JPMorgan Chase & Co. 2023 Q3 Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. reported unaudited results for the three and nine months ended September 30, 2023. The firm operates through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate, with $3.9 trillion of assets and $317.4 billion of stockholders’ equity at quarter-end.
Results include the May 1, 2023 acquisition of certain First Republic Bank assets and liabilities from the FDIC. Integration and segment allocations remain in progress, and future classifications may change.
Key financial metrics
| Metric | Q3 2023 | Change vs. Q3 2022 | Nine months 2023 | Change vs. 2022 |
|---|---|---|---|---|
| Total net revenue | $39.9 billion | 22% | $119.5 billion | 27% |
| Net interest income | $22.7 billion | 30% | $65.2 billion | 40% |
| Noninterest revenue | $17.1 billion | 13% | $54.3 billion | 14% |
| Pre-provision profit | $18.1 billion | 34% | $56.8 billion | 54% |
| Provision for credit losses | $1.4 billion | (10%) | $6.6 billion | 60% |
| Net income | $13.2 billion | 35% | $40.2 billion | 51% |
| Diluted EPS | $4.33 | 39% | $13.18 | 55% |
| ROE / ROTCE | 18% / 22% | 15% / 18% prior year | 19% / 23% | 14% / 17% prior year |
| Overhead ratio | 55% | 59% prior year | 52% | 61% prior year |
Net interest income benefited from higher rates, First Republic, and higher Card Services revolving balances, partly offset by lower average deposits and lower Markets net interest income. The managed net yield on average interest-earning assets was 2.72%, compared with 2.09% in the prior-year quarter; the net yield excluding Markets was 3.89%, compared with 2.81%.
- Loans were $1.31 trillion, up 15% from December 31, 2022, including approximately $147 billion associated with First Republic.
- Deposits were $2.38 trillion, up 2% from year-end, although average third-quarter deposits declined 4% year over year to approximately $2.36 trillion.
- Long-term debt was $362.8 billion, up 23% from year-end, reflecting First Republic-related funding, including the $48.9 billion fair value of the FDIC Purchase Money Note and additional FHLB advances.
- Total stockholders’ equity was $317.4 billion, up 9% from year-end; common book value per share was $100.30 and tangible book value per share was $82.04.
- Net cash used in operating activities was $47.3 billion for the first nine months, compared with $5.9 billion provided in the prior-year period. Net cash used in investing activities was $12.2 billion, including $9.9 billion of net cash used in the First Republic acquisition; financing activities provided $10.3 billion.
- Average firmwide LCR was 112%; end-of-period HQLA was approximately $795.6 billion. Including approximately $590 billion of unencumbered marketable securities, management reported approximately $1.4 trillion of liquidity sources.
- Standardized CET1, Tier 1 and total capital ratios were 14.3%, 15.9% and 17.8%, respectively; the supplementary leverage ratio was 6.0%.
Material changes versus the prior comparable periods
- Consumer & Community Banking net income increased 36% in the quarter and 59% year to date, driven primarily by higher deposit margins, Card Services growth and First Republic.
- Corporate & Investment Bank net income declined 12% in the quarter and was approximately flat year to date. Lower Markets net interest income and investment banking activity offset stronger noninterest revenue.
- Commercial Banking net income increased 105% in the quarter and 61% year to date, supported by higher rates, loan growth and First Republic-related activity.
- Asset & Wealth Management net income increased 16% in the quarter and 24% year to date, supported by higher asset management fees, net inflows and First Republic-related revenue.
- Credit costs continued to normalize toward pre-pandemic levels. Third-quarter net charge-offs were $1.5 billion, up $770 million year over year, primarily from Card Services. The firmwide net charge-off rate rose to 0.47% from 0.27%.
- The allowance for credit losses was $24.2 billion at September 30, 2023, up from $20.8 billion a year earlier and reflecting a $2.5 billion increase from year-end. Nonperforming assets were $8.1 billion, up 12% year over year.
- Noninterest expense rose 13% in the quarter and 10% year to date, reflecting First Republic, higher compensation, technology and marketing investment, wage inflation, FDIC-related expense and higher legal expense. Third-quarter legal expense was $665 million versus $47 million in the prior year.
- Markets revenue declined 3% in the quarter and 6% year to date. Fixed Income Markets increased 1% in the quarter, while Equity Markets declined 10%.
Guidance, outlook, risks and unusual items
- Management expected full-year 2023 net interest income of approximately $88.5 billion and net interest income excluding Markets of approximately $89 billion, both market dependent.
- Management expected adjusted expense of approximately $84 billion, excluding any FDIC special assessment, and a Card Services net charge-off rate of approximately 2.5%.
- The FDIC proposed a special assessment related to bank-resolution losses. If finalized as proposed, JPMorgan expected approximately $3 billion of pretax expense.
- The First Republic acquisition produced an estimated bargain purchase gain of $2.8 billion after a $100 million third-quarter measurement-period adjustment. The acquisition accounting and FDIC settlement remain subject to further refinement.
- First Republic contributed approximately $2.2 billion of total net revenue and $1.1 billion of net income in the third quarter, and approximately $6.3 billion of total net revenue and $3.5 billion of net income for the nine months.
- Key risks include higher interest rates, deposit migration and competition, credit normalization and commercial real estate exposure, market volatility, geopolitical tensions, regulatory capital changes, acquisition integration, legal proceedings, cybersecurity and operational controls.
- The proposed U.S. Basel III capital framework could increase risk-weighted assets by approximately 30% and required CET1 capital by approximately 25% at the end of the proposed transition period, based on management’s preliminary estimates. The firm stated that its prior 13.5% CET1 target is no longer meaningful under the proposal.
- Management estimated aggregate reasonably possible legal losses in excess of established reserves at up to approximately $1.3 billion as of September 30, 2023, excluding matters for which a reliable estimate could not be made.
Important facts for investors to verify
- Reconcile reported GAAP results with managed-basis and other non-GAAP measures, particularly net interest income excluding Markets, adjusted expense, pre-provision profit and ROTCE.
- Assess the sustainability of elevated net interest income as rates, deposit balances, deposit pricing and customer behavior change.
- Track Card Services delinquencies, charge-offs and allowance coverage, as well as wholesale criticized exposure and commercial real estate performance.
- Review final First Republic purchase accounting, FDIC shared-loss arrangements, integration costs, asset performance and any changes in segment allocations.
- Monitor the final FDIC special assessment, pending legal matters and related expense exposure.
- Evaluate the effect of proposed Basel III, GSIB surcharge and long-term debt requirements on capital ratios, distributions and funding costs.
- Review liquidity trends, including LCR, HQLA, uninsured deposits, secured funding and the increase in long-term debt.
- Confirm the continuation of the $1.05 quarterly common dividend and the remaining $22.0 billion authorization under the common share repurchase program.