (#3) and U.S. Investment-Grade Bond (#2) underwriting.
•		Chase Financial Services reported operating earnings of $704 million, its second highest quarter ever, reflecting higher production volumes across all national consumer credit businesses. Chase Home Finance, the Firm’s mortgage business, had record results, due to record mortgage originations (primarily refinancings) and, to a lesser extent, gains on the hedging of MSRs. While deposits grew at Chase Regional Banking and Chase Middle Market, the value of these deposits decreased with lower interest rates.

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Part 1
Item 2 (continued)

•		Treasury & Securities Services operating earnings of $147 million were 8% higher than the fourth quarter of 2002, and 3% higher than the first quarter of 2002, driven by lower expenses. Revenues were flat compared to both prior periods, and the overhead ratio for the quarter was 77%, improving from the 2002 fourth quarter ratio of 78% and unchanged from the year-ago quarter.
•		Investment Management & Private Banking had operating earnings of $64 million in the first quarter, up 49% from the fourth quarter of 2002 but down 50% from the first quarter of 2002. Lower expenses and credit costs drove the increase from the fourth quarter, while declines in global equity market valuations and lower investor activity levels accounted for most of the decrease from the first quarter of last year.
•		JPMorgan Partners had an operating loss of $224 million for the 2003 first quarter, compared with operating losses of $101 million in the fourth quarter of 2002 and $252 million in the first quarter of 2002. Total net private equity losses were $230 million, compared with net losses of $53 million in the fourth quarter of 2002 and $255 million in the year-ago quarter.

Total assets as of March 31, 2003, were $755 billion, compared with $759 billion as of December 31, 2002, and $713 billion at March 31, 2002. JPMorgan Chase’s Tier 1 Capital ratio was 8.4% at March 31, 2003, compared with 8.2% at December 31, 2002, and 8.6% at March 31, 2002.

Outlook: The Firm’s business outlook for the remainder of the year remains cautious. Client activity in mergers and acquisitions and equity underwriting remains low, adversely affecting investment banking fees and delaying opportunities to realize gains in private equity. Commercial credit quality, as reflected in the level of nonperforming assets and exposures deemed “criticized,” has shown meaningful improvement from year-end, but commercial credit costs remain at high cyclical levels. Results at Chase Financial Services are likely to be lower than in the first quarter of 2003, primarily at Chase Home Finance, which had exceptionally high earnings. These are expected to moderate, as mortgage origination volumes and interest rate spreads are not expected to remain at first quarter 2003 levels.

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Part I
Item 2 (continued)

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Revenues		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Investment Banking Fees		$	616				(9	)%			(18	)%
Trading Revenue			1,232				111				(5	)
Fees and Commissions			2,598				14				1
Private Equity Gains (Losses)			(221	)			NM				7
Securities Gains			485				(35	)			325
Other Revenue			481				66				206
Net Interest Income			3,215				8				10
Total Revenue		$	8,406				12				11

			First Quarter
							Over/(Under)
			2003				4Q 2002				1Q 2002
(in millions)
Advisory			$	166				(29	)%			(13	)%
Underwriting:
	Equity			108				29				(22	)
	Debt			342				(5	)			(20	)
Total			$	616				(9	)			(18	)

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Equities		$	239				NM				(6	)%
Fixed Income and Other			993				75	%			(5	)
Total		$	1,232				111				(5	)

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Part I
Item 2 (continued)

Fees and Commissions
Fees and commissions of $2.6 billion for the first quarter of 2003 increased 14% from the fourth quarter of 2002 but remained relatively stable in comparison with the first quarter of 2002. The table below provides the significant components of fees and commissions:

			First Quarter
							Over/(Under)
			2003				4Q 2002				1Q 2002
(in millions)
Investment Management, Custody and Processing Services			$	885				3	%			(11	)%
Credit Card Revenue				692				(14	)			18
Brokerage and Investment Services				277				1				(9	)
Mortgage Servicing Fees, Net of Amortization, Write-downs and Derivatives Hedging				90				NM				88
Other Lending-Related Service Fees				124				(23	)			(5	)
Deposit Service Fees				285				3				(2	)
Other Fees				245				6				5
	Total		$	2,598				14				1

Investment Management, Custody and Processing Services
Fees from investment management, custody and processing services were up 3% from the fourth quarter of 2002 but down 11% from the first quarter of 2002. The investment management fee component of this category increased slightly from the prior quarter but decreased 11% from the first quarter of 2002. The decrease from the prior year’s first quarter was attributable to the lower value of equity-related assets under management and institutional outflows.

Custody and processing services fees were slightly higher than the fourth quarter of 2002 as a result of an increase in securities lending and broker-dealer activities. In comparison with the first quarter of 2002, this year’s first quarter was down 11%, driven by the depressed values of securities in safekeeping, continuing slowdown in cross-border investment flows and lower securities lending volume. For additional information on investment management, see Investment Management & Private Banking, and for custody and processing services, see Treasury & Securities Services segment discussions on pages 35-36 and 34, respectively.

Credit Card Revenue
Credit card revenue decreased 14% from the record level of $807 million in the fourth quarter of 2002, primarily due to seasonal factors. The increase of 18% over the 2002 first quarter was attributable to higher revenues associated with the $10.1 billion growth in the average securitized portfolio, which was partly the result of the acquisition of the Providian Master Trust portfolio in February 2002.

Brokerage and Investment Services
In the 2003 first quarter, brokerage and investment services were comparable with fourth quarter 2002 levels but declined 9% from the 2002 first quarter. The decline from the year-ago period was attributable to lower equity brokerage fees in the Investment Bank as a result of narrower spreads.

Mortgage Servicing Fees
Mortgage servicing fees of $90 million increased considerably from both the fourth and first quarters of 2002, as the favorable interest rate environment produced record volumes of mortgage originations, which resulted in an increased balance of loans serviced. The Firm believes that production volume is likely to moderate in subsequent quarters in 2003. During the first quarter of 2003, gains on the derivatives used to hedge the value of the MSRs significantly offset any impairment of the assets. This was primarily attributable to the steepening of the yield curve. For a further discussion of these fees, see Chase Home Finance discussion on page 39.

Other Lending-Related Service Fees
In the first quarter of 2003, other lending-related service fees declined 23% and 5% from the fourth and first quarters of 2002, respectively. The decrease from the fourth quarter was primarily attributable to lower standby letter-of-credit fees. The decline from the first quarter of last year was due to lower loan commitment and other lending-related service fees reflecting the slowdown in the economy.

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Part I
Item 2 (continued)

Deposit Service Fees
Deposit service fees in the first quarter of 2003 increased 3% from the fourth quarter of 2002 but decreased slightly from the first quarter of 2002. The increase from the prior quarter resulted from the lower interest rate environment, which reduced the value of customers’ compensating deposit balances; consequently, customers paid incremental fees for deposit services. This was partly offset by lower balance-deficiency fees, as many customers at Chase Regional Banking increased their account balances by transferring cash from brokerage to bank deposit accounts, in response to the uncertain market environment.

Other Fees
Other fees of $245 million rose 6% and 5%, respectively, from the fourth and first quarters of 2002. The increases reflected a payment received for the early termination of a marketing contract, as well as higher securities processing-related fees. The increase from the first quarter of 2002 was partly offset by lower insurance commissions on variable annuity sales. Chase Financial Services began underwriting a portion of the annuities that were sold in the second quarter of 2002, resulting in certain insurance-related revenue being reported as Net Interest Income.

Private Equity Gains (Losses)
Private equity losses were $221 million in the first quarter of 2003, compared with losses of $68 million in the fourth quarter of 2002 and $238 million in the first quarter of 2002. For a discussion of private equity gains (losses), see the JPMP segment results on pages 36-37.

Securities Gains
In the first quarter of 2003, securities gains were $485 million, $262 million lower than the fourth quarter of 2002, reflecting lower gains on the securities sold at Chase Home Finance. Compared with the first quarter of 2002, securities gains were up substantially, driven by the higher volume of securities sold in connection with the asset/liability management activities of the Firm. The 2003 first quarter results included $96 million of gains realized from the sales activities within Chase Home Finance’s investment securities portfolio. This compared with gains of $388 million and losses of $13 million in the 2002 fourth and first quarters, respectively. Available-for-sale securities are used by Chase Home Finance to hedge the economic value of MSRs.

Other Revenue

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Residential Mortgage Origination/Sales Activities		$	378				78	%			278	%
All Other Revenue			103				32				81
Other Revenue		$	481				66				206

Residential mortgage origination and sales activities of $378 million in the first quarter of 2003 were significantly higher than the fourth and first quarters of 2002. The increases were attributable to the significant growth in loan applications and originations, which were a record high for Chase Home Finance. For additional information on mortgage-related revenue, see the Chase Financial Services segment discussion on pages 38-40, and Notes 8 and 9.

