JPMorgan Chase & Co. — 2023 Form 10-K Summary
Business context and reporting period
JPMorgan Chase & Co. is a global financial services firm operating through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate. This filing covers the fiscal year ended December 31, 2023, with audited financial statements for 2023, 2022, and 2021. Results include the acquisition of certain First Republic Bank assets and liabilities from the FDIC on May 1, 2023.
At December 31, 2023, the Firm reported $3.9 trillion of assets, $327.9 billion of stockholders’ equity, $2.4 trillion of deposits, and 309,926 employees.
Financial performance and key metrics
| Metric | 2023 | 2022 | Change |
|---|---|---|---|
| Total net revenue | $158.1 billion | $128.7 billion | 23% |
| Net interest income | $89.3 billion | $66.7 billion | 34% |
| Noninterest revenue | $68.8 billion | $62.0 billion | 11% |
| Noninterest expense | $87.2 billion | $76.1 billion | 14% |
| Pre-provision profit | $70.9 billion | $52.6 billion | 35% |
| Provision for credit losses | $9.3 billion | $6.4 billion | 46% |
| Net income | $49.6 billion | $37.7 billion | 32% |
| Diluted EPS | $16.23 | $12.09 | 34% |
| ROE | 17% | 14% | Up 3 points |
| ROTCE | 21% | 18% | Up 3 points |
| ROA | 1.30% | 0.98% | Up 32 bps |
Net interest income benefited from higher interest rates, First Republic, and higher revolving balances in Card Services, partly offset by lower Markets net interest income and lower average deposits. Net interest income excluding Markets increased 44% to $90.0 billion. Noninterest revenue benefited from First Republic, including a $2.8 billion estimated bargain purchase gain, higher Markets revenue, and higher asset management fees.
Noninterest expense included a $2.9 billion FDIC special assessment, approximately $1.1 billion of First Republic-related expense, higher compensation, legal expense, technology investment, and wage inflation. The effective tax rate was 19.6%, compared with 18.4% in 2022.
Balance sheet, credit, liquidity, and capital
- Loans were $1.324 trillion, up 17%; deposits were $2.401 trillion, up 3%; long-term debt was $391.8 billion, up 32%.
- Average deposits declined 4% to $2.359 trillion, reflecting migration into higher-yielding investments, customer spending, deposit attrition, and actions to reduce certain deposits, partly offset by First Republic deposits and international consumer growth.
- Net cash provided by operating activities was $13.0 billion, compared with $107.1 billion in 2022. Net cash provided by investing activities was $67.6 billion, while financing activities used $25.6 billion. Cash and deposits with banks increased by $56.9 billion.
- Allowance for credit losses was $24.8 billion, up from $22.2 billion. Net charge-offs were $6.2 billion, compared with $2.9 billion, and the net charge-off rate increased to 0.52% from 0.27%.
- Nonperforming assets were $7.6 billion, compared with $7.2 billion. Commercial real estate, wholesale downgrades, and normalized consumer credit losses were key credit considerations.
- Card Services net charge-offs increased materially; its 2023 net charge-off rate was 2.45%, compared with 1.47% in 2022. Card 30-day-plus delinquency was 2.14%, compared with 1.45%.
- Common equity Tier 1 capital was $250.6 billion and the CET1 ratio was 15.0%, compared with 13.2% in 2022. The Tier 1 capital ratio was 16.6%, total capital ratio was 18.5%, and supplementary leverage ratio was 6.1%.
- Average Firm liquidity coverage ratio was 113%. At year-end, the Firm reported approximately $798 billion of eligible HQLA, $649 billion of unencumbered marketable securities, and approximately $1.4 trillion of liquidity sources.
- Common dividends declared were $4.10 per share. The Firm repurchased 69.5 million common shares for $9.9 billion during 2023, leaving approximately $19.7 billion under the authorized $30 billion repurchase program at year-end.
