01—Abstract
Summary
Summary of the 10-K filed February 29, 2012. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase reported record 2011 net income of $19.0 billiona, or $4.48 per diluted share, on net revenue of $97.2 billion, up 9% from $17.4 billion in 2010.
Return on common equity was 11%, versus 10% in 2010. The improvement was driven by a $9.1 billionb reduction in the provision for credit losses to $7.6 billion, which more than offset a 5% decline in total net revenue and a 3% increase in noninterest expense to $62.9 billion. The firm ended the year with $2.27 trillion in assets and $183.6 billion in stockholders' equity, and Basel I Tier 1 common ratio of 10.1% (estimated Basel III Tier 1 common ratio of 7.9%).
Credit quality continued to improve. Firmwide net charge-offs fell 48% to $12.2 billionc, nonperforming assets declined 33% to $11.0 billion, and the allowance for credit losses was reduced to $28.3 billion. Deposits grew 21% to $1.13 trillion, reflecting wholesale client inflows, and the deposits-to-loans ratio rose to 156%.
Management repurchased $8.95 billiond of common stock and warrants in 2011 and raised the quarterly common dividend from $0.05 to $0.25 per share. Key risks flagged in the filing include the Dodd-Frank Act rulemaking that remains incomplete, the Durbin debit interchange cap (estimated at roughly $600 million of annual net income reduction), the proposed Volcker Rule, capital changes under Basel III, elevated mortgage repurchase and foreclosure-related costs, and substantial litigation exposure, with $4.9 billion of litigation expense in 2011. Subsequent to year-end, the firm agreed in principle to a global mortgage servicing settlement involving about $1.1 billion in cash payments and roughly $4.2 billion of borrower relief, which management expects will not be material to 2012 results.
02—Key points
Key Highlights
- Record net income of $19.0 billion (EPS $4.48), up 9% year over year, with ROE of 11% and ROTCE of 15%.
- Total net revenue fell 5% to $97.2 billion, driven by lower net interest income, securities gains and mortgage fees, partly offset by higher asset management revenue.
- Provision for credit losses dropped 54% to $7.6 billion as consumer and wholesale credit trends improved; firmwide net charge-offs fell 48% to $12.2 billion.
- Noninterest expense rose 3% to $62.9 billion, including $4.9 billion of litigation expense and $1.7 billion of foreclosure-related fees and assessments in RFS.
- Capital strength: Basel I Tier 1 common ratio of 10.1% and estimated Basel III ratio of 7.9%; $8.95 billion of common equity repurchases and dividend increased to $0.25 per quarter.
- Deposits grew 21% to $1.13 trillion, while total assets reached $2.27 trillion.
- Regulatory and legal overhang: incomplete Dodd-Frank rulemaking, Durbin debit interchange cap (~$600M annual impact), proposed Volcker Rule, and a pending global mortgage servicing settlement.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2011filed February 29, 2012Financial Statements
FY2011 against FY2010
| Line item | FY2011FY2010 | Change |
|---|---|---|
| Revenue | $97.23B$102.69B | −5.3% |
| Interest Expense | $13.60B$12.78B | +6.4% |
| Net Income | $18.98B$17.37B | +9.2% |
| EPS (Basic) | $4.50$3.98 | +13.1% |
| EPS (Diluted) | $4.48$3.96 | +13.1% |
| Shares Outstanding (Basic) | 3.90B3.96B | −1.4% |
| Shares Outstanding (Diluted) | 3.92B3.98B | −1.4% |
05—Questions
Frequently Asked Questions
How did JPMorgan's profitability change in 2011, and what drove it?
Net income rose 9% to $19.0 billion, mainly because the provision for credit losses fell by $9.1 billion. Revenue declined 5% due to lower net interest income, securities gains, and mortgage fees, while noninterest expense rose 3% on higher compensation and foreclosure-related costs.
Is the firm's capital position strong enough to support shareholder returns?
Management reports a 10.1% Basel I Tier 1 common ratio and an estimated 7.9% under Basel III, and it repurchased $8.95 billion of stock and warrants in 2011. The filing notes that Federal Reserve capital plan approval is pending, and the dividend payout ratio was 22% in 2011.
What are the biggest risks investors should monitor?
Key risks include mortgage repurchase demands and foreclosure-related costs, the uncertain final form of the Volcker Rule and Basel III capital requirements, the Durbin debit interchange cap, and litigation tied to mortgage-backed securities and other matters, which could exceed current reserves by up to about $5.1 billion for reasonably possible losses.
Has credit quality improved?
Yes. Net charge-offs fell to $12.2 billion (1.78% of average retained loans, versus 3.39% in 2010), nonperforming assets declined 33%, and card delinquencies improved. Residential real estate and home equity portfolios, however, remain under elevated stress.
What is the outlook for 2012 and the status of the mortgage settlement?
Management expects continued pressure from elevated mortgage repurchase losses (about $350 million per quarter), higher RFS default costs, and roughly $600 million of Durbin-related income reduction. The February 2012 global mortgage settlement is expected to have no material financial impact on the firm's first-quarter 2012 or future results because prior periods already reflected estimated costs.
06—Continue