01—Abstract
Summary
Summary of the 10-K filed February 27, 2018. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase closed 2017 with $2.5 trilliona in assets, $255.7 billion in stockholders' equity, and net income of $24.4 billion, or $6.31 per diluted share, on net revenue of $99.6 billion.
Net income was down 1% year over year, held back by higher noninterest expense and a $2.4 billionb net income reduction from the Tax Cuts and Jobs Act (TCJA). Net revenue rose 4%, led by net interest income and investment banking fees, while Fixed Income Markets and Home Lending noninterest revenue declined. ROE was 10% and ROTCE 12%, and tangible book value per share grew 4% to $53.56.
Capital and liquidity remained strong. The Basel III Standardized Fully Phased-In CET1 ratio was 12.1%, the Fully Phased-In supplementary leverage ratio was 6.5%, and the average liquidity coverage ratio was 119%. The Firm returned capital through $15.4 billionc of common stock repurchases and $9.0 billion of dividends paid, and the Board raised the quarterly common dividend to $0.56 per share.
Credit quality was stable overall: the wholesale provision fell on improvement in Oil & Gas and Metals & Mining, while the consumer provision rose on credit card growth, with the card net charge-off rate guided up to about 3.25% for 2018. Management's 2018 outlook calls for full-year net interest income of $54 to $55 billiond, adjusted expense below $62 billion excluding the revenue recognition change, and an effective tax rate of 19% to 20%. Key risks flagged in the filing include the uncertain outcome of U.K. withdrawal from the EU, ongoing regulatory and litigation exposure (including the Interchange and FX matters), the LIBOR phase-out after 2021, and cybersecurity threats.
02—Key points
Key Highlights
- Net income of $24.4 billion ($6.31 diluted EPS) fell 1%, while net revenue rose 4% to $99.6 billion; noninterest expense rose 5% to $58.4 billion.
- The TCJA reduced 2017 net income by $2.4 billion, driven by a deemed repatriation charge and adjustments to tax-oriented investments, partly offset by a deferred tax liability revaluation benefit.
- Capital strength: Standardized Fully Phased-In CET1 ratio of 12.1%, Fully Phased-In SLR of 6.5%, and ROTCE of 12%; tangible book value per share rose 4% to $53.56.
- Shareholder returns: $15.4 billion of common stock repurchased in 2017 (with $9.8 billion of authorization remaining), a $0.56 quarterly dividend, and a 33% common dividend payout ratio.
- Credit: provision for credit losses was $5.3 billion, flat year over year; wholesale provision fell while card provision rose on loan growth and higher loss rates, with the 2018 card net charge-off rate guided to about 3.25%.
- Liquidity: average LCR of 119% and about $208 billion of additional unencumbered marketable securities; the $20 billion five-year U.S. investment program announced in January 2018 is expected to add roughly 4,000 jobs and hundreds of branches.
- Regulatory and legal overhang: the Firm passed the 2017 resolution plan review without deficiencies or shortcomings, but faces an estimated reasonably possible aggregate loss range of $0 to $1.7 billion beyond reserves, plus open FX, LIBOR, and Interchange matters.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2017filed February 27, 2018Financial Statements
FY2017 against FY2016
| Line item | FY2017FY2016 | Change |
|---|---|---|
| Revenue | $100.70B$96.57B | +4.3% |
| Interest Expense | $13.87B$9.82B | +41.3% |
| Net Income | $24.44B$24.73B | −1.2% |
| EPS (Basic) | $6.35$6.24 | +1.8% |
| EPS (Diluted) | $6.31$6.19 | +1.9% |
| Shares Outstanding (Basic) | 3.55B3.66B | −2.9% |
| Shares Outstanding (Diluted) | 3.58B3.69B | −3.1% |
05—Questions
Frequently Asked Questions
How profitable was JPMorgan Chase in 2017, and what drove the change from 2016?
Net income was $24.4 billion, down 1% from $24.7 billion in 2016, and diluted EPS was $6.31 versus $6.19. Net revenue increased 4% to $99.6 billion on higher net interest income ($50.1 billion, up 9%) and investment banking fees, partly offset by lower Fixed Income Markets and Home Lending revenue. Noninterest expense rose 5%, and the effective tax rate increased to 31.9% from 28.4%, largely because of the TCJA.
How did the Tax Cuts and Jobs Act affect 2017 results and what should investors expect going forward?
The TCJA reduced 2017 net income by $2.4 billion, including a $1.9 billion net income tax expense increase driven by a deemed repatriation of unremitted non-U.S. earnings ($3.7 billion) and a $2.1 billion benefit from remeasuring deferred taxes. Management expects a 2018 effective tax rate of 19% to 20% and a reduction of about $1.2 billion in annual tax-equivalent revenue and tax expense. The Firm notes the positive net income impact of the tax reform may diminish over time as competition retains or passes on benefits.
Is JPMorgan Chase well capitalized and able to return capital to shareholders?
Yes. The Standardized Fully Phased-In CET1 ratio was 12.1%, the Tier 1 leverage ratio was 8.3%, and the Fully Phased-In SLR was 6.5%, all above regulatory minimums. Management expects to operate with a CET1 ratio between 11% and 12% over the medium term. In 2017 the Firm repurchased $15.4 billion of common stock and paid $9.0 billion in dividends, and the Federal Reserve did not object to the 2017 capital plan, though future capital actions remain subject to Federal Reserve non-objection.
What are the main risks to earnings and credit quality that the filing highlights?
Key risks include: the U.K.'s planned departure from the EU, which could require structural changes to European operations; potential regulatory changes and enforcement actions; ongoing litigation, including FX, LIBOR and other benchmark matters, MBS repurchase claims, and the Interchange case; and sensitivity of credit losses to unemployment and housing prices. Card net charge-off rates are expected to rise to about 3.25% in 2018, and the Firm is exposed to market volatility in its trading businesses.
What is the outlook for 2018 net interest income, expenses, and revenue?
Management expects full-year 2018 net interest income, on a managed basis, of $54 to $55 billion, market-dependent and assuming core loan growth. Average core loan growth is expected at 6% to 7% excluding CIB loans. Adjusted expense is expected to be below $62 billion, excluding the impact of the new revenue recognition standard, which will increase both revenue and expense by about $1.2 billion. Noninterest revenue (ex-revenue recognition) is expected to rise about 7%, depending on market conditions.
06—Continue