J.P. MORGAN CHASE & CO. $110(New York symbol JPM; Conservative Growth Payer Portfolio, Finance sector; Shares outstanding: 3.4 billion; Market cap: $374.0 billion; Dividend yield: 2.0%; Dividend Sustainability Rating: Above Average; www.jpmorganchase.com) is the largest banking firm in the U.S., with total assets of $2.6 trillion as of March 31, 2018.
The bank last raised its quarterly dividend by 12.0% with the October 2017 payment, to $0.56 a share from $0.50. The new annual rate of $2.24 yields 2.0%.
Wide variety of businesses a plus
Morgan has four main businesses: Consumer and Community Banking, including branches and credit cards (45% of 2017 revenue, 36% of earnings); Corporate and Investment Banking, including brokerage and underwriting services (34%, 41%); Asset Management (13%, 9%); and Commercial Banking, which provides financing and other services to business clients (8%, 14%). About 75% of Morgan’s revenue comes from the U.S.
The bank’s overall revenue fell 3.9%, from $97.4 billion in 2013 to $93.5 billion in 2015. Revenue improved to $95.7 billion in 2016, and rose again in 2017, to $99.6 billion.
Overall earnings jumped 38.3%, from $17.9 billion in 2013 to $24.76 billion in 2016. Due to fewer shares outstanding, per-share earnings rose 42.7%, from $4.34 to $6.19. Morgan’s earnings dipped to $24.4 billion in 2017, but earnings per share rose to $6.31. If you exclude a charge related to the U.S. tax reforms and other unusual items, the bank earned $26.5 billion, or $6.87 a share, in 2017.
In the three months ended March 31, 2018, Morgan earned $8.2 billion. That’s up 37.9% from $6.0 billion a year earlier. Due to fewer shares outstanding, per-share earnings jumped 43.6%, to $2.37 from $1.65. Revenue rose 11.9%, to $27.9 billion from $24.9 billion.
In addition to the lower tax rate, Morgan’s earnings also benefitted from new accounting rules that produced $500 million in gains on certain investments it holds. Factoring out unusual items, pre-tax earnings rose 13% in the quarter.
So far, higher interest rates have yet to hurt loan demand or increase Morgan’s interest payouts. The bank’s net interest margin (net interest income divided by the value of its loans—the higher, the better) improved to 2.48% in the quarter from 2.33% a year earlier.
Morgan set aside $1.17 billion in the quarter to cover potentially bad loans. That’s down 11.4% from $1.32 billion a year earlier. The year-earlier amount included a $200 million loss on the sale of some student loans. Improving oil and gas prices also let the bank take back some of its earlier provisions on loans to energy companies.
Shift to online banking is cutting Morgan’s costs
As more of its customers do their banking online, the bank continues to build up its Internet and mobile banking platforms. As a result, its efficiency ratio (non-interest expenses divided by revenue—the lower, the better) improved to 57.6% in the first quarter from 61.3% a year earlier.
Those savings will give Morgan more room to increase its dividend. In the latest quarter, dividends accounted for just 23.6% of its earnings.
The stock has jumped 30% in the past year. Even so, it still trades at a reasonable 12.2 times the bank’s projected 2018 earnings of $9.00 a share.
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