JPMorgan Chase & Co. 3Q21 Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. is a diversified U.S.-based financial services firm with operations worldwide across Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate. This unaudited Form 10-Q covers the quarter and nine months ended September 30, 2021, with comparisons primarily to the corresponding 2020 periods. The Firm reported $3.8 trillion of assets and $290.0 billion of stockholders’ equity at quarter-end.
Financial performance and key metrics
| Metric | 3Q21 | 3Q20 | 9M21 | 9M20 |
|---|---|---|---|---|
| Total net revenue | $29.6 billion | $29.3 billion | $92.4 billion | $90.6 billion |
| Net income | $11.7 billion | $9.4 billion | $37.9 billion | $17.0 billion |
| Diluted EPS | $3.74 | $2.92 | $12.02 | $5.09 |
| Noninterest expense | $17.1 billion | $16.9 billion | $53.5 billion | $50.6 billion |
| Provision for credit losses | $(1.5) billion | $0.6 billion | $(8.0) billion | $19.4 billion |
| ROE | 18% | 15% | 20% | 9% |
| ROTCE | 22% | 19% | 24% | 11% |
Third-quarter net revenue increased 1%, while net income rose 24%. Noninterest revenue increased 2% to $16.6 billion, led by investment banking fees of $3.3 billion, up 50%, and asset management, administration and commissions revenue of $5.3 billion, up 18%. Net interest income increased 1% to $13.1 billion, reflecting balance-sheet growth and higher market rates, partly offset by lower yields and balance-sheet mix changes.
The overhead ratio was 58% for both comparative quarters. Compensation expense increased 5%, and marketing expense increased 51%, reflecting business investments and higher performance-related compensation. Lower legal expense and the absence of a prior-year legacy investment impairment partially offset those increases.
The provision for credit losses was a net benefit of $1.5 billion in 3Q21, including a $2.1 billion reduction in the allowance for credit losses and $524 million of net charge-offs. The allowance for credit losses declined to $20.5 billion from $33.6 billion a year earlier, and the allowance-to-retained-loans ratio declined to 1.86% from 3.26%. Net charge-offs declined to $524 million from $1.2 billion, and the net charge-off rate fell to 0.21% from 0.49%.
Balance sheet, cash flow, debt and liquidity
- Total assets were $3.76 trillion, up 11% from December 31, 2020.
- Loans were $1.04 trillion, up 3% from year-end 2020. Deposits were $2.40 trillion, up 12%, resulting in a 43% loans-to-deposits ratio versus 47% at year-end.
- Long-term debt was $298.5 billion, up 6% from year-end. Total stockholders’ equity was $290.0 billion.
- Nine-month cash used in operating activities was $7.0 billion, and cash used in investing activities was $29.2 billion. Financing activities provided $278.0 billion, primarily from higher deposits, repurchase financing and borrowings. Cash, due from banks and deposits with banks increased by $232.3 billion to $759.9 billion.
- Average Firm liquidity coverage ratio was 112%, with $724.1 billion of average eligible high-quality liquid assets and $78.5 billion of net excess eligible HQLA. JPMorgan Chase Bank, N.A.’s average LCR was 174%.
- The Firm’s CET1 ratio was 12.9%, Tier 1 capital ratio was 15.0%, total capital ratio was 16.9%, Tier 1 leverage ratio was 6.6%, and supplementary leverage ratio was 5.5%. The metrics incorporate CECL capital-transition provisions.
Material changes versus the prior comparable period
- Investment banking fees increased 50% in the quarter and 41% for the nine months, supported by M&A and equity underwriting activity.
- CIB net revenue increased 7% in the quarter and 6% year to date. Investment Banking revenue rose 45% in the quarter, while Fixed Income Markets revenue fell 20% and Equity Markets revenue rose 30%.
- AWM net revenue increased 21% in the quarter and 20% year to date. Assets under management reached $3.0 trillion, up 17%, and total client assets reached $4.1 trillion, up 22%.
- CCB net revenue declined 3% in the quarter and 2% year to date. Mortgage fees declined 45% in the quarter, primarily from weaker mortgage production margins and MSR risk-management results. Card sales volume increased 26%, but card income declined 14% in the quarter because of rewards and account-origination costs.
- Commercial Banking net revenue increased 10% in the quarter and 8% year to date, aided by investment banking and wholesale payments revenue.
- Corporate reported a $817 million quarterly net loss and a $2.6 billion year-to-date net loss, driven by limited deployment opportunities for deposits and investment securities losses from portfolio repositioning.
- Common share repurchases totaled $5.2 billion in the quarter and $16.4 billion year to date. The quarterly common dividend increased to $1.00 per share from $0.90.
Guidance, outlook, risks and unusual items
Management’s full-year 2021 outlook called for managed net interest income of approximately $52.5 billion, adjusted expense of approximately $71 billion, and a Card net charge-off rate of approximately 2.0%; each was described as market dependent.
Third-quarter results included a $566 million income tax benefit related to finalizing the 2020 U.S. federal tax return, reducing the quarterly effective tax rate to 17.2%. The Firm also recognized a significant reserve release reflecting improved macroeconomic forecasts, although management retained meaningful weighting on adverse scenarios. The central case assumed U.S. unemployment of 5.1% in 4Q21, 4.4% in 2Q22 and 4.1% in 4Q22.
Key risks include additional COVID-19 waves or variants, expiration of government assistance, changing consumer behavior, credit deterioration, interest-rate and market volatility, liquidity and capital requirements, regulatory and legislative changes, cybersecurity and operational failures, reputational risk, model uncertainty, and legal or regulatory proceedings. The Firm disclosed an estimated aggregate range of reasonably possible legal losses, in excess of established reserves, from zero to approximately $1.5 billion as of September 30, 2021. Certain proceedings cannot be estimated reliably and actual losses could differ materially.
The Firm continued its transition from LIBOR to alternative reference rates, including SOFR. Principal U.S. dollar LIBOR tenors were scheduled to cease after June 30, 2023, while several other currencies and tenors were scheduled to cease after December 31, 2021. The Firm also disclosed acquisitions and investments, including Frank, The Infatuation and an agreement to acquire a controlling interest in Volkswagen Financial Services’ payments platform, subject to regulatory approvals.
Most important facts for investors to verify
- Whether earnings remain supported by recurring operating revenue or are materially dependent on reserve releases, tax benefits and market-sensitive investment banking and trading results.
- The sustainability of the $52.5 billion managed net-interest-income and $71 billion adjusted-expense outlook, particularly as deposit growth creates balance-sheet deployment and margin pressure.
- Credit performance after government stimulus and payment assistance programs expire, including Card charge-offs, delinquencies and the adequacy of the $20.5 billion allowance.
- The effect of higher interest rates on the AFS securities portfolio, accumulated other comprehensive income, capital ratios and mortgage servicing rights.
- Capital and liquidity levels after CECL transition relief, share repurchases, dividends, future regulatory changes and potential balance-sheet growth.
- Developments in the disclosed legal, regulatory, LIBOR-transition, cybersecurity and operational matters, including the possible $1.5 billion excess-loss range for legal proceedings.