All other revenue of $103 million increased significantly from the 2002 fourth quarter and was almost twice the amount of the first quarter of 2002. The first quarter of 2003 reflected a gain of $27 million on the sale of a nonstrategic asset management business, partly offset by lower equity income from American Century Companies, Inc. (“American Century”), which incurred certain nonoperating charges during the quarter. The Firm has a 45% interest in American Century. The 2002 first quarter also included write-downs of certain Latin American investments totaling $57 million.

Net Interest Income
Net Interest Income of $3.2 billion in the first quarter of 2003 increased 8% from the fourth quarter of 2002 and 10% from the same period a year ago. The primary driver for the increases was the reduction in interest rates, which contributed to growth in consumer loans and wider spreads, particularly in mortgages and automobile loans. Partially offsetting the effect of the increases in consumer loan volumes were lower commercial loans, reflecting the Firm’s strategic initiative to reduce its credit risk profile, and the narrowing of spreads at Chase Regional Banking despite higher average deposit balances.

Net Interest Income included $683 million of trading-related Net Interest Income in the first quarter of this year. This level was comparable to the fourth quarter of 2002, but 62% higher than the first quarter of 2002. The increase from last year’s first quarter was primarily attributable to higher interest rate spreads on trading-related assets.

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Part I
Item 2 (continued)

On an aggregate basis, the Firm’s total average interest-earning assets for the first quarter of 2003 were $598.2 billion, compared with $583.3 billion in the fourth quarter of last year. The net interest yield on these assets, on a fully taxable-equivalent basis, was 2.19% in the 2003 first quarter, 15 basis points higher than the last quarter of 2002.

NONINTEREST EXPENSE
Total Noninterest Expense for the quarter was $5.5 billion, down 23% from the fourth quarter of 2002, but up 3% from the first quarter of 2002. The fourth quarter of 2002 included charges related to the Enron surety litigation settlement, the establishment of a litigation reserve, merger and restructuring costs and higher severance and related costs. Compared with the first quarter of 2002, compensation costs were higher due to higher incentive accruals and increased stock-based compensation and pension costs. Occupancy-related costs also were higher compared to the first quarter of 2002.

Total severance and other related costs for the Firm were $171 million in the first quarter of 2003, $500 million in the fourth quarter of 2002 and $106 million in the first quarter of last year. Severance and other related costs included the costs of exiting vacant premises worldwide. These exit costs, which are recorded in Occupancy Expense, amounted to $78 million in the first quarter of this year; there were no such costs in the fourth and first quarters of 2002.

The following table presents the components of Noninterest Expense:

Noninterest Expenses		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Compensation Expense		$	3,174				5	%			12	%
Occupancy Expense			496				17				47
Technology and Communications Expense			637				—				(4	)
Amortization of Intangibles			74				(10	)			7
Other Expense			1,160				(10	)			(4	)
Surety Settlement and Litigation Reserve(a)			—				NM				NM
Merger and Restructuring Costs			—				NM				NM
Total Noninterest Expense		$	5,541				(23	)			3

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(a)

Represents a $1.3 billion charge in the fourth quarter of 2002 related to the settlement of the Enron surety litigation and the establishment of a reserve for certain material litigation, proceedings and investigations.

Compensation Expense
Compensation expense in the first quarter of 2003 was $3.2 billion, up 5% from the fourth quarter of 2002 and 12% from the first quarter of 2002. The increase from the immediately preceding quarter was primarily due to higher incentives, reflecting the growth in earnings, primarily in the Investment Bank. Also, included in compensation expense for the 2003 first quarter was $65 million related to the adoption of SFAS 123, as well as higher pension and other postretirement benefit costs. The higher pension and other postretirement benefit costs were primarily due to changes in actuarial assumptions related to the expected returns on plan assets and the amortization of unrecognized losses on plan assets. These items were partially offset by lower severance-related costs of $76 million recognized in the first quarter of 2003, compared with $441 million in the fourth quarter and $106 million in the first quarter of 2002. The increase in Compensation expense from the first quarter of 2002 was similarly attributable to higher incentives, higher stock-based compensation (reflecting the reversal in 2002 of $32 million of previously accrued expenses related to certain forfeitable key employee stock awards granted in 1999) and pension and other postretirement benefit costs, partially offset by lower severance costs.

Occupancy Expense
Occupancy expense of $496 million in the 2003 first quarter increased $71 million from the fourth quarter of 2002 and $158 million from the first quarter of 2002. The increases from both periods were primarily due to a charge in 2003 of $78 million to cover the costs of exiting excess vacant premises worldwide, in response to lower staff levels. Also contributing to the increase from the first quarter of 2002 were the effects of additional leased space in midtown Manhattan, higher real estate taxes in New York and the costs of enhanced safety measures. JPMorgan Chase will continue to evaluate its current and projected space requirements. There is no assurance that the Firm will be able to dispose of its excess premises, nor is there any assurance that it will not incur additional charges in connection with such dispositions, if any.

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Part I
Item 2 (continued)

Technology and Communications Expense
In the first quarter of 2003, technology and communications expense remained relatively flat in comparison with the fourth quarter of 2002 but was $28 million lower than the first quarter of 2002, primarily the result of expense-management initiatives. These initiatives reduced software and telecommunications expenses, as well as the costs of supporting the technology infrastructure of the Firm.

Amortization of Intangibles
Amortization of intangibles in the 2003 first quarter decreased $8 million from the fourth quarter of 2002 but increased $5 million from the first quarter of 2002. The decrease from the fourth quarter reflected the recognition of amortization expense, in a pattern consistent with the economic benefit derived from acquired portfolios. The increase from the first quarter of 2002 was attributable to the full-quarter impact of Providian, which was acquired in February 2002. For a further discussion of the amortization of intangibles and the expected level of expense for the remainder of the year, see Note 12.

Other Expense
In the first quarter of 2003, other expense was lower than in both the 2002 fourth and first quarters. The following table presents the components of other expense:

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Professional Services		$	325				(14	)%			6	%
Outside Services			272				9				9
Marketing			164				(25	)			12
Travel and Entertainment			89				(7	)			(12	)
All Other			310				(12	)			(23	)
Total Other Expense		$	1,160				(10	)			(4	)

•		Professional services decreased $53 million from the fourth quarter of 2002, reflecting lower fees paid for legal services, as well as lower sub-advisor service fees for a fund in Europe. The increase relative to the first quarter of 2002 was primarily due to the aforementioned sub-advisor services.
•		Outside services in the 2003 first quarter increased $23 million from the fourth quarter of 2002, reflecting slightly higher expenses at several businesses, including outsourcing certain technology-related activities. The $23 million increase from the first quarter of 2002 resulted from the record mortgage business volume at Chase Home Finance, as well as an increase in technology support costs.
•		Marketing expense was down $56 million from the fourth quarter of 2002 but $18 million above the first quarter of 2002. The decline from the fourth quarter reflected additional marketing initiatives at the end of last year related to the acquisition of credit card accounts. The increase from the first quarter of 2002 was primarily attributable to greater credit card direct-mail initiatives and customer management programs.
•		Travel and entertainment decreased from both the fourth and first quarters of 2002 due to lower business volume, specifically at the Investment Bank, and the general impact of expense-management initiatives.
•		All other expense was $41 million below the fourth quarter of 2002, reflecting impairment charges recognized late last year related to obsolete software at the Investment Bank and Treasury & Securities Services. Compared with the first quarter of 2002, the decline of $95 million was driven by the prior year’s Sumitomo settlement costs and the impact of expense management initiatives.

Management currently anticipates that Noninterest Expense for full-year 2003 will be slightly higher than those for full-year 2002 (excluding from 2002 expenses the impact of the litigation and merger charges). However, incentive expense will depend on revenues and earnings over the remainder of 2003.

Merger and Restructuring Costs
Commencing January 1, 2003, all expenses related to the restructuring of businesses were recorded in their related expense categories. In contrast, last year’s merger and restructuring charges of $393 million in the fourth quarter and $255 million in the first quarter were viewed by management as nonoperating expenses or “special items.” Refer to the discussion of compensation and occupancy expenses above for a description of restructuring costs incurred in the first quarter of 2003 and page 21 and Note 6 on page 78 of JPMorgan Chase’s 2002 Annual Report.

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Part I
Item 2 (continued)

Provision for Credit Losses
The 2003 first quarter Provision for Credit Losses of $743 million decreased by $178 million from the 2002 fourth quarter and by $10 million from the 2002 first quarter. The decline from the prior quarter primarily reflected lower commercial charge-offs. See pages 44-54 for a discussion of charge-offs associated with the commercial and consumer loan portfolios and pages 53-54 for a discussion of the Allowance for Credit Losses.

