JPMORGAN CHASE & CO quarterly report, Q2 FY2021

JPMorgan Chase & Co. — 2Q21 Form 10-Q Summary

Business context and reporting period

JPMorgan Chase & Co. is a global financial services firm with operations in consumer and community banking, investment banking, commercial banking, payments, securities services, and asset and wealth management. This unaudited Form 10-Q covers the three and six months ended June 30, 2021, compared primarily with the corresponding 2020 periods. The filing was reviewed by the independent registered public accounting firm, which reported no material modifications were necessary.

Key financial metrics

Metric	2Q21	2Q20	Change
Total net revenue	$30.5 billion	$33.1 billion	Down 8%
Net income	$11.9 billion	$4.7 billion	Up 155%
Diluted EPS	$3.78	$1.38	Up 174%
Pre-provision profit	$12.8 billion	$16.1 billion	Down 21%
Provision for credit losses	$(2.3) billion benefit	$10.5 billion expense	Improved materially
Noninterest expense	$17.7 billion	$16.9 billion	Up 4%
ROE / ROTCE	18% / 23%	7% / 9%	Improved

For the six months ended June 30, 2021, net revenue was $62.7 billion, up 2%, net income was $26.2 billion, up 248%, and diluted EPS was $8.28, up 282%, versus the prior-year period. The effective tax rate was 20.9% in the quarter and 20.0% year to date.

Revenue mix: Noninterest revenue declined 8% in the quarter, primarily because of lower Markets revenue, partly offset by higher investment banking fees, card income, and asset management fees. Net interest income declined 8% to $12.7 billion because of lower rates, lower card loans, and lower Markets net interest income.
Expenses: Expense growth reflected technology and front-office investments, higher brokerage and distribution costs, marketing, and professional services. The overhead ratio was 58% in the quarter versus 51% in 2Q20.
Credit: The credit-loss benefit reflected a $3.0 billion reduction in credit-loss allowances, compared with an $8.9 billion allowance build in 2Q20. Total allowance for credit losses was approximately $22.6 billion at June 30, 2021; allowance coverage of retained loans was 2.02% versus 3.27% a year earlier.
Credit quality: Nonperforming assets were $9.8 billion, relatively flat year over year. Net charge-offs were $734 million in the quarter, with a 0.31% annualized rate versus 0.64% in 2Q20.
Balance sheet: At June 30, 2021, assets were $3.684 trillion, loans were $1.041 trillion, deposits were $2.305 trillion, long-term debt was $299.9 billion, and total stockholders’ equity was $286.4 billion. Deposits increased 8% from December 31, 2020, while loans increased 3%.
Cash flow: During the first six months of 2021, operating activities used $30.3 billion, investing activities provided $33.1 billion, and financing activities provided $181.0 billion. Cash and deposits with banks increased $177.8 billion to $705.4 billion.
Liquidity: Average firmwide LCR was 111%, versus 117% in 2Q20; JPMorgan Chase Bank, N.A.’s average LCR was 171%. Average HQLA was approximately $716.6 billion, and unencumbered marketable securities were approximately $854 billion.
Capital: Standardized CET1 capital was $209.0 billion and the CET1 ratio was 13.0%; the Tier 1 and total capital ratios were 15.1% and 17.1%. The supplementary leverage ratio was 5.4%.

Material changes versus prior comparable periods

Net income increased sharply because the prior year included significant COVID-19-related credit-loss provisioning, while 2Q21 benefited from allowance releases and lower charge-offs.
CIB net revenue declined 19% in the quarter as Fixed Income Markets revenue fell 44% and total Markets revenue declined 30%; investment banking fees increased 25%.
CCB net revenue increased 3%; card sales volume increased 45%, active mobile customers increased 10%, and average deposits increased 25%, while average loans declined 3%.
AWM net revenue increased 20%, with assets under management of approximately $3.0 trillion, up 21%, and total client assets of $4.0 trillion, up 25%.
Commercial Banking net revenue increased 3%, while average loans declined 12% and average deposits increased 22%.
The Firm transferred $104.5 billion of available-for-sale securities to held-to-maturity securities during the second quarter for capital management purposes.
The Firm repurchased 39.5 million common shares for $6.2 billion during the quarter and 74.2 million shares for $11.2 billion year to date.

Guidance, outlook, commentary, risks, and unusual items

2021 outlook: Management expected managed net interest income of approximately $52.5 billion, market dependent; adjusted expense of approximately $71 billion, market dependent; and a Card net charge-off rate below 2.5%.
Capital distributions: Following the 2021 CCAR results, management stated that the quarterly common dividend was intended to increase from $0.90 to $1.00 per share beginning in 3Q21. The indicative stress capital buffer was 3.2%, subject to the Federal Reserve’s final determination.
COVID-19: Credit performance benefited from government stimulus, payment assistance, higher home prices, and improving economic conditions. However, management retained meaningful adverse economic scenarios in its allowance estimates because of uncertainty surrounding new virus variants, labor markets, consumer behavior, and the durability of the recovery.
PPP: The Firm had approximately $23 billion of PPP loans outstanding at June 30, 2021, and approximately $18 billion had been forgiven by the SBA. The Firm did not expect material credit losses on PPP loans because of SBA guarantees.
LIBOR transition: Principal U.S. dollar LIBOR tenors were scheduled to cease after June 30, 2023, while several other currencies and tenors were scheduled to cease at the end of 2021. Contract remediation and transition activities remained ongoing.
Acquisitions and investments: The Firm announced agreements involving OpenInvest, Campbell Global, Nutmeg, and a 40% stake in Brazil’s C6 Bank, subject to applicable conditions and regulatory approvals where stated.
Legal contingencies: The aggregate range of reasonably possible legal losses in excess of recorded reserves was estimated at $0 to approximately $1.5 billion as of June 30, 2021, excluding matters for which a loss estimate could not be made. The filing describes ongoing investigations and litigation involving, among other matters, Nigeria, foreign exchange, records preservation, interchange, LIBOR, securities lending, and metals and Treasury trading.
Other unusual items: The prior-year quarter included $678 million of bridge-financing portfolio markups and a $510 million CIB credit-adjustment gain. Current-period results included net investment securities losses associated with portfolio repositioning and a $550 million equity-investment donation to the Firm’s Foundation during the first quarter.

Most important facts for investors to verify

Whether future earnings remain resilient as credit-loss allowance releases diminish and interest-rate pressure continues to reduce net interest income.
The sustainability of investment banking, card, asset management, and Markets revenue amid changing market activity and volatility.
Credit performance after government stimulus and payment deferrals fade, particularly in credit cards, residential real estate, commercial real estate, consumer and retail, and oil and gas.
The final Federal Reserve stress capital buffer, the pace of share repurchases, and the actual implementation of the planned dividend increase.
Progress and financial effects of the announced acquisitions, international expansion, and LIBOR transition.
Developments in material litigation, regulatory investigations, records-preservation inquiries, and related potential losses beyond recorded reserves.
The effect of the $104.5 billion AFS-to-HTM transfer, higher rates, and changes in accumulated other comprehensive income on capital and book value.
The impact of COVID-19 variants, macroeconomic forecasts, model uncertainty, operational disruptions, cybersecurity, and regulatory changes on liquidity, capital, and credit-loss estimates.