JPMorgan Chase & Co. — 1Q21 Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. is a global financial-services firm with operations in consumer and small-business banking, investment banking, commercial banking, payments, securities services, and asset and wealth management. The filing covers the three months ended March 31, 2021, with comparisons primarily to the three months ended March 31, 2020. The interim financial statements are unaudited and were reviewed by PwC.
Key financial metrics
| Metric | 1Q21 | 1Q20 | Change |
|---|---|---|---|
| Total net revenue | $32.3 billion | $28.3 billion | 14% |
| Net income | $14.3 billion | $2.9 billion | 399% |
| Diluted EPS | $4.50 | $0.78 | 477% |
| Noninterest expense | $18.7 billion | $16.8 billion | 12% |
| Provision for credit losses | $(4.2) billion benefit | $8.3 billion expense | NM |
| ROE / ROTCE | 23% / 29% | 4% / 5% | Improved |
| Overhead ratio | 58% | 59% | Improved |
- Noninterest revenue was $19.4 billion, up 40%, driven principally by higher CIB Markets revenue, investment-banking fees, mortgage income, and card income.
- Net interest income was $12.9 billion, down 11%, primarily because of lower interest rates, partly offset by balance-sheet growth. The managed net interest yield was 1.69%, versus 2.37% in the prior-year quarter.
- Pre-provision profit was $13.5 billion, up 18% on a reported basis.
- Average deposits were $2.2 trillion, up 36%; period-end deposits were $2.28 trillion. The loans-to-deposits ratio was 44%.
- Period-end loans were $1.01 trillion, broadly flat from December 31, 2020, while total assets increased 9% from year-end to $3.69 trillion.
- Long-term debt was $279.4 billion at March 31, 2021, compared with $281.7 billion at December 31, 2020.
- Net cash used in operating activities was $43.9 billion; investing activities provided $15.4 billion; financing activities provided $218.9 billion. Cash and deposits with banks increased by $183.5 billion during the quarter.
- Average firmwide liquidity coverage ratio was 110%; average JPMorgan Chase Bank, N.A. LCR was 166%. Average HQLA was approximately $696.6 billion, and unencumbered marketable securities were approximately $841 billion.
- CET1 capital was $206.1 billion and the standardized CET1 ratio was 13.1%. The supplementary leverage ratio was 6.7%, or 5.5% without temporary regulatory exclusions.
Material changes versus the prior comparable period
- Net income increased $11.4 billion, principally because the credit-loss provision changed from an $8.3 billion expense to a $4.2 billion benefit. The allowance for credit losses declined by $5.2 billion during the quarter as macroeconomic scenarios improved.
- CIB net revenue rose 46% to $14.6 billion, with Markets revenue up 25% to $9.1 billion and investment-banking revenue up 222% to $2.9 billion. CIB net income increased 189% to $5.7 billion.
- CCB net revenue declined 6% to $12.5 billion because of lower net interest income and deposit-margin compression, but net income increased to $6.7 billion from $197 million because of lower credit losses.
- Commercial Banking net revenue increased 11% to $2.4 billion and net income increased to $1.2 billion, also benefiting from a credit-loss provision reduction.
- AWM net revenue increased 20% to $4.1 billion and net income rose 86% to $1.2 billion. Assets under management increased 28% to $2.8 trillion and total client assets increased 32% to $3.8 trillion.
- Nonperforming assets were $10.3 billion, up $3.2 billion from March 31, 2020, although down $649 million from December 31, 2020. The filing cites deterioration across several wholesale industries, including real estate, and pandemic-related consumer nonaccrual loans.
- Net charge-offs declined to $1.1 billion from $1.5 billion, and the firmwide net charge-off rate declined to 0.45% from 0.62%.
Guidance, outlook, risks and unusual items
- For full-year 2021, management expected managed net interest income of approximately $55 billion, market dependent; adjusted expense of approximately $70 billion, market dependent; and a Card net charge-off rate of approximately 2.5%.
- Results included a $550 million contribution to the Firm’s Foundation. Compensation expense increased 19%, largely from revenue-related compensation and business investments.
- The firm continued participating in the Paycheck Protection Program. PPP loans were approximately $32 billion at March 31, 2021, and approximately $7 billion had been forgiven through that date. The loans are SBA-guaranteed and management did not expect material credit losses on them.
- COVID-19 remains a significant uncertainty. Consumer loans under payment deferral programs totaled approximately $9.3 billion and wholesale loans under deferral totaled approximately $1.3 billion at March 31, 2021. Government stimulus and assistance programs may delay recognition of delinquencies and charge-offs.
- Management continued to place significant weight on adverse economic scenarios in estimating credit losses. Model uncertainty remains elevated because the pandemic created economic conditions outside historical model experience. Future changes in unemployment, GDP, home prices, vaccine efficacy, consumer behavior, and government support could materially affect provisions.
- Wholesale criticized exposure increased to $46.9 billion from $41.6 billion at December 31, 2020. Key monitored concentrations included real estate, consumer and retail, technology/media/telecommunications, and oil and gas.
- The Federal Reserve’s temporary restrictions on capital distributions continued through at least the second quarter of 2021. The firm repurchased $5.0 billion of common stock and paid a $0.90 quarterly common dividend per share.
- The firm reported an estimated aggregate range of reasonably possible litigation losses, in excess of established reserves, of zero to approximately $1.5 billion at March 31, 2021. Actual losses could differ materially, and certain matters could not be estimated.
- The firm was managing LIBOR transition, cybersecurity and payment-fraud risks, operational resilience, regulatory scrutiny, legal proceedings, market volatility, credit-rating risk, and potential changes in capital and liquidity requirements.
Most important facts for investors to verify
- Whether the exceptionally large credit-loss benefit is sustainable or primarily reflects releases of pandemic-era reserves and improved macroeconomic assumptions.
- Future net interest income under prolonged low rates, deposit-margin compression, balance-sheet growth, and changing interest-rate conditions.
- Trends in criticized and nonperforming wholesale exposures, particularly commercial real estate, consumer and retail, and oil and gas.
- Performance of Card and other consumer portfolios after stimulus programs and payment deferrals expire.
- Actual 2021 expense levels and the extent to which revenue-related compensation and technology investments affect operating leverage.
- Capital-distribution capacity after temporary Federal Reserve restrictions expire and after the 2021 CCAR stress-capital-buffer determination.
- Potential effects of litigation, regulatory matters, LIBOR transition, cybersecurity incidents, and other off-balance-sheet commitments.