JPMorgan Chase & Co. — 2021 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2021. The filing is an annual report rather than a standalone quarterly filing; fourth-quarter data is included in the supplementary quarterly information. JPMorgan Chase is a global financial services firm operating through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate.
Business context
- Period-end assets were $3.744 trillion and total stockholders’ equity was $294.1 billion.
- The Firm had 271,025 employees, 4,790 U.S. retail branches, and operations in 62 countries.
- Average deposits increased substantially, reflecting pandemic-related government actions and growth in consumer and business accounts.
Financial performance and key metrics
| Metric | 2021 | 2020 | Change |
|---|
| Total net revenue | $121.649 billion | $119.951 billion | Up 1% |
| Noninterest revenue | $69.338 billion | $65.388 billion | Up 6% |
| Net interest income | $52.311 billion | $54.563 billion | Down 4% |
| Noninterest expense | $71.343 billion | $66.656 billion | Up 7% |
| Provision for credit losses | $(9.256) billion benefit | $17.480 billion expense | Significant improvement |
| Net income | $48.334 billion | $29.131 billion | Up 66% |
| Diluted EPS | $15.36 | $8.88 | Up 73% |
| ROE | 19% | 12% | Improved |
| ROTCE | 23% | 14% | Improved |
| Overhead ratio | 59% | 56% | Higher expense burden |
- The provision benefit primarily reflected a $12.1 billion reduction in the allowance for credit losses, driven by an improved macroeconomic outlook. Net charge-offs were $2.865 billion, compared with $5.259 billion in 2020.
- Total allowance for credit losses declined to $18.689 billion from $30.815 billion. The allowance-to-retained-loans ratio declined to 1.62% from 2.95%.
- Net interest income declined because of lower market rates and balance-sheet mix, partly offset by balance-sheet growth. Noninterest revenue benefited from higher investment banking and asset-management fees, while CIB Markets revenue declined.
- Compensation expense increased to $38.567 billion from $34.988 billion. Management cited higher volume- and revenue-related compensation and continued investments in technology and other businesses.
Balance sheet, cash flow, debt and liquidity
| Balance-sheet metric | December 31, 2021 | December 31, 2020 |
|---|
| Total assets | $3.744 trillion | $3.385 trillion |
| Loans | $1.078 trillion | $1.013 trillion |
| Deposits | $2.462 trillion | $2.144 trillion |
| Long-term debt | $301.005 billion | $281.685 billion |
| Common stockholders’ equity | $259.289 billion | $249.291 billion |
| Loans-to-deposits ratio | 44% | 47% |
- Cash provided by operating activities was $78.084 billion, compared with cash used of $79.910 billion in 2020.
- Investing activities used $129.344 billion, primarily from purchases of investment securities and net loan originations.
- Financing activities provided $275.993 billion, primarily from deposit growth and borrowing proceeds.
- Cash, due from banks and deposits with banks increased by $213.225 billion to $740.834 billion.
- The average Firm liquidity coverage ratio was 111%; JPMorgan Chase Bank, N.A.’s average LCR was 178%. The Firm reported approximately $914 billion of unencumbered marketable securities and approximately $308 billion of available borrowing capacity at FHLBs and the Federal Reserve discount window.
- The Firm’s period-end CET1 ratio was 13.1% on a standardized basis and 13.8% on an advanced basis; the supplementary leverage ratio was 5.4%.
- Capital and liquidity metrics benefited from CECL transition provisions of approximately $2.9 billion at year-end; those benefits began phasing into regulatory capital beginning January 1, 2022.
Segment performance
| Segment | 2021 net income | 2021 net revenue | ROE |
|---|
| Consumer & Community Banking | $20.930 billion | $50.073 billion | 41% |
| Corporate & Investment Bank | $21.134 billion | $51.749 billion | 25% |
| Commercial Banking | $5.246 billion | $10.008 billion | 21% |
| Asset & Wealth Management | $4.737 billion | $16.957 billion | 33% |
| Corporate | $(3.713) billion | $(3.483) billion | Not meaningful |
- CCB net income rose sharply because of the credit-loss benefit, although revenue declined 2%. Average deposits increased 24%, card sales volume increased 26%, and active mobile customers increased 11%.
- CIB net income increased 24%. Investment banking revenue rose 41% to $12.5 billion, while Markets revenue declined 7% to $27.4 billion, including a 19% decline in Fixed Income Markets and a 22% increase in Equity Markets.
