01—Abstract
Summary
Summary of the 10-K filed February 26, 2019. Cited figures are marked; the original filing is the authoritative source.
JPMorgan Chase reported record 2018 results, with net income of $32.5 billiona (up 33%), diluted EPS of $9.00 (up 43%), and net revenue of $109.0 billion (up 8%).
Return on common equity was 13% and return on tangible common equity 17%. Growth was driven by higher net interest income of $55.1 billionb (up 10%) from rising rates, loan growth and card margin expansion, and by a strong CIB Markets franchise. Noninterest expense rose 7% to $63.4 billion on technology, marketing, headcount and auto lease investments, and the provision for credit losses fell to $4.9 billion, reflecting lower consumer provisions and recoveries in residential real estate.
Capital and shareholder returns remained strong. The Firm's Basel III Standardized CET1 ratio was 12.0% and its supplementary leverage ratio was 6.4%. JPMorgan repurchased $20.0 billionc of common stock in 2018, raised its quarterly dividend to $0.80 from $0.56, and expects to operate at an 11-12% CET1 ratio over the medium term.
Total assets were $2.6 trilliond and stockholders' equity was $256.5 billion. The 2019 outlook calls for net interest income above $58 billion and net charge-offs below $5.5 billion, with expenses below $66 billion.
Key risks flagged in the filing include the U.K.'s expected departure from the EU, which management says could occur in March 2019 without a deal and would leave the Firm with a more fragmented and costly European structure. The filing also highlights the transition away from LIBOR after 2021, the phase-in of CECL on January 1, 2020 (which management estimates will increase the allowance by $4-6 billion, mainly in Card), and continuing regulatory and legal exposure, with reasonably possible losses in excess of reserves estimated at up to about $1.5 billion.
02—Key points
Key Highlights
- Record net income of $32.5 billion (+33% YoY) and diluted EPS of $9.00 (+43%), on net revenue of $109.0 billion (+8%).
- Net interest income rose 10% to $55.1 billion, driven by higher rates, loan growth and Card margin expansion; the 2019 outlook calls for more than $58 billion.
- Provision for credit losses fell to $4.9 billion from $5.3 billion, while the allowance for credit losses stood at $14.5 billion and nonperforming assets declined to $5.2 billion.
- Strong capital position: CET1 ratio of 12.0% (Standardized), SLR of 6.4%, ROE of 13% and ROTCE of 17%.
- Shareholder returns: $20.0 billion of common stock repurchased in 2018, quarterly dividend raised to $0.80 from $0.56, and tangible book value per share up 5% to $56.33.
- Principal risks include a possible no-deal U.K. exit from the EU in March 2019, the LIBOR transition after 2021, and the CECL adoption on January 1, 2020, which management estimates will add $4-6 billion to the allowance.
- Segment highlights: CCB net income up 58% to $14.9 billion; CIB record revenue of $36.4 billion with a 16% ROE; CB net income up 20% to $4.2 billion; AWM net income up 22% to $2.9 billion.
03—One dollar
04—Financials
Financial Highlights
Figures from 10-KFY2018filed February 26, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $108.78B$100.70B | +8.0% |
| Interest Expense | $21.04B$13.87B | +51.7% |
| Net Income | $32.47B$24.44B | +32.9% |
| EPS (Basic) | $9.04$6.35 | +42.4% |
| EPS (Diluted) | $9.00$6.31 | +42.6% |
| Shares Outstanding (Basic) | 3.40B3.55B | −4.4% |
| Shares Outstanding (Diluted) | 3.41B3.58B | −4.6% |
05—Questions
Frequently Asked Questions
How did JPMorgan's profitability change in 2018 and what drove it?
Net income rose 33% to $32.5 billion and diluted EPS rose 43% to $9.00. Revenue growth of 8% came mainly from higher net interest income, which benefited from rising rates, loan growth and Card margin expansion. The lower U.S. federal tax rate under the TCJA also added to net income, while the effective tax rate fell to 20.3% from 31.9%. Expenses grew 7%, which partly offset the revenue gains.
Is JPMorgan's capital position strong enough to support continued shareholder returns?
Yes, based on the filing. The Standardized CET1 ratio was 12.0%, the Tier 1 leverage ratio was 8.1%, and the SLR was 6.4%, all above regulatory minimums. The Federal Reserve did not object to the 2018 capital plan, and the Firm plans to operate at an 11-12% CET1 ratio over the medium term. The $20.7 billion buyback authorization and the dividend increase reflect this capacity.
What are the main risks to the outlook for investors?
The filing points to several: a disorderly U.K. exit from the EU that could fragment European operations; regulatory and legal exposure, including reasonably possible losses above reserves of up to about $1.5 billion; the end of LIBOR after 2021; and the CECL accounting change on January 1, 2020, which management expects to increase the allowance by $4-6 billion, primarily in Card. Credit costs are expected to rise in 2019, with net charge-offs guided above 2018 levels but below $5.5 billion.
How is the consumer business performing, and where is credit trending?
Consumer & Community Banking earned a record $14.9 billion, up 58%, with a 28% ROE. Credit performance in residential real estate improved, with net recoveries driven by loan sales and home price gains. Credit card net charge-offs rose to 3.10% from 2.95% as newer vintages seasoned, as the Firm had anticipated. Overall consumer net charge-offs fell, and the card segment remains the main source of credit cost growth.
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