01—Abstract
Summary
Summary of the 10-K filed February 24, 2015. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase reported record full-year 2014 net income of $21.8 billiona, up 21% from $17.9 billion in 2013, with record diluted EPS of $5.29 (vs. $4.35) on net revenue of $94.2 billion, which fell 2%.
ROE improved to 10% from 9%, and the Firm ended the year with $2.6 trillionb in assets, $232.1 billion in stockholders' equity, and a Basel III Advanced Transitional CET1 ratio of 10.2%. The earnings gain was driven mainly by a 13% decline in noninterest expense, largely from lower legal costs ($2.9 billion vs. $11.1 billion in 2013), partially offset by a $2.9 billion increase in the provision for credit losses as the consumer loan-loss reserve release shrank. Credit quality continued to improve: firmwide net charge-offs fell 18% to $4.8 billion, nonperforming assets dropped 18% to $8.0 billion, and the allowance for credit losses declined to $14.8 billion.
Segment results were mixed: Consumer & Community Banking net income fell 17% to $9.2 billionc on spread compression and lower mortgage fees, while Corporate & Investment Bank income fell 22% to $6.9 billion and Asset Management rose 3%. Management guides to roughly 10% core loan growth and about $57 billion of 2015 adjusted expense, and expects its Basel III CET1 ratio to reach about 11% by end-2015 and 12% by 2018 under an assumed 4.5% G-SIB surcharge. The filing also highlights ongoing regulatory and legal overhang.
The Firm faces a range of reasonably possible losses above reserves of $0d to approximately $5.8 billion, multiple open investigations (including FX, LIBOR, and mortgage-related matters), and a Title I resolution plan that regulators determined was not credible in 2013 and must be remediated in 2015 submissions. The Firm also disclosed a 2014 cyberattack that compromised certain customer contact information, though it reported no material operational disruption.
02—Key points
Key Highlights
- Record 2014 net income of $21.8 billion (+21% YoY) and record diluted EPS of $5.29, driven primarily by a 13% reduction in noninterest expense to $61.3 billion
- Net revenue declined 2% to $94.2 billion, reflecting lower mortgage fees and other income, partly offset by higher asset management fees
- Credit quality improved: net charge-offs fell 18% to $4.8 billion and nonperforming assets fell 18% to $8.0 billion, though the provision rose to $3.1 billion as reserve releases shrank
- Capital remained strong with a 10.2% Basel III Advanced Transitional CET1 ratio and an expected path to ~11% by end-2015 and ~12% by 2018; the 2015 common dividend payout target is about 30% of normalized earnings
- Segment performance diverged: CCB net income fell 17% to $9.2 billion and CIB fell 22% to $6.9 billion, while Asset Management rose 3% to $2.2 billion
- Legal and regulatory exposure remains significant, with reasonably possible losses above reserves of $0 to ~$5.8 billion and numerous open investigations, including FX, LIBOR, and MBS matters
- Management guides to ~10% core loan growth and ~$57 billion of 2015 adjusted expense excluding legal and foreclosure-related costs, with net charge-offs expected to stay modestly above $4 billion
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2014filed February 24, 2015Financial Statements
FY2014 against FY2013
| Line item | FY2014FY2013 | Change |
|---|---|---|
| Revenue | $95.11B$97.37B | −2.3% |
| Interest Expense | $7.90B$9.35B | −15.5% |
| Net Income | $21.75B$17.89B | +21.6% |
| EPS (Basic) | $5.33$4.38 | +21.7% |
| EPS (Diluted) | $5.29$4.34 | +21.9% |
| Shares Outstanding (Basic) | 3.76B3.78B | −0.5% |
| Shares Outstanding (Diluted) | 3.80B3.81B | −0.5% |
05—Questions
Frequently Asked Questions
Why did net income rise even though revenue fell?
Net income rose 21% to $21.8 billion because noninterest expense fell 13% to $61.3 billion, mainly due to legal expense dropping from $11.1 billion in 2013 to $2.9 billion in 2014 and lower compensation. This more than offset a 2% decline in net revenue to $94.2 billion and a rise in the provision for credit losses to $3.1 billion from $225 million.
How strong is the Firm's capital position?
At year-end 2014, the Basel III Advanced Transitional CET1 ratio was 10.2% and the Tier 1 leverage ratio was 7.6%, both above well-capitalized standards. The Firm expects its Basel III Standardized approach to become the binding constraint by end-2015, and it targets a CET1 ratio of about 12% by end-2018, assuming a 4.5% G-SIB surcharge, which implies continued capital accretion.
What are the main legal and regulatory risks?
The Firm estimates reasonably possible losses above established reserves of $0 to approximately $5.8 billion. Key matters include ongoing FX-related criminal investigation by DOJ, LIBOR and other benchmark rate litigation, mortgage-backed securities repurchase and investor claims, and the CIO synthetic credit portfolio litigation. The Firm also must address regulators' shortcomings identified in its Title I resolution plan in its 2015 submission.
How did the business segments perform?
Consumer & Community Banking net income fell 17% to $9.2 billion on spread compression and lower mortgage fees, with a higher provision. Corporate & Investment Bank net income fell 22% to $6.9 billion on lower revenue and higher legal and controls spending. Commercial Banking was flat at $2.6 billion, and Asset Management rose 3% to $2.2 billion on net client inflows.
What is the outlook for 2015?
Management expects core loan growth of about 10%, net charge-offs modestly above $4 billion, and firmwide adjusted expense of about $57 billion excluding legal and foreclosure-related costs. Business simplification exits are expected to reduce revenue and expense by about $1.6 billion each, with no meaningful impact on 2015 net income. The Firm also expects continued pressure on the deposit margin in Consumer & Business Banking.
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