- Commercial Banking net income increased 103% to $5.2 billion, supported by higher noninterest revenue and a credit-loss benefit. Average deposits increased 27%, while average loans declined 6%.
- AWM net income increased 58% to $4.7 billion. Assets under management increased 15% to $3.1 trillion and total client assets increased 18% to $4.3 trillion.
Material changes versus the prior comparable period
- Net income growth was primarily driven by the reversal of pandemic-era credit-loss reserves rather than by revenue growth.
- Deposits grew 15% at year-end and average deposits grew 23%, increasing liquidity but also contributing to lower deposit margins and limited investment opportunities.
- Investment securities increased 14% to $672.232 billion. During 2021, $104.5 billion of available-for-sale securities were transferred to held-to-maturity classification for capital-management purposes.
- Common-stock repurchases resumed after regulatory restrictions eased. The Firm repurchased 119.7 million shares for $18.448 billion, leaving $11.552 billion under the authorized $30 billion program at year-end.
- Common dividends declared increased to $3.80 per share from $3.60. The quarterly common dividend was $1.00 per share at the filing date.
- The Firm launched a U.K. retail bank, acquired Nutmeg, OpenInvest, Frank, The Infatuation and Campbell Global, and increased goodwill to $50.315 billion. Management reported no goodwill impairment.
Guidance, outlook and management commentary
- For 2022, management expected managed net interest income excluding CIB Markets to be above $53 billion, market dependent.
- Management expected 2022 adjusted expense of approximately $77 billion, including increased investments in technology, distribution and marketing and higher structural expense.
- The Firm had substantially remediated bilateral derivatives and non-U.S. dollar LIBOR-linked loans. It ceased entering into new U.S. dollar LIBOR contracts, subject to limited exceptions, and was transitioning products and systems to replacement rates including SOFR. Principal U.S. dollar LIBOR tenors were scheduled to cease publication after June 30, 2023.
- Management described the credit-loss allowance as still reflecting uncertainty from COVID-19 variants, economic growth and supply-chain disruptions. A relative adverse macroeconomic scenario would have increased modeled losses by approximately $550 million for residential real estate, $2.6 billion for credit cards and $3.0 billion for wholesale loans and commitments, before qualitative offsets.
Risks, contingencies and unusual items
- Principal risks include macroeconomic deterioration, COVID-19, interest-rate and credit-spread volatility, credit and liquidity stress, capital requirements, regulatory investigations, litigation, cybersecurity, operational failures, data privacy, conduct, reputation, climate change, geopolitical events and competition from fintech and other nonbank firms.
- The Firm remains subject to a Department of Justice Deferred Prosecution Agreement and related CFTC order concerning precious-metals and U.S. Treasuries trading investigations. The 2021 Form 10-K also reports December 2021 SEC and CFTC resolutions related to electronic communications recordkeeping, including total penalties of $125 million to the SEC and $75 million to the CFTC.
- Aggregate reasonably possible legal losses in excess of reserves were estimated at $0 to approximately $1.5 billion as of December 31, 2021, excluding matters for which an estimate could not be made. Actual losses could differ materially.
- Credit card rewards liability increased to $9.8 billion from $7.7 billion. A combined 25-basis-point increase in redemption rates and one-basis-point increase in cost per point would have increased the liability by approximately $265 million.
- Higher interest rates could improve net interest income but may also increase funding costs, reduce loan demand, pressure borrowers with variable-rate debt, create unrealized losses on available-for-sale securities and affect mortgage servicing rights.
- Internal control over financial reporting was assessed as effective, with no material weaknesses reported. PwC issued an unqualified opinion on the financial statements and internal controls.
Important facts for investors to verify
- Whether 2022 earnings growth can be sustained after the large 2021 credit-loss reserve release.
- The pace of loan growth, card charge-offs, delinquencies and future allowance requirements as pandemic support programs fade.
- Actual net interest income sensitivity to Federal Reserve rate increases, deposit repricing and deposit retention.
- Expense growth relative to management’s approximately $77 billion 2022 adjusted-expense outlook.
- Capital effects from CECL transition phase-ins, higher risk-weighted assets, SA-CCR implementation and future GSIB surcharge changes.
- Progress and residual legal exposure related to regulatory resolutions, electronic communications, benchmark rates, FX, metals, U.S. Treasuries and interchange matters.
- Exposure to commercial real estate, consumer and retail, oil and gas, derivatives counterparties and other concentrated or criticized credit portfolios.
- Completion and economic impact of the LIBOR-to-SOFR transition, including contract remediation, fallback provisions and potential disputes.