Income Tax Expense
In the first quarter of 2003, JPMorgan Chase recognized income tax expense of $722 million, compared with a benefit of $200 million in the fourth quarter of 2002 and an expense of $505 million in the first quarter of 2002. The effective tax rates were 34% for all periods.

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The Firm prepares its Consolidated Financial Statements using U.S. GAAP. The Consolidated Financial Statements prepared in accordance with U.S. GAAP appear on pages 3–6. That presentation, which is referred to as “reported basis,” provides the reader with an understanding of the Firm’s results that can be consistently tracked from year to year and enables a comparison of the Firm’s performance with other companies’ U.S. GAAP financial statements.

In addition to analyzing the Firm’s results on a reported basis, management looks at results on an “operating basis” to assess each of its businesses and to measure overall Firm results against targeted goals. The definition of operating basis starts with the reported U.S. GAAP results and then excludes the impact of credit card securitizations. JPMorgan Chase periodically securitizes a portion of its credit card portfolio by selling a pool of credit card receivables to a trust, which issues securities to investors. When credit card receivables are securitized, the Firm ceases to accrue the related interest and credit costs; instead, the Firm receives fee revenue for continuing to service those receivables and additional revenue from any interest and fees on the receivables in excess of the interest paid to investors, net of credit losses and servicing fees. As a result, securitization does not change JPMorgan Chase’s reported or operating net income; however, it does affect the classification of items in the Consolidated Statement of Income.

The Firm also reports credit costs on a “managed” or “operating” basis. Credit costs on an operating basis are composed of the Provision for Credit Losses in the Consolidated Statement of Income (which includes a provision for credit card receivables on the Consolidated Balance Sheet) as well as the credit costs associated with securitized credit card loans. As the holder of the residual interest in the securitization trust, the Firm bears its share of the credit costs for securitized loans. In the Firm’s U.S. GAAP Consolidated Financial Statements, credit costs associated with securitized credit card loans reduce the noninterest income remitted to the Firm from the trust. This income is reported in credit card revenue in Fees and Commissions over the life of the securitization.

Prior to 2003, the Firm also excluded from its operating results the impact of merger and restructuring costs and special items, as these transactions were viewed by management as not part of the Firm’s normal daily business operations or unusual in nature and, therefore, not indicative of trends. (To be considered a special item, the nonrecurring gain or loss had to be at least $75 million.) Commencing in 2003, management has determined that many of the costs previously considered nonoperating will be deemed operating costs; therefore, all such costs will be included in the Firm’s reported results. However, it is possible that in the future, management may designate certain material gains or losses incurred by the Firm to be “special items.”

In allocating the allowance (and provision) for credit losses, each business is responsible for its credit costs, including actual net charge-offs and changes in the specific and expected components of the allowance. The residual component of the allowance, available for losses in any business segment, is maintained at the corporate level. Management views the residual component as necessary to address uncertainties in the portfolio at March 31, 2003, primarily in the commercial portfolio.

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Part I
Item 2 (continued)

The following summary table provides a reconciliation between the Firm’s reported and operating results:

(in millions)			First Quarter 2003																				First Quarter 2002
			Reported				Credit				Special								Operating				Reported				Credit				Special								Operating
			Results(a)				Card(b)				Items(c)				Reclasses				Basis				Results(a)				Card(b)				Items(c)				Reclasses				Basis
Consolidated Income Statement
Revenue:
	Investment Banking Fees		$	616			$	—			$	—			$	—			$	616			$	755			$	—			$	—			$	—			$	755
	Trading Revenues(d)			1,232				—				—				683				1,915				1,299				—				—				421				1,720
	Fees and Commissions			2,598				(169	)			—				—				2,429				2,584				(91	)			—				—				2,493
	Private Equity Gains (Losses)			(221	)			—				—				—				(221	)			(238	)			—				—				—				(238	)
	Securities Gains			485				—				—				—				485				114				—				—				—				114
	Other Revenue			481				(4	)			—				—				477				157				(20	)			—				—				137
	Net Interest Income(d)			3,215				630				—				(683	)			3,162				2,927				432				—				(421	)			2,938
Total Revenue				8,406				457				—				—				8,863				7,598				321				—				—				7,919
Noninterest Expense:
	Compensation expense			3,174				—				—				—				3,174				2,823				—				—				—				2,823
	Noncompensation expense(e)			2,367				—				—				—				2,367				2,280				—				—				—				2,280
	Merger and Restructuring Costs			—				—				—				—				—				255				—				(255	)			—				—
Total Noninterest Expense				5,541				—				—				—				5,541				5,358				—				(255	)			—				5,103
Operating margin				2,865				457				—				—				3,322				2,240				321				255				—				2,816
Credit costs				743				457				—				—				1,200				753				321				—				—				1,074
Income before income tax expense				2,122				—				—				—				2,122				1,487				—				255				—				1,742
Income tax expense				722				—				—				—				722				505				—				87				—				592
Net income			$	1,400			$	—			$	—			$	—			$	1,400			$	982			$	—			$	168			$	—			$	1,150
Earning per share – diluted			$	0.69			$	—			$	—			$	—			$	0.69			$	0.48			$	—			$	0.09			$	—			$	0.57

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(a)		Represents condensed results as reported in JPMorgan Chase’s Consolidated Financial Statements.
(b)		Represents the impact of credit card securitizations. For securitized receivables, amounts that normally would be reported as Net Interest Income and as provisions for credit losses are reported as noninterest revenue.
(c)		For 2002, includes merger and restructuring costs and special items. For a description of special items, see Glossary of Terms on page 67.
(d)		On an operating basis, JPMorgan Chase reclassifies trading-related Net Interest Income from Net Interest Income to Trading Revenue.
(e)		Includes Occupancy Expense, Technology and Communications Expense, Amortization of Intangibles, and Other Expense.

The following table provides a reconciliation of earnings per share (“EPS”) based on the Firm’s reported net income to EPS calculated on an operating basis:

			First Quarter				Fourth Quarter				First Quarter
(per share data)			2003				2002				2002
Net income			$	0.69			$	(0.20	)		$	0.48
Special items (net of taxes):
Merger and restructuring costs				—				0.13				0.09
Surety settlement and litigation reserve				—				0.43				—
Operating earnings			$	0.69			$	0.36			$	0.57

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Item 2 (continued)

The table below provides summary financial information on an operating basis for the five major business segments.

Operating Revenue		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Investment Bank		$	4,012				21	%			11	%
Treasury & Securities Services			966				—				—
Investment Management & Private Banking			652				(2	)			(16	)
JPMorgan Partners			(290	)			NM				10
Chase Financial Services			3,737				11				21
Total Operating Revenue(a)(b)			8,863				12				12
Less: Impact of Credit Card Securitizations			457				6				42
Total Reported Revenue(b)		$	8,406				12				11

Operating Earnings		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions)
Investment Bank		$	932				158	%			22	%
Treasury & Securities Services			147				8				3
Investment Management & Private Banking			64				49				(50	)
JPMorgan Partners			(224	)		NM					11
Chase Financial Services			704				42				39
Total Operating Earnings(a)(b)			1,400				92				22
Less: Impact of Special Items(c)			—				NM				NM
Net Income(b)		$	1,400				NM				43

(a)		Includes Support Units and the effects remaining at the corporate level after the implementation of management accounting policies.
(b)		Represents consolidated JPMorgan Chase.
(c)		Includes merger and restructuring costs and special items in 2002.

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Item 2 (continued)

INVESTMENT BANK
For a discussion of the business profile of the Investment Bank (“IB”), see pages 26–28 of JPMorgan Chase’s 2002 Annual Report. The following table sets forth selected IB financial data:

			First Quarter
							Over/(Under)
			2003				4Q 2002				1Q 2002
(in millions, except ratios and employees)
Operating Revenue			$	4,012				21	%			11	%
Operating Expense:
	Compensation expense			1,329				24				17
	Noncompensation expense			823				(5	)			(8	)
	Severance and related costs			104				(69	)			121
	Total operating expense			2,256				(1	)			8
Operating Margin				1,756				70				15
Credit Costs				246				(50	)			(13	)
Operating Earnings			$	932				158				22
Average Economic Capital			$	19,099				2				1
Average Assets				523,675				2				12
Shareholder Value Added				363				NM				82
Return on Economic Capital				20	%			1,200	bp			400	bp
Overhead Ratio				56				(1,300	)			(200	)
Overhead Ratio (excluding severance and related costs)				54				(500	)			(200	)
Compensation as % of revenue (excluding severance and related costs)				33				100				100
Full-time equivalent employees				14,633				(3	)%			(17	)%

			First Quarter
							Over/(Under)
			2003				4Q 2002				1Q 2002
(in millions)
Investment Banking Fees
	Advisory		$	160				(26	)%			(18	)%
	Underwriting and Other Fees			461				6				(15	)
	Total		$	621				(4	)			(16	)
Capital Markets & Lending
	Fixed Income		$	1,981				27	%			13	%
	Treasury			608				5				58
	Credit Portfolio			366				13				23
	Equities			436				126				(2	)
	Total		$	3,391				27				18
Total Operating Revenue			$	4,012				21				11
Capital Markets & Lending Total Return Revenue(a)
	Fixed Income		$	1,945				31	%			14	%
	Treasury			536				15				14
	Credit Portfolio			366				13				23
	Equities			436				126				(2	)
	Total		$	3,283				33				13

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(a)

Total return revenue includes operating revenues plus the unrealized gains or losses on third-party or internally transfer-priced assets and liabilities in activities, primarily fixed income and treasury, which are not accounted for on a mark-to-market basis through earnings.

