How much of 1993's earnings came from one-time or non-recurring items?

Several items boosted 1993 results: a $35 million net benefit from adopting SFAS 106 and SFAS 109, $331 million of Federal tax benefits (the remaining available benefits, now fully used), $306 million of gains on refinancing-country securities, and $301 million of venture capital income, which the filing notes is unpredictable and variable from period to period. Offsetting charges included a $158 million restructuring charge and $115 million tied to the MHC merger. Investors should consider these items when extrapolating 1993 earnings.

What is the outlook for 1994 earnings and credit costs?

Management expects net interest income to approximate the 1993 level of $4.64 billion, with a lower net yield offset by higher earning assets. It expects a significant reduction in the provision for losses and in non-LDC net charge-offs, and a further significant reduction in nonperforming assets. Noninterest operating expense is expected to be somewhat higher than in 1993, after merger-related savings of about $710 million are taken into account. Management also cautions that trading revenue may not match 1993's levels if market volatility or central bank actions are less favorable.

How strong is the balance sheet and capital position?

The Corporation reported Tier 1 and total risk-based capital ratios of 8.12% and 12.22%, both above the required 4% and 8% minimums. Chemical Bank was rated well capitalized. The common equity-to-assets ratio was 6.34%, up from 5.73%. The Corporation issued $200 million of common stock and $400 million of preferred stock in 1993, while redeeming $594 million of adjustable-rate preferred stock and $1.9 billion of long-term debt, and it has further room to refinance at lower cost.

What legal risks does the Corporation disclose?

The main disclosed matter is the Best Products bankruptcy, in which Best alleges that payments and fees received by the bank group, including Chemical Bank's share of about $232 million, were fraudulent conveyances. A plan of reorganization would dismiss Best's claims through a settlement, but the court had not approved it as of the filing, and a separate RTC action challenges the bank group's subordination rights. Management believes the matter will not have a material adverse impact on Chemical Bank or the Corporation. The filing also notes that Chemical Bank and Texas Commerce faced FDICIA and depositor-preference rules that could affect public noteholders in a bank failure.

JPM 10-K FY1993 Annual Report — Revenue, Net Income, EPS

01—Abstract

Summary

Summary of the 10-K filed March 25, 1994. Cited figures are marked; the original filing is the authoritative source.

This Form 10-K, signed March 15, 1994, is filed by Chemical Banking Corporation, not JPMorgan Chase.

Chemical Banking is a predecessor of today's JPMorgan Chase, which it merged with in 2000, so the figures below describe the 1993 fiscal year of Chemical Banking. The company reported record 1993 net income of $1,604 million^a, up 48% from $1,086 million in 1992, or $5.77 per common share versus $3.90. Results included a $35 million net benefit from adopting SFAS 106 and SFAS 109, and income before accounting changes rose 44% to $1,569 million ($5.63 per share).

Return on average common equity was 16.66%, and total assets were $149.9 billion^b at year-end. Noninterest revenue rose 33% to $4,024 million, driven by record trading revenue of $1,073 million, $306 million in gains on refinancing-country securities, and $301 million of venture capital income. Credit quality improved markedly.

Nonperforming assets fell 42% to $3.5 billion^c, or 2.4% of total assets, and the provision for losses declined 8% to $1,259 million. Management expects a significant reduction in the provision in 1994, and it projects net interest income roughly flat with 1993 as slightly lower yields offset growth in earning assets. Loans fell to $75.4 billion from $82.0 billion because of weak loan demand and a deliberate reduction in credit risk.

Capital strengthened: the Tier 1 risk-based ratio rose to 8.12% and the total capital ratio to 12.22%, both well above requirements, and total stockholders' equity reached $11.2 billion^d. The Corporation also raised its quarterly common dividend to $0.38 per share, up 27% from the 1992 level.

The filing also describes acquisitions that expanded Texas Commerce Bancshares, including First City Banks and Ameritrust Texas, and a 40% stake in CIT Group Holdings. Management identifies earnings pressure points for 1994, including higher noninterest operating expense, a lower Federal tax benefit contribution (the company is now fully taxed, with a 25.6% effective rate in 1993 that would have been 41.3% without tax benefits), and the Best Products bankruptcy litigation, which management believes will not have a material adverse effect.

02—Key points

Key Highlights

Record 1993 net income of $1,604 million (up 48%) and EPS of $5.77, with return on average common equity of 16.66%
Noninterest revenue rose 33% to $4.02 billion, led by trading revenue of $1.07 billion (up 26%) and $306 million in gains on refinancing-country securities
Nonperforming assets fell 42% to $3.53 billion (2.4% of total assets), and the provision for losses declined 8% to $1.26 billion, with a further significant reduction expected in 1994
Tier 1 risk-based capital ratio improved to 8.12% and total capital ratio to 12.22%, versus 7.33% and 11.55% a year earlier; Tier 1 leverage ratio was 6.77%
Loans declined to $75.4 billion from $82.0 billion, reflecting weak loan demand and a deliberate reduction in credit risk
Quarterly common dividend raised to $0.38 per share, a 27% increase from the 1992 level of $0.30
Total assets of $149.9 billion and stockholders' equity of $11.2 billion; book value per common share of $37.60

03—Questions

Frequently Asked Questions

How much of 1993's earnings came from one-time or non-recurring items?
Several items boosted 1993 results: a $35 million net benefit from adopting SFAS 106 and SFAS 109, $331 million of Federal tax benefits (the remaining available benefits, now fully used), $306 million of gains on refinancing-country securities, and $301 million of venture capital income, which the filing notes is unpredictable and variable from period to period. Offsetting charges included a $158 million restructuring charge and $115 million tied to the MHC merger. Investors should consider these items when extrapolating 1993 earnings.
What is the outlook for 1994 earnings and credit costs?
Management expects net interest income to approximate the 1993 level of $4.64 billion, with a lower net yield offset by higher earning assets. It expects a significant reduction in the provision for losses and in non-LDC net charge-offs, and a further significant reduction in nonperforming assets. Noninterest operating expense is expected to be somewhat higher than in 1993, after merger-related savings of about $710 million are taken into account. Management also cautions that trading revenue may not match 1993's levels if market volatility or central bank actions are less favorable.
How strong is the balance sheet and capital position?
The Corporation reported Tier 1 and total risk-based capital ratios of 8.12% and 12.22%, both above the required 4% and 8% minimums. Chemical Bank was rated well capitalized. The common equity-to-assets ratio was 6.34%, up from 5.73%. The Corporation issued $200 million of common stock and $400 million of preferred stock in 1993, while redeeming $594 million of adjustable-rate preferred stock and $1.9 billion of long-term debt, and it has further room to refinance at lower cost.
What legal risks does the Corporation disclose?
The main disclosed matter is the Best Products bankruptcy, in which Best alleges that payments and fees received by the bank group, including Chemical Bank's share of about $232 million, were fraudulent conveyances. A plan of reorganization would dismiss Best's claims through a settlement, but the court had not approved it as of the filing, and a separate RTC action challenges the bank group's subordination rights. Management believes the matter will not have a material adverse impact on Chemical Bank or the Corporation. The filing also notes that Chemical Bank and Texas Commerce faced FDICIA and depositor-preference rules that could affect public noteholders in a bank failure.

04—Continue

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