Material changes versus the prior comparable period
- The First Republic acquisition added approximately $146 billion of loans and $61 billion of deposits at year-end, contributed $8.2 billion of revenue and $4.1 billion of net income for the period after acquisition, and generated an estimated $2.8 billion bargain purchase gain.
- Consumer & Community Banking net income rose 42% to $21.2 billion, supported by higher deposit margins, card balances, and First Republic, but credit losses increased.
- Corporate & Investment Bank net income declined 5% to $14.1 billion. Markets revenue fell 4% to $27.8 billion, while Payments revenue increased 22%; investment banking fees declined amid lower transaction and issuance activity.
- Commercial Banking net income increased 46% to $6.1 billion, driven by higher net interest income, loans, and First Republic, partly offset by higher credit costs, including commercial real estate deterioration.
- Asset & Wealth Management net income rose 20% to $5.2 billion. Assets under management increased 24% to $3.4 trillion and total client assets increased 24% to $5.0 trillion.
- The Firm’s investment securities portfolio declined to $571.6 billion from $631.2 billion, while realized investment securities losses increased to $3.2 billion from $2.4 billion, primarily due to portfolio repositioning.
- The Firm adopted new hedge accounting guidance and updated troubled-debt-restructuring accounting effective January 1, 2023. The latter reduced the allowance for credit losses by $587 million and increased retained earnings by $446 million after tax.
Guidance, outlook, commentary, and risks
For full-year 2024, management expects net interest income of approximately $90 billion, including approximately $88 billion excluding Markets, both market dependent. Adjusted expense is expected to be approximately $90 billion, market dependent. Management expects the Card Services net charge-off rate to remain below 3.50%.
The Firm announced organizational changes expected to take effect in the second quarter of 2024, including an expanded Commercial & Investment Bank and new leadership responsibilities. It also plans to open more than 500 branches, renovate approximately 1,700 locations, and hire 3,500 employees over three years.
Key risks include interest-rate and deposit repricing, consumer credit normalization, commercial real estate deterioration, market volatility, liquidity and funding conditions, proposed Basel III capital changes, regulatory assessments and enforcement, litigation, cybersecurity and operational failures, geopolitical conflict and sanctions, climate-related risks, competition, employee retention, and integration of First Republic. The Firm disclosed an estimated aggregate range of reasonably possible legal losses, in excess of reserves, of $0 to approximately $1.3 billion at December 31, 2023; some matters cannot yet be estimated.
The Firm remains subject to a 2020 Department of Justice Deferred Prosecution Agreement concerning precious metals and U.S. Treasuries investigations. It also expects resolutions with two U.S. regulators relating to trading-venue data and surveillance controls, including approximately $350 million of aggregate civil penalties and additional remediation requirements.
Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2023, with no material weaknesses. PwC issued unqualified opinions on the consolidated financial statements and internal control over financial reporting.
Most important facts for investors to verify
- Reconcile reported 2023 earnings with and without First Republic, including the $2.8 billion bargain purchase gain and acquisition-related expenses.
- Assess the sustainability of approximately $90 billion of 2024 net interest income amid possible rate cuts, deposit migration, funding-cost changes, and balance-sheet growth.
- Monitor Card Services delinquencies, charge-offs, reserves, and management’s forecast of a sub-3.50% 2024 net charge-off rate.
- Review commercial real estate exposure, criticized wholesale exposures, allowance coverage, and potential losses under adverse macroeconomic scenarios.
- Evaluate the effect of proposed U.S. Basel III rules, the increased GSIB surcharge, capital accumulation, and implications for dividends and share repurchases.
- Review First Republic integration, final purchase-price settlement, shared-loss agreements, FDIC indemnification assets, and the $49.0 billion Purchase Money Note.
- Review legal proceedings, the approximately $1.3 billion excess-loss range, the expected trading-surveillance resolutions, and other regulatory remediation obligations.
- Consider liquidity quality and transferability, including uninsured deposits, pledged assets, parent-company funding dependence, and the distinction between HQLA and other available borrowing capacity.