IB reported operating earnings of $932 million in the first quarter, compared with $361 million in the fourth quarter of 2002 and $764 million in the first quarter of 2002. Operating earnings for the quarter were driven by strong capital markets revenues, expense discipline and lower credit costs. Return on Economic Capital of 20% rose from 8% in the fourth quarter of 2002 and from 16% in the first quarter of 2002, respectively.

Operating revenues of $4.0 billion in the first quarter were 21% higher than in the fourth quarter of 2002 and up 11% from the first quarter of 2002.

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Item 2 (continued)

Investment Banking fees of $621 million decreased 4% from the fourth quarter of 2002 and were down 16% from the first quarter of 2002. The decrease reflected industry-wide weakness in M&A activity, equity underwriting and loan syndication markets. Advisory revenues were down 26% and 18% from the fourth quarter of 2002 and the first quarter of 2002, respectively. Underwriting and other fees were up 6% from the fourth quarter of 2002 but down 15% from the first quarter of 2002, the result of weakness in equity underwriting and loan syndication activity. For the first quarter of 2003 the Firm ranked #1 for the first time ever in U.S. Equities and Equity-Related transactions. It also ranked #3 in Global Equity and Equity-Related and #3 in Global Announced M&A and maintained leadership positions in U.S. investment-grade bonds and Global Loan Syndications. ¹

The IB evaluates its capital markets activities, including sales and trading, treasury and corporate lending activities, by considering all revenues related to these activities. These revenues include trading, fees and commissions, securities gains and related Net Interest Income and other revenues. In addition, these activities are managed on a total-return revenue basis. This includes operating revenues plus the unrealized gains or losses on third-party or internally transfer-priced assets and liabilities, primarily in fixed income and treasury activities, which are not accounted for on a mark-to-market basis through earnings.

Capital Markets total-return revenue was $3.3 billion, up 33% and 13% from the fourth quarter of 2002 and the first quarter of 2002, respectively. Fixed income total-return revenue of $1.9 billion increased 31% from the fourth quarter of 2002 and 14% from the first quarter of 2002, primarily driven by strength in credit markets trading and improvement in interest rate trading. Global Treasury, which manages the Firm’s interest rate exposure and investment securities activity, achieved record results, driven by higher spreads on fixed income positions and tighter mortgage-backed securities spreads. Global Treasury’s total-return revenue of $536 million was up 15% from the fourth quarter of 2002 and 14% from the first quarter of 2002. Global Treasury’s activities complement, and offer a strategic balance and diversification benefit to, the Firm’s trading activities. Equities total-return revenue was $436 million in the first quarter of 2003, an increase of 126% over the fourth quarter of 2002, but a slight decrease of 2% from the first quarter of 2002. The growth in equities compared with the prior quarter reflected improved results in derivatives. On an operating revenue basis, Capital Markets revenues of $3.4 billion in the first quarter were 27% above the fourth quarter of 2002 and 18% above the first quarter of 2002.

Credit costs were $246 million for the quarter, down 50% from the fourth quarter of 2002 and 13% from the first quarter of 2002. The decrease from the prior quarter reflected lower net charge-offs, primarily in the telecommunications sector, which experienced a high level of charge-offs in the fourth quarter of 2002. The decrease from the first quarter of 2002 was due to higher recoveries in the first quarter of 2003. For additional information, see Credit Risk Management on pages 44-54.

Operating expenses of $2.3 billion for the first quarter decreased 1% from the fourth quarter of 2002 and increased 8% from the first quarter of 2002. The decline from the prior quarter reflected higher incentive compensation costs, due to higher earnings; these were more than offset by lower nonincentive compensation expense and noncompensation expenses, driven by lower staffing levels, professional fees, technology and communications expenses and travel and entertainment expenses. The declines reflect the impact of expense management initiatives announced in the fourth quarter of 2002. The initiatives, which are approximately 80% complete, have resulted in a reduction of staffing levels of more than 1,700 since the third quarter of 2002. Included in first quarter 2002 expenses were costs associated with the Sumitomo litigation settlement. Operating expenses in the first quarter of 2003 included severance and related costs of $104 million, compared with $47 million in the first quarter of last year and $338 million in the fourth quarter. Including these severance and related costs, the overhead ratio for the first quarter was 56%, compared with 69% in the fourth quarter of 2002 and 58% in the first quarter of 2002. Excluding these costs, the overhead ratio for the quarter was 54%, compared with 59% in the fourth quarter of 2002 and 56% in the first quarter of 2002.

Given the continued weakness in client activity and uncertain economic conditions, management remains cautious on the outlook for 2003.

		First Quarter
		2003								2002
Market Share/Rankings:(a)
Global Syndicated Loans			16	%			#1				22	%			#1
U.S. Investment-Grade Bonds			15				#2				16				#2
Euro-Denominated Corporate International Bonds			4				#10				6				#4
Global Equity and Equity-Related			10				#3				5				#6
U.S. Equity and Equity-Related			15				#1				5				#7
Global Announced M&A			19				#3				12				#8

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(a)

Derived from Thomson Financial Securities Data, which reflect subsequent updates to prior-period information. Global announced M&A is based on rank value; all others are based on proceeds, with full credit to each book manager/equal if joint.

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Item 2 (continued)

TREASURY & SECURITIES SERVICES
For a discussion of the profiles for each business within Treasury & Securities Services (“T&SS”), see pages 29–30 of JPMorgan Chase’s 2002 Annual Report. The following table sets forth selected financial data of T&SS:

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions, except ratios and employees)
Operating Revenue		$	966				—	%			—	%
Operating Expense			741				(1	)			(1	)
Operating Margin			225				6				2
Credit Costs			1				(50	)			—
Operating Earnings		$	147				8				3
Average Economic Capital		$	3,046				5				3
Average Assets			19,590				2				15
Shareholder Value Added			56				19				2
Return on Economic Capital			19	%			100	bp			(100	)bp
Overhead Ratio			77				(100	)			—
Full-time equivalent employees			14,357				(1	)%			(6	)%
Operating Revenue by Business
Treasury Services		$	496				4	%			8	%
Investor Services			346				2				(10	)
Institutional Trust Services			207				(9	)			1
Other			(83	)			1				(1	)
Total		$	966				—				—

T&SS had operating earnings of $147 million, an increase of 8% from the fourth quarter of 2002 and 3% from the first quarter of 2002. Return on Economic Capital for the quarter was 19% compared with 18% for the fourth quarter of 2002 and 20% for the first quarter of 2002.

Operating revenue was $966 million in the first quarter of 2003, virtually unchanged from both the first and fourth quarters of 2002. Treasury Services revenues increased from the first and fourth quarters of 2002 by 8% and 4%, respectively, due to growth in product revenue, notably in commercial and prepaid debit cards, higher balance deficiency fees and increased deposits. Partially offsetting these items was the decline in the value of deposits, the result of lower interest rates. Investor Services revenues decreased 10% from the first quarter of 2002, as the business continued to be adversely affected by difficult market conditions resulting in reduced balances, custody fees, foreign exchange revenue and securities lending activities. Revenues increased 2% from the fourth quarter of 2002, primarily due to higher securities lending and broker-dealer fees, as well as foreign exchange revenue resulting from increased volume. Institutional Trust Services revenues were up 1% from the first quarter of 2002, reflecting general business growth, partially offset by declines in American depositary receipt (“ADR”) and conventional debt activities; revenues decreased 9% from the fourth quarter of 2002, due to lower deposit balances and spreads coupled with lower ADR volume.

Operating expense was down 1% from the first and fourth quarters of 2002, reflecting continued focus on cost-containment measures that include Six Sigma and productivity and quality initiatives and selected reductions in staff, particularly in Investor Services. The overhead ratio of 77% for the first quarter improved slightly from the fourth quarter of 2002 and was in line with the year-ago quarter.

