01—Abstract
Summary
Summary of the 10-K filed February 28, 2011. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase reported record full-year 2010 net income of $17.4 billiona, or $3.96 per diluted share, on total net revenue of $102.7 billion, up 48% from 2009 net income of $11.7 billion.
Return on common equity rose to 10% from 6%. The improvement was driven mainly by a $15.4 billionb decline in the provision for credit losses to $16.6 billion, partly offset by higher noninterest expense, which rose 17% to $61.2 billion largely on $7.4 billion of litigation expense, including mortgage-related matters. The balance sheet strengthened over the year.
Total assets reached $2.1 trillionc and stockholders' equity was $176.1 billion. The Tier 1 common ratio ended at 9.8%, and the Tier 1 capital ratio at 12.1%. Consolidating certain securitization vehicles under new VIE accounting on January 1, 2010 added $87.7 billion of assets and reduced equity by $4.5 billion.
Credit quality improved across most businesses, with lower net charge-offs and reserve releases in Card Services and wholesale, though mortgage and home equity losses stayed elevated. The firm also resumed buybacks, repurchasing $3.0 billiond of common stock in 2010, and kept the quarterly dividend at $0.05. Management flagged several risks for 2011.
Mortgage repurchase demands from the GSEs rose sharply, with realized repurchase losses estimated at about $1.2 billion for 2011. A temporary halt to foreclosures in many states over affidavit practices may bring fines, penalties and added costs.
The filing also describes the Dodd-Frank Act, Basel III and the CARD Act as potential drags on revenue and capital. Legal exposure is significant, with more than 10,000 proceedings and a reasonably possible aggregate loss range of $0 to about $4.5 billion.
02—Key points
Key Highlights
- Record net income of $17.4 billion ($3.96 diluted EPS), up 48% year over year, on net revenue of $102.7 billion.
- Provision for credit losses fell 48% to $16.6 billion, driven by improved consumer and wholesale credit trends, with a $6.0 billion reserve release in Card Services.
- Noninterest expense rose 17% to $61.2 billion, mainly due to $7.4 billion of litigation expense, including mortgage-related matters.
- Capital position strengthened: Tier 1 common ratio of 9.8% and Tier 1 capital ratio of 12.1%, with stockholders' equity of $176.1 billion.
- Mortgage repurchase exposure grew: the repurchase liability rose to $3.3 billion, and management estimates 2011 realized repurchase losses of about $1.2 billion.
- Capital return resumed: $3.0 billion of common stock repurchased in 2010 and the quarterly dividend held at $0.05 per share, with $3.2 billion of repurchase authority remaining.
- Legal and regulatory overhang: more than 10,000 pending proceedings, a reasonably possible loss range of $0 to about $4.5 billion, and a foreclosure-practice review that may bring further costs.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2010filed February 28, 2011Financial Statements
FY2010 against FY2009
| Line item | FY2010FY2009 | Change |
|---|---|---|
| Revenue | $102.69B$100.43B | +2.3% |
| Interest Expense | $12.78B$15.20B | −15.9% |
| Net Income | $17.37B$11.73B | +48.1% |
| EPS (Basic) | $3.98$2.27 | +75.3% |
| EPS (Diluted) | $3.96$2.26 | +75.2% |
| Shares Outstanding (Basic) | 3.96B3.86B | +2.4% |
| Shares Outstanding (Diluted) | 3.98B3.88B | +2.5% |
05—Questions
Frequently Asked Questions
How did JPMorgan Chase's profitability change in 2010?
Net income rose 48% to $17.4 billion, and diluted EPS was $3.96 versus $2.26 in 2009. The main driver was a $15.4 billion decline in credit provisions, partly offset by higher expenses. Return on common equity was about 10%, compared with 6% a year earlier.
What are the biggest risks to earnings going into 2011?
The filing points to elevated mortgage repurchase demands from Fannie Mae and Freddie Mac, with realized repurchase losses estimated at about $1.2 billion for 2011. Foreclosure procedure issues could bring fines, penalties and added legal costs. Continued weakness in home prices and unemployment could raise consumer credit losses. Regulatory reform under the Dodd-Frank Act and Basel III could also increase funding and compliance costs.
Is JPMorgan Chase well capitalized?
Yes. At year-end 2010 the Tier 1 common ratio was 9.8% and the Tier 1 capital ratio was 12.1%, both above well-capitalized standards. The firm estimated its Tier 1 common ratio would be about 7% under final Basel III rules, which phase in by 2019. The new VIE accounting guidance reduced the Tier 1 capital ratio by 34 basis points on adoption.
Why did noninterest expense increase so much?
Noninterest expense rose 17% to $61.2 billion. The largest factor was $7.4 billion of litigation expense, including reserves for mortgage-related matters. Higher default-related costs in mortgage servicing, investment in new product platforms and higher compensation also contributed. Expense in 2009 included a $675 million FDIC special assessment that did not recur.
Is the company returning capital to shareholders?
In a limited way. The firm repurchased 78 million shares for $3.0 billion in 2010, mainly to offset share count growth from employee awards. It kept the quarterly dividend at $0.05 per share, which was far below the $0.38 level before 2009. Management said future capital decisions would consider repurchases, dividend increases and other investments, subject to regulatory consultation.
06—Continue