JPMorgan Chase & Co. 1Q23 Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. is a diversified global financial services firm operating through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate. This unaudited Form 10-Q covers the three months ended March 31, 2023, with comparisons to the three months ended March 31, 2022 and selected balance-sheet comparisons to December 31, 2022. The Firm reported $3.7 trillion of assets and $303.1 billion of stockholders’ equity at March 31, 2023.
Financial performance and key metrics
| Metric | 1Q23 | Change vs. 1Q22 |
|---|---|---|
| Total net revenue | $38.3 billion | 25% |
| Net interest income | $20.7 billion | 49% |
| Noninterest revenue | $17.6 billion | 5% |
| Noninterest expense | $20.1 billion | 5% |
| Pre-provision profit | $18.2 billion | 58% |
| Provision for credit losses | $2.3 billion | 56% |
| Net income | $12.6 billion | 52% |
| Diluted EPS | $4.10 | 56% |
| Return on common equity | 18% | 13% in 1Q22 |
| Return on tangible common equity | 23% | 16% in 1Q22 |
| Overhead ratio | 52% | 62% in 1Q22 |
Net interest income benefited from higher interest rates, partly offset by lower Markets net interest income and lower average deposits. The net yield on average interest-earning assets increased to 2.63% from 1.67%; excluding Markets, the net yield increased to 3.80% from 1.95%.
- Principal transactions revenue increased 49% to $7.6 billion, while investment banking fees declined 18% to $1.6 billion.
- Investment securities losses increased to $868 million, primarily from repositioning U.S. government and agency mortgage-backed securities and Treasury securities.
- Compensation expense increased 8% to $11.7 billion due to headcount growth and wage inflation. Total headcount reached 296,877, up from 273,948 a year earlier.
- The effective tax rate increased to 20.9% from 17.7%.
Balance sheet, capital, debt and liquidity
- Total assets were $3.744 trillion, up 2% from December 31, 2022. Loans were $1.129 trillion, down 1%, while deposits were $2.377 trillion, up 2%.
- Average deposits of $2.320 trillion declined 8% year over year, reflecting migration into higher-yielding investments, customer spending and wholesale deposit attrition. Period-end deposits increased in March as banking-market disruptions generated inflows.
- Long-term debt was $295.5 billion, essentially unchanged from year-end. The Firm also had $246.4 billion of federal funds purchased and securities loaned or sold under repurchase agreements.
- CET1 capital was $227.1 billion and the Basel III Standardized CET1 ratio was 13.8%, above the Firm’s 13.0% current target. The Tier 1, total capital and supplementary leverage ratios were 15.4%, 17.4% and 5.9%, respectively.
- Average liquidity coverage ratio was 114% for the Firm and 140% for JPMorgan Chase Bank, N.A. Average eligible HQLA were approximately $731.5 billion. The Firm also reported approximately $700 billion of unencumbered marketable securities and approximately $330 billion of available borrowing capacity at the Federal Home Loan Banks and Federal Reserve discount window.
- Net cash used in operating activities was $111.2 billion, compared with $41.9 billion used in 1Q22. Investing activities provided $23.8 billion and financing activities provided $64.6 billion, resulting in a $21.2 billion decrease in cash and deposits with banks.
Credit quality and material changes
- The provision for credit losses was $2.3 billion, including a $1.1 billion net addition to allowances and $1.1 billion of net charge-offs. The allowance increase reflected a weaker weighted-average economic outlook, greater recession probability, macroeconomic scenario changes and wholesale downgrades.
- Total allowance for credit losses was $22.8 billion at March 31, 2023, with allowance coverage of retained loans at 1.85%, compared with 1.69% a year earlier.
- Net charge-offs increased to $1.137 billion from $582 million; the net charge-off rate rose to 0.43% from 0.24%. Consumer credit card net charge-offs were $922 million, and the Card Services net charge-off rate increased to 2.07% from 1.37%.
- Nonperforming assets were $7.4 billion, down from $8.6 billion a year earlier. Wholesale criticized exposure increased to $34.4 billion, or approximately 3.0% of wholesale credit exposure, from $31.3 billion at year-end.
- On January 1, 2023, the Firm adopted revised troubled-debt-restructuring guidance, reducing the allowance for credit losses by $587 million and increasing retained earnings by $446 million after tax.
Segment performance
| Segment | 1Q23 net income | Change vs. 1Q22 | 1Q23 ROE |
|---|---|---|---|
| Consumer & Community Banking | $5.2 billion | 80% | 40% |
| Corporate & Investment Bank | $4.4 billion | 1% | 16% |
| Commercial Banking | $1.3 billion | 58% | 18% |
| Asset & Wealth Management | $1.4 billion | 36% | 34% |
| Corporate | $244 million | Compared with $(856) million | NM |
CCB benefited from strong deposit-margin expansion and card growth, while mortgage origination volume declined 77%. CIB revenue was broadly flat as strong Markets and Payments results offset weaker investment banking activity. CB benefited from higher net interest income, while AWM included a $339 million gain related to the acquisition of the remaining interest in China International Fund Management Co., Ltd.
Guidance, outlook, risks and unusual items
- Management expected full-year 2023 net interest income and net interest income excluding Markets of approximately $81 billion, market dependent.
- Management expected adjusted expense of approximately $81 billion, market dependent and excluding any FDIC special assessment. Card Services’ full-year net charge-off rate was expected to be approximately 2.6%.
- The outlook excluded the First Republic transaction and any related effects. On May 1, 2023, after the reporting period, JPMorgan acquired substantially all of First Republic’s assets and assumed deposits and certain liabilities from the FDIC. Management estimated a post-tax bargain purchase gain of approximately $2.6 billion and restructuring costs of approximately $2.0 billion over 2023 and 2024; these estimates were subject to refinement.
- The Firm expected a special FDIC assessment related to recent bank failures, but the amount was not yet clear and was excluded from the expense outlook.
- Key risks include deposit migration and funding costs, higher consumer delinquencies and charge-offs, commercial real estate and other wholesale credit deterioration, interest-rate and market volatility, regulatory capital and liquidity changes, litigation, cybersecurity and operational risk, geopolitical conditions, and the transition away from U.S. dollar LIBOR.
- The Firm disclosed an estimated aggregate range of reasonably possible legal losses, in excess of established reserves, from zero to approximately $1.2 billion as of March 31, 2023. Actual losses may differ significantly.
Most important facts for investors to verify
- Reconcile reported GAAP revenue, net interest income, expense and earnings with management’s non-GAAP managed-basis and adjusted-expense measures.
- Track deposit balances, deposit pricing, liquidity coverage, HQLA and funding costs as interest rates and banking-sector conditions change.
- Monitor credit card charge-offs, delinquencies, wholesale criticized exposure, commercial real estate performance and allowance coverage.
- Verify the final purchase accounting, bargain gain, restructuring costs, loss-sharing arrangements and operating results associated with the First Republic acquisition.
- Confirm the amount and timing of any FDIC special assessment and its effect on full-year expense guidance.
- Review subsequent filings for changes in litigation reserves, the estimated $0 to $1.2 billion range of reasonably possible losses, and material developments in the disclosed legal proceedings.