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Item 2 (continued)

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions, except ratios and employees)
Operating Revenue		$	652				(2	)%			(16	)%
Operating Expense			574				(8	)			(2	)
Credit Costs			6				(54	)			(74	)
Pre-Tax Margin			72				188				(57	)
Operating Earnings		$	64				49				(50	)
Average Economic Capital		$	6,044				(2	)			(1	)
Average Assets			33,577				—				(12	)
Shareholder Value Added			(116	)			19			NM
Tangible Shareholder Value Added			9			NM					(88	)
Return on Economic Capital			4	%			100	bp			(400	)bp
Tangible Return on Economic Capital			14				500				(1,300	)
Overhead Ratio			88				(600	)			1,300
Pre-Tax Margin Ratio			11				700				(1,100	)
Full-time equivalent employees			7,511				(4	)%			(6	)%

Operating earnings of $64 million were up 49% from the fourth quarter but down 50% from the first quarter of 2002. Pre-tax margin in the first quarter was 11%, compared with 4% in the last quarter and 22% in the first quarter of 2002. Return on Economic Capital was 4%, compared with 3% in the fourth quarter 2002 and 8% in the first quarter 2002. Tangible Return on Economic Capital was 14%, compared with 9% in the fourth quarter of 2002 and 27% in the first quarter of 2002.

							Over/(Under)
			March 31, 2003				December 31, 2002				March 31, 2002
(in billions)
Assets under Supervision(a)
Client Segment:
Private Banking			$	125				(4	)%			(14	)%
Institutional				298				(2	)			(14	)
Retail				72				(10	)			(25	)
	Assets under management(b)			495				(4	)			(16	)
Custody/restricted stock/brokerage/ administration/deposits				127				(2	)			(14	)
	Assets under supervision		$	622				(3	)			(15	)
Product Class:
Fixed Income			$	144				(3	)			(8	)
Liquidity				144				—				(3	)
Equities and Other				207				(7	)			(26	)
	Assets under management(b)			495				(4	)			(16	)
Custody/restricted stock/brokerage/ administration/deposits				127				(2	)			(14	)
	Assets under supervision		$	622				(3	)			(15	)

---

(a)		Assets under supervision represent assets under management as well as custody, restricted stock, brokerage, administration and deposit accounts.
(b)		Assets under management represent assets actively managed by IMPB on behalf of institutional, retail and private banking clients.

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Item 2 (continued)

Total assets under supervision at March 31, 2003, of $622 billion were 3% lower than at December 31, 2002, and down 15% from March 31, 2002. Assets under management decreased from both fourth quarter and first quarter 2002 levels, reflecting market depreciation and institutional outflows. Not reflected in assets under management is the Firm’s interest in American Century, whose assets under management were $71 billion at quarter-end, $72 billion as of the fourth quarter of 2002 and $89 billion as of the first quarter of 2002.

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions, except employees)
Operating Revenue		$	(290	)		NM					10	%
Operating Expense			63				(7	)%			(19	)
Operating Margin			(353	)		NM					12
Operating Earnings (Loss)		$	(224	)		NM					11
Average Economic Capital		$	5,055				(3	)			(10	)
Average Assets			9,428				(2	)			(6	)
Shareholder Value Added			(413	)			(38	)			10
Full-time equivalent employees			342				(4	)%			1	%

				1Q 2003				4Q 2002				1Q 2002
(in millions)
Direct investments:
	Realized cash gains (net)			$	46			$	144			$	126
	Write-downs / write-offs				(176	)			(225	)			(185	)
	Mark-to-market(a)				(6	)			108				(177	)
		Total direct investments			(136	)			27				(236	)
Third party funds (net)					(94	)			(80	)			(19	)
Total Private Equity Gains (Losses)(b)				$	(230	)		$	(53	)		$	(255	)

---

(a)		Includes mark-to-market and reversals of mark-to-market due to public securities sales.
(b)		Includes the impact of portfolio hedging activities.

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Item 2 (continued)

JPMorgan Partners Investment Portfolio
The following table presents the carrying value and cost of the JPMP investment portfolio for the dates indicated:

		March 31, 2003								December 31, 2002								March 31, 2002
		Carrying								Carrying								Carrying
		Value				Cost				Value				Cost				Value				Cost
(in millions)
Public Securities (89 companies)(a)(b)		$	478			$	624			$	520			$	663			$	705			$	809
Private Direct Securities (945 companies)(b)			5,912				7,439				5,865				7,316				6,054				7,317
Private Fund Investments (312 funds)(b)(c)			1,780				2,360				1,843				2,333				1,794				2,119
Total Investment Portfolio		$	8,170			$	10,423			$	8,228			$	10,312			$	8,553			$	10,245
% of Portfolio to the Firm’s Common Equity			19	%							20	%							21	%

---

(a)		The quoted public value was $685 million at March 31, 2003, $761 million at December 31, 2002 and $981 million at March 31, 2002.
(b)		Represents the number of companies and funds at March 31, 2003.
(c)		Unfunded commitments to private equity funds were $1.8 billion at March 31, 2003, $2.0 billion at December 31, 2002 and $2.3 billion at March 31, 2002.

JPMP invested $172 million for the Firm’s account during the first quarter of 2003, with deal flow well diversified across all industry sectors.

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Item 2 (continued)

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions, except ratios and employees)
Operating Revenue		$	3,737				11	%			21	%
Operating Expense			1,748				2				13
Operating Margin			1,989				19				29
Credit Costs			878				—				21
Operating Earnings		$	704				42				39
Average Economic Capital		$	10,331				—				2
Average Managed Assets(a)			202,358				7				15
Shareholder Value Added			396				121				93
Return on Economic Capital			28	%			900	bp			800	bp
Overhead Ratio			47				(400	)			(300	)
Full-time equivalent employees			44,393				2	%			5	%

Operating revenue was a record $3.7 billion, up 11% from the 2002 fourth quarter and 21% from the first quarter of 2002. The increases were driven by continued high production volumes across all consumer credit businesses, partially offset by the negative impact of low interest rates on deposits. The national consumer credit businesses contributed 75% of the first quarter 2003 operating revenue. Chase Home Finance reported record revenues in the first quarter, which were up 116% over the prior year’s first quarter, driven by strong mortgage originations and, to a lesser extent, gains on the hedging of mortgage servicing rights. Auto Finance also reported record revenues in the first quarter, up 17% from the first quarter of 2002, driven by higher originations and improved margins. Cardmember Services revenues were up 9% from the prior-year first quarter primarily reflecting growth in average outstandings; revenues decreased 7% from the fourth quarter of 2002 due to seasonal factors. Regional Banking and Middle Market were negatively affected by lower interest rates, which resulted in lower spreads. While continuation of the low interest rate environment should enable the credit businesses within Chase Financial Services to perform well, it is likely that earnings for the remainder of 2003 will not continue at the first quarter 2003 level.

Operating expense of $1.7 billion for the quarter was up 2% compared with the fourth quarter of 2002 and increased 13% from the first quarter of 2002. The increase from the fourth quarter reflected higher business volumes, substantially offset by lower marketing costs and lower professional services. The increase from last year’s first quarter reflected the impact of higher business volumes, higher incentives due to better financial performance and increased marketing costs. Savings generated by Six Sigma productivity programs continued to partially offset the growth in expenses. CFS overhead ratio was 47% compared with 51% for the fourth quarter of 2002 and 50% for the first quarter of 2002 due to strong revenue growth and disciplined expense management.

Credit costs on a managed basis (including securitized credit cards) of $878 million were up slightly compared to the 2002 fourth quarter and were 21% higher than the first quarter of 2002. The increase from last year’s first quarter reflected 10% higher charge-offs, driven by a 15% increase in average managed loans. Credit costs for the first quarter of 2002 included a reduction in the allowance for loan losses primarily related to the run-off of an installment loan portfolio in Regional Banking. Delinquency rates in the consumer loan portfolios have decreased compared with the fourth quarter of 2002 and were essentially flat in comparison with the first quarter of 2002.

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Item 2 (continued)

		Operating Revenue												Operating Earnings
						Over/(Under)												Over/(Under)
		1Q 2003				4Q 2002				1Q 2002				1Q 2003				4Q 2002				1Q 2002
(in millions)
Home Finance		$	1,143				77	%			116	%		$	435				186	%			235	%
Cardmember Services			1,475				(7	)			9				157				7				11
Auto Finance			201				6				17				40				8				29
Regional Banking			630				(9	)			(13	)			35				(55	)			(69	)
Middle Market			369				1				(2	)			96				52				8
Other consumer services(a)			(81	)			14				(16	)			(59	)		NM				NM
Total		$	3,737				11				21			$	704				42				39

---

(a)

Includes the elimination of revenues and expenses related to the shared activities with Treasury Services, discontinued operations and support services.

NM — Not meaningful

Strong revenues were the result of CHF’s continued expansion into strategic business sectors such as home equity, where origination volumes increased 42% and 8% compared with the first quarter of 2002 and fourth quarter of 2002, respectively. Total origination volume was $62 billion, an increase of 88% and 2% from the first and fourth quarters of 2002, respectively. Loan originations through higher margin channels (i.e., retail, wholesale, telephone-based and e-commerce) for the first quarter were $41 billion, 78% and 3% higher than the first and fourth quarters of 2002, respectively. CHF’s correspondent negotiated transaction volume totaled $21 billion, an increase of 110% compared with the first quarter of 2002 as a result of an improvement in market conditions and pricing.

For the first quarter of 2003, MSR valuation adjustments of $473 million were more than offset by $559 million of aggregate derivative gains, realized gains on sales of AFS securities, and net interest earned on AFS securities. The net positive result of $86 million for the first quarter of 2003 compared with a negative $134 million and a negative $85 million for the first and fourth quarters of 2002, respectively. The first quarter results reflected continued strong management of the interest rate sensitivity of MSRs by CHF and the Firm’s Global Treasury Group. During the first quarter of 2003, management revised its methodology, for internal reporting purposes, for allocating the MSR valuation adjustments and amortization between CHF’s interest rate management activities and CHF’s remaining revenue. The numbers above reflect this revised methodology. While there was no impact on CHF’s total revenue for the full-year 2002 of $2,929 million, as a result of the reallocation the net positive result from management of the interest rate sensitivity of MSRs was revised to $177 million from $582 million, and the remaining revenue for the business was revised to $2,752 million from $2,347 million.

Credit costs of $107 million for the first quarter of 2003 reflected an increase in reserves for loan losses as a result of higher loan balances and continued weakness in the manufactured housing market. The net charge-off rate for the first quarter of 2003 was 0.20%, down from 0.21% and 0.27% in the first and fourth quarters of 2002, respectively.

Operating earnings of $435 million rose 235% versus the first quarter of 2002 and 186% compared with the fourth quarter of 2002. CHF achieved record earnings during the first quarter, exceeding by 12% the previous record of $390 million in the third quarter of 2002, due to significant revenue growth and strong expense management.

The carrying value of MSRs at March 31, 2003, was unchanged from year-end 2002 at $3.2 billion. The Firm offsets the interest rate risk exposure in the MSRs by designating certain interest rate derivatives (i.e., a combination of swaps, swaptions and floors) as fair value hedges of specified MSRs under SFAS 133. AFS securities and certain “nonhedge” derivatives are also used to manage the risk exposure of the MSRs. For a further discussion on derivative instruments and hedging activities, see Note 20.

The mortgage servicing portfolio was $432 billion at March 31, 2003, an increase of 1% compared with both the first and fourth quarters of 2002.

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Item 2 (continued)

Chase Cardmember Services
Chase Cardmember Services’ first quarter 2003 operating earnings were $157 million, an increase of 11% from the first quarter of 2002 and 7% from the fourth quarter of 2002. These results were achieved in a challenging operating environment, as evidenced by continued competitive pricing pressure, a soft U.S. economy and higher bankruptcy filings.

Operating revenue increased 9% from the first quarter of 2002 and was down 7% from the fourth quarter of 2002. The increase in operating revenue from last year reflects higher average managed loans outstanding, a decline in funding costs due to historically low interest rates and continued growth in fee income (fee-based products, interchange and late fees). End-of-period managed loans increased 3% from the first quarter of 2002 to more than $50 billion. Total volume (purchases, balance transfers and cash advances) increased 10% from the first quarter of 2002. The positive momentum in new accounts continued with over one million accounts added in the first quarter. Operating revenue declined from the fourth quarter of 2002 due to seasonal factors.

Operating expense increased 11% from the first quarter of 2002, reflecting higher marketing investment and higher volume-related expenses. Operating expense was down 12% from the fourth quarter due primarily to lower marketing expenses, which were at a record level in the fourth quarter.

The managed net charge-off rate for the first quarter was 5.87%, up five basis points and 12 basis points, respectively, from last year’s first quarter and the 2002 fourth quarter. The slight increase in the net charge-off rate from the first quarter of 2002 was due to higher contractual and bankruptcy losses, partly offset by receivable growth. The increase from last quarter reflects higher contractual losses. The 30+ delinquency rate was 4.59% in the first quarter of 2003, essentially flat with last year’s first quarter and down eight basis points from the fourth quarter of 2002.

Chase Auto Finance
Chase Auto Finance (“CAF”) results consist of the Auto Finance and Education Finance businesses. CAF reported record revenue of $201 million for the first quarter of 2003, up 17% from the 2002 first quarter and up 6% from the fourth quarter of 2002. The increase in revenue was driven by strong operating performance due to higher average loans outstanding, lower funding costs and improved origination volumes. CAF experienced continued high levels of auto loan and lease origination volume, which totaled $7.4 billion in the first quarter, a 28% increase from the first quarter of last year, and a 9% increase from the fourth quarter of 2002.

CAF’s operating earnings of $40 million increased 29% from first quarter 2002 and 8% from fourth quarter 2002. Credit costs increased primarily due to higher volumes. The credit quality of the portfolio has improved, as evidenced by charge-off and 90+ delinquency rates, which were lower than in the first and fourth quarters of 2002.

Chase Regional Banking
Chase Regional Banking’s first quarter 2003 operating revenue of $630 million declined 13% from the first quarter of 2002 and 9% from the fourth quarter of 2002. The decline in revenue is predominantly attributable to the lower interest rate environment and weak equity markets, which resulted in lower net interest earned on deposit balances and lower fees earned on customer investment transactions and net asset values. Growth in retail deposits from continuing operations of 8% from the first quarter of 2002 and 4% from the fourth quarter of 2002 partially offset the decline.

Operating earnings of $35 million declined 69% compared with the 2002 first quarter and declined 55% compared with the 2002 fourth quarter. The decline from the first quarter of 2002 was partly due to a one-time gain of $12 million on the sale of the National Deposit business to E*Trade in February 2002, and to a reduction in the allowance for loan losses (related to the run-off of an installment loan portfolio) of $45 million that occurred in the first quarter of 2002. The decline from the fourth quarter resulted from the lower net interest earned on deposits as a result of the lower interest rate environment. Operating expense was up 1% from the first quarter of 2002 and down 1% compared to the fourth quarter of 2002.

Chase Middle Market
Chase Middle Market’s operating revenues of $369 million in the first quarter of 2002 decreased 2% compared with the first quarter of 2002 and increased 1% compared to the fourth quarter of 2002. The decrease from last year was the result of the lower interest rate environment, partially offset by higher deposit levels and capital markets fees. The increase from the fourth quarter was due to higher deposits.

Operating earnings were up 8% from the first quarter of 2002 and 52% from the fourth quarter of 2002. The increase from the first and fourth quarters of 2002 was primarily attributable to a release of the allowance for loan losses of $28 million, which resulted in a negative provision for credit costs, due to improvement in the quality of the loan portfolio.

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Item 2 (continued)

		First Quarter
						Over/(Under)
		2003				4Q 2002				1Q 2002
(in millions, except employees)
Operating Revenue		$	(214	)			27	%			(8	)%
Operating Expense			159				298				137
Credit Costs			69			NM					64
Pre-Tax Loss			(442	)			(44	)			(44	)
Income Tax Benefit			(219	)			115				32
Operating Earnings (Loss)		$	(223	)			(9	)			(57	)
Average Economic Capital		$	(1,717	)			(22	)			48
Average Assets			21,444				12				(33	)
Shareholder Value Added			(138	)			(12	)		NM
Full-time equivalent employees			12,642				(2	)			(5	)

Effective April 1, 2003, JPMorgan Chase commenced a seven-year outsourcing agreement with IBM to provide a portion of the Firm’s data processing technology infrastructure. This agreement will result in absolute cost savings, increased cost variability, access to the best research and innovation and improved service levels. The impact on total expenses as a result of this agreement is expected to be small in 2003; however, compensation expense will decrease, as employees will be transferred to IBM, and noncompensation expense will increase as a result of this agreement.

The Corporate segment usually operates at a loss, generally as a result of the overallocation of capital to the other business sectors and the overallocation of revenues that arise from the application of funds transfer pricing and other management accounting policies. Expense items usually result from timing differences in allocations to other business sectors and residuals from interoffice allocation among the business segments. The impact of management accounting policies on Corporate is being reviewed. It is management’s intention that, as a result of such review, a significant portion of the revenues (or losses) and expenses currently recorded within the Corporate segment will be allocated to the other business sectors. Prior periods will be restated upon completion of the review.

Although the Corporate segment has no traditional credit assets, the residual component of the allowance for credit losses is maintained at the corporate level and is not allocated to any specific line of business. Similarly, for 2003, credit costs reflected the difference between the aggregate provision recorded at the consolidated level and the provision allocated to the business segments. For a further discussion of the residual component, see pages 53-54.

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Item 2 (continued)

Capital in excess of required economic capital, at March 31, 2003, increased by $1.4 billion over March 31, 2002, primarily due to an increase in common stockholders’ equity. Market risk capital declined over the period, due to lower stress and VAR results in several businesses in the Investment Bank and Chase Home Finance. This was offset by an increase in operating risk capital, due to a combination of higher operating expenses and higher capital factors from lower average audit scores across certain businesses.

The following discussion of JPMorgan Chase’s capital management focuses primarily on the developments since December 31, 2002, and should be read in conjunction with page 41 and Note 26 of JPMorgan Chase’s 2002 Annual Report.

Available Versus Required Economic Capital					Quarterly Averages
(in billions)
					1Q 2003				1Q 2002
Common stockholders’ equity					$	41.9			$	40.4
Required economic capital
	Credit risk					12.9				13.3
	Market risk					4.1				5.3
	Operating risk					9.9				8.6
	Private equity risk					4.9				5.3
		Economic risk capital				31.8				32.5
	Goodwill / Intangibles					8.9				8.6
	Asset capital tax					4.0				3.8
		Capital against nonrisk factors				12.9				12.4
Diversification effect						(7.0	)			(7.3	)
Total required economic capital					$	37.7			$	37.6
Capital in excess of required economic capital					$	4.2			$	2.8

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Item 2 (continued)

Dividends
In the first quarter of 2003, JPMorgan Chase declared a quarterly cash dividend on its common stock of $0.34 per share payable April 30, 2003, to stockholders of record at the close of business April 4, 2003. The dividend declared in any quarter will be determined by JPMorgan Chase’s Board of Directors. The Board of Directors expressed its intent on September 17, 2002, to continue the current dividend level, provided that capital ratios remain strong and earnings prospects exceed the current dividend.

LIQUIDITY MANAGEMENT
The following discussion of JPMorgan Chase’s liquidity management focuses primarily on developments since December 31, 2002, and should be read in conjunction with pages 42-43 of JPMorgan Chase’s 2002 Annual Report.

In managing liquidity, management considers a variety of liquidity risk measures as well as market conditions, prevailing interest rates, liquidity needs and the desired maturity profile of its liabilities.

JPMorgan Chase’s liquidity management framework utilizes liquidity monitoring tools and a contingency funding plan to maintain appropriate levels of liquidity through normal and stress periods. The parent company’s liquidity policy is to maintain sufficient liquidity to meet funding requirements for normal operating activities and to repay all obligations with a maturity of one year and under. In addition, JPMorgan Chase maintains appropriate liquidity to manage through normal and stress periods, taking into account historical data on funding of loan commitments (i.e., commercial paper back-up facilities), liquidity commitments to conduits and collateral-posting requirements. Sources of funds include the capital markets, the operations of the Firm’s subsidiaries (including the ability of JPMorgan Chase Bank to raise funds through deposits) and securitization programs.

The Firm has, for several quarters, been managing its liquidity in light of the weak capital markets environment. Consistent with its policy, the Firm has raised funds at the holding company sufficient to cover maturing obligations over the next 12 months. Long-term funding needs for the parent holding company over the next several quarters are expected to be modest.

JPMorgan Chase

JPMorgan Chase Bank

Short-term debt

Senior long-term debt

Short-term debt

Senior long-term debt

Moody’s

P-1

A1

P-1

Aa3

S&P

A-1

A+

A-1+

AA-

Fitch

F-1

A+

F-1

A+

Balance Sheet: The Firm’s total assets decreased to $755 billion at March 31, 2003, from $759 billion at December 31, 2002. Automobile financing and residential consumer loans increased due to higher originations, partially offset by consumer loan securitizations; commercial loans declined, reflecting weaker loan demand and the Firm’s ongoing efforts to reduce commercial exposures. Debt and equity trading assets declined, partially offset by increases in Federal funds sold and securities purchased under resale agreements, securities borrowed and risk management instruments. The lower asset levels resulted in the need for lower balances in Federal funds purchased and securities sold under repurchase agreements and trading liabilities.

Issuance: During the three months ended March 31, 2003, JPMorgan Chase issued approximately $6.6 billion of long-term debt; during the same period, $3.9 billion of long-term debt matured or was redeemed. In addition, the Firm securitized approximately $1.8 billion of residential mortgage loans and $1.5 billion of credit card loans, resulting in pre-tax gains on securitizations of $49.3 million and $12.7 million, respectively. For a further discussion of loan securitizations, see Note 8, and Note 11 on pages 83-87 of JPMorgan Chase’s 2002 Annual Report.

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Item 2 (continued)

Off-Balance Sheet Arrangements
Special-purpose entities or special-purpose vehicles (“SPVs”) are an important part of the financial markets, providing market liquidity by facilitating investors’ access to specific portfolios of assets and risks. JPMorgan Chase is involved with SPEs in three broad categories of transactions: loan securitizations, multi-seller conduits and client intermediation. Capital is held, as appropriate, against all SPE-related transactions and exposures such as derivative transactions and lending commitments. The Firm has no commitments to issue its own stock to support an SPE transaction, and its policies require that transactions with SPEs be conducted at arm’s length and reflect market pricing. For a further discussion of SPEs and the Firm’s accounting for SPEs, see Note 8.

For certain liquidity commitments to SPEs, the Firm could be required to provide funding if the credit rating of JPMorgan Chase Bank were downgraded below specific levels, primarily A-1, P-1 and F-1. The amount of these liquidity commitments was $44.1 billion at March 31, 2003; $31.7 billion related to the Firm’s multi-seller conduits and structured commercial loan vehicles, further described in Note 8. The total commercial paper outstanding for the multi-seller conduits and structured commercial loan vehicles was $22.6 billion and $24.7 billion at March 31, 2003, and December 31, 2002, respectively. The remaining $12.4 billion in commitments relate to vehicles established by third parties. If JPMorgan Chase Bank is required to provide funding under these commitments, the Firm could be replaced as liquidity provider. Additionally, for the multi-seller conduits and the structured commercial loan vehicles, JPMorgan Chase Bank could facilitate the sale or refinancing of the assets in the SPE. All of these commitments are included in the Firm’s total $192.1 billion in other unfunded commitments to extend credit, described in more detail in Note 21.

The following table summarizes JPMorgan Chase’s off-balance sheet lending-related financial instruments at March 31, 2003, and December 31, 2002:

			March 31, 2003				December 31, 2002
(in millions)
Off-balance sheet lending-related commitments
Consumer-related			$	163,392			$	151,138
Commercial-related:
	Other unfunded commitments to extend credit			192,131				196,654
	Standby letters of credit and guarantees			36,337				38,848
	Other letters of credit			2,230				2,618
Total commercial-related				230,698				238,120
Total lending-related commitments			$	394,090			$	389,258

The Firm assesses its credit exposures on a managed basis, taking into account the impact of credit card securitizations. For a reconciliation of credit costs on a managed, or operating, basis to reported results, see page 30. The following table presents the Firm’s managed credit-related information for the dates indicated.

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Item 2 (continued)

---

The following table presents a summary of managed credit-related information for the dates indicated:

										Nonperforming								Past due 90 days and																Average annual
		Credit exposure								assets(h)								over and accruing								Net charge-offs								net charge-off rate(i)
																										First Quarter								First Quarter
		March 31,				Dec. 31,				March 31,				Dec. 31,				March 31,				Dec. 31,
(in millions, except ratios)		2003				2002				2003				2002				2003				2002				2003				2002				2003				2002
COMMERCIAL
Loans		$	88,446			$	91,548			$	3,286			$	3,672			$	39			$	57			$	292			$	320				1.32	%			1.27	%
Derivative receivables			86,649				83,102				277				289				—				—				NA				NA				NA				NA
Other receivables(a)			108				108				108				108				NA				NA				NA				NA				NA				NA
Total commercial credit-related assets			175,203				174,758				3,671				4,069				39				57				292				320				1.32				1.27
Lending-related commitments(b)			230,698				238,120				NA				NA				NA				NA				—				—				NM				NM
Total commercial credit exposure(c)		$	405,901			$	412,878			$	3,671			$	4,069			$	39			$	57			$	292			$	320				0.37	%			0.37	%
CONSUMER
Loans – Reported(d)		$	129,025			$	124,816			$	495			$	521			$	291			$	473			$	378			$	433				1.21	%			1.52	%
Loans – Securitized(e)			31,399				30,722				—				—				664				630				457				321				5.82				5.98
Total managed consumer loans		$	160,424			$	155,538			$	495			$	521			$	955			$	1,103			$	835			$	754				2.14	%			2.22	%
TOTAL CREDIT PORTFOLIO
Managed loans		$	248,870			$	247,086			$	3,781			$	4,193			$	994			$	1,160			$	1,127			$	1,074				1.85	%			1.82	%
Derivative receivables			86,649				83,102				277				289				—				—				NA				NA				NA				NA
Other receivables(a)			108				108				108				108				NA				NA				NA				NA				NA				NA
Total managed credit-related assets			335,627				330,296				4,166				4,590				994				1,160				1,127				1,074				1.85				1.82
Commercial lending-related commitments			230,698				238,120				NA				NA				NA				NA				—				—				—				—
Assets acquired in loan satisfactions			NA				NA				225				190				NA				NA				NA				NA				NA				NA
Total credit portfolio		$	566,325			$	568,416			$	4,391			$	4,780			$	994			$	1,160			$	1,127			$	1,074				0.95	%			0.90	%
Credit derivative hedges notional(f)		$	(36,344	)		$	(33,767	)		$	(50	)		$	(66	)			—				—				NA				NA				NA				NA
Collateral held against derivatives(g)			(33,775	)			(30,410	)			—				—				—				—				NA				NA				NA				NA

(a)		Represents, at March 31, 2003, the Enron-related letter of credit, which continues to be the subject of litigation and which was classified in Other Assets.
(b)		Includes unused advised lines of credit totaling $22 billion at March 31, 2003, and December 31, 2002.
(c)		Includes all Enron-related credit exposures. See page 48 for a further discussion.
(d)		Reflects the reclassification of $978 million of accrued fees on securitized credit card loans from Loans to Other Assets at March 31, 2003. Of the $978 million, none was nonperforming and $144 million was past due 90 days and over and accruing. There was no impact on net charge-offs.
(e)		Represents securitized credit cards. For a further discussion of credit card securitizations, see page 29.
(f)		Represents hedges of commercial credit exposure that do not qualify for hedge accounting under SFAS 133.
(g)		Represents eligible collateral. Excludes credit enhancements in the form of letters of credit and surety receivables.
(h)		Nonperforming assets exclude nonaccrual loans held for sale (“HFS”) of $58 million and $43 million at March 31, 2003, and December 31, 2002, respectively. HFS loans are carried at the lower of cost or market, and declines in value are recorded in Other Revenue.
(i)		Annualized
NA	–	Not applicable
NM	–	Not meaningful

JPMorgan Chase’s total credit exposure (including $31 billion of securitized credit cards) totaled $566 billion at March 31, 2003, a slight decline from $568 billion at year-end 2002. The decline reflected a 3% decrease in commercial loans and lending-related commitments, offset by a 3% increase in managed consumer loans, and a 4% increase in derivative receivables.

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Part I
Item 2 (continued)

The 3% decline in commercial loans and unfunded lending-related commitments largely reflected a combination of continued weak loan demand and the Firm’s ongoing goal of reducing its commercial credit exposure concentrations.

Total commercial exposure (loans, derivative receivables, unfunded lending-related commitments and Enron-related other receivables) was $406 billion at March 31, 2003, compared with $413 billion at December 31, 2002. At March 31, 2003, 82% of the Firm’s commercial credit exposure was considered investment-grade; 0.9% of this exposure was nonperforming. This compares with 80% investment-grade exposure at year-end 2002 and 1.0% nonperforming at year-end 2002.

Commercial Criticized Exposure
The criticized component of total commercial exposure declined $2.0 billion during the quarter, due largely to a number of successful restructurings in merchant energy and related industries ($0.9 billion), reductions in criticized exposures across a broad number of other industries ($0.8 billion) and reductions in emerging markets exposures ($0.3 billion). See the trend graph on page 48.

Total commercial nonperforming assets were $3.7 billion at March 31, 2003, which included $347 million related to Enron. The $398 million decline in nonperforming assets for the three months ended March 31, 2003, was largely driven by charge-offs and the restructuring of several large nonperforming exposures. Commercial loan net charge-offs for the three months ended March 31, 2003, were $292 million, compared with $434 million for the three months ended December 31, 2002, and $320 million for the three months ended March 31, 2002. The charge-off ratio for commercial loans was 1.32% for the first quarter of 2003, compared with 1.88% for the fourth quarter of 2002 and 1.27% for the first quarter of 2002.

While the economic and associated credit environments are excepted to remain challenging in 2003, the Firm has seen an improvement in its commercial credit profile, and thus continues to anticipate commercial charge-offs in 2003 will not reach 2002 levels.

(a)

Includes all Enron-related credit exposures, inclusive of $108 million subject to litigation with a credit-worthy entity.

Below are summaries of the maturity and risk profiles of the commercial portfolio as of March 31, 2003. Ratings are based on the Firm’s internal risk ratings, presented on an S&P-equivalent basis. For additional information, see page 47 of JPMorgan Chase’s 2002 Annual Report.

Commercial Exposure		Maturity profile(a)																Risk profile
																		Investment-grade												Noninvestment-grade
																																										Total % of
At March 31, 2003																		AAA				A+				BBB+				BB+				CCC+								investment-
(in billions, except ratios)		< 1 year				1-5 years				> 5 years				Total				to AA-				to A-				to BBB-				to B-				& below				Total				grade
Loans			46	%			37	%			17	%			100	%		$	19			$	9			$	22			$	28			$	10			$	88				57	%
Derivative receivables			29				43				28				100				57				10				11				7				2				87				90
Lending-related commitments			62				34				4				100				83				75				47				23				3				231				89
Total commercial exposure			51	%			37	%			12	%			100	%		$	159			$	94			$	80			$	58			$	15			$	406				82	%
Credit derivative hedges notional			36	%			57	%			7	%			100	%		$	(10	)		$	(11	)		$	(11	)		$	(3	)		$	(1	)		$	(36	)			89	%

(a)		The maturity profile of loans and lending-related commitments is based upon remaining contractual maturity. The maturity profile of derivative receivables is based upon the estimated expected maturity profile net of the benefit of collateral.

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Part I
Item 2 (continued)

The aggregate risk profile of the Firm’s total commercial credit exposure improved during the first quarter of 2003, with the investment-grade component of the total portfolio increasing from 80% to 82%. This was largely driven by a change in mix and improvement in the risk profile of all components of commercial credit exposure: the investment-grade component of the commercial loan portfolio improved from 55% to 57%, the derivative receivables portfolio from 87% to 90% and the lending-related commitments portfolio from 87% to 89%.

Commercial Credit Exposure Select Industry Concentrations
The Firm continues to focus on the management and diversification of its industry concentrations, with particular attention focused on exposures to industries deemed or anticipated to have higher levels of risk. A discussion of the Firm’s exposure to selected industries as of March 31, 2003, versus December 31, 2002, is set forth below.

Selected Quarterly Credit Profile
			March 31,								Dec. 31,								Sept. 30,								June 30,								March 31,
			2003								2002								2002								2002								2002
(in millions)
Telecom and Related Industries(a)
Credit Exposure(b)			$	16,739							$	16,770							$	18,208							$	19,973							$	19,888
Risk Profile of Credit Exposure:
Investment Grade				11,061				66	%			9,376				56	%			10,107				56	%			11,677				58	%			11,233				57	%
Noninvestment Grade:
	Noncriticized			3,381				20	%			5,076				30	%			4,928				27	%			5,865				29	%			5,965				30	%
	Criticized Performing			1,756				11	%			1,487				9	%			2,421				13	%			2,116				11	%			2,439				12	%
	Criticized Nonperforming (c)			541				3	%			831				5	%			752				4	%			315				2	%			251				1	%
Cable Industry
Credit Exposure(b)			$	5,312							$	5,982							$	5,427							$	4,556							$	4,590
Risk Profile of Credit Exposure:
Investment Grade				2,112				40	%			2,681				45	%			1,913				35	%			1,371				30	%			1,519				33	%
Noninvestment Grade:
	Noncriticized			977				18	%			1,096				18	%			1,385				26	%			1,878				41	%			2,777				61	%
	Criticized Performing			1,717				32	%			1,673				28	%			1,735				32	%			1,209				27	%			259				5	%
	Criticized Nonperforming(c)			506				10	%			532				9	%			394				7	%			98				2	%			35				1	%
Merchant Energy and Related Industries(d)
Credit Exposure(b)			$	6,170							$	6,230							$	6,241							$	6,201							$	6,945
Risk Profile of Credit Exposure:
Investment Grade				3,744				61	%			3,580				57	%			3,470				56	%			3,682				59	%			5,203				75	%
Noninvestment Grade:
	Noncriticized			1,066				17	%			423				7	%			1,196				19	%			2,141				35	%			1,649				24	%
	Criticized Performing			1,156				19	%			1,849				30	%			1,405				22	%			358				6	%			72				1	%
	Criticized Nonperforming(c)			204				3	%			378				6	%			170				3	%			20				—	%			21				—	%
Total Commercial Credit Exposure
Credit Exposure(b)			$	405,901							$	412,878							$	424,284							$	414,929							$	407,803
Risk Profile of Credit Exposure:
Investment Grade				332,602				82	%			331,319				80	%			339,442				80	%			328,926				79	%			314,766				77	%
Noninvestment Grade:
	Noncriticized			58,731				14