JPMorgan Chase & Co. — First-Quarter 2022 Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. is a global financial services firm with activities in consumer and small-business banking, investment banking, commercial banking, payments, securities services, asset management and wealth management. This unaudited Form 10-Q covers the three months ended March 31, 2022, with comparisons to the three months ended March 31, 2021 and selected balance-sheet comparisons to December 31, 2021.
Key financial metrics
| Metric | 1Q22 | 1Q21 | Change |
|---|---|---|---|
| Total net revenue | $30.7 billion | $32.3 billion | Down 5% |
| Net interest income | $13.9 billion | $12.9 billion | Up 8% |
| Noninterest revenue | $16.8 billion | $19.4 billion | Down 13% |
| Noninterest expense | $19.2 billion | $18.7 billion | Up 2% |
| Provision for credit losses | $1.5 billion | $(4.2) billion | Changed to expense |
| Net income | $8.3 billion | $14.3 billion | Down 42% |
| Diluted EPS | $2.63 | $4.50 | Down 42% |
| ROE / ROTCE | 13% / 16% | 23% / 29% | Lower |
| Effective tax rate | 17.7% | 19.2% | Lower |
Pre-provision profit was $11.5 billion, down 15%. Net interest income excluding Markets increased 9% to $11.8 billion, primarily due to balance-sheet growth and higher rates, partly offset by lower PPP-loan income. Markets revenue was $8.8 billion, down 3%.
- Period-end assets were $4.0 trillion, up 6% from December 31, 2021.
- Loans were $1.073 trillion, broadly unchanged from year-end and up 6% from March 31, 2021.
- Deposits were $2.561 trillion, up 4% from year-end and 12% from the prior-year period; average deposits increased 13% year over year.
- Long-term debt was $293.2 billion, down 3% from year-end.
- Total stockholders’ equity was $285.9 billion, down 3% from year-end, primarily reflecting accumulated other comprehensive losses.
- Cash used in operating activities was $41.9 billion and cash used in investing activities was $72.6 billion; financing activities provided $132.8 billion. Cash and deposits with banks increased by $13.7 billion during the quarter.
- The allowance for credit losses was $19.6 billion, compared with $18.7 billion at December 31, 2021. Net charge-offs were $582 million, with a 0.24% net charge-off rate.
- Nonperforming assets were $8.6 billion, down from $10.3 billion at March 31, 2021.
- The standardized CET1 ratio was 11.9%, Tier 1 capital ratio was 13.7%, total capital ratio was 15.4%, Tier 1 leverage ratio was 6.2% and supplementary leverage ratio was 5.2%.
- Average firmwide liquidity coverage ratio was 110%; JPMorgan Chase Bank, N.A.’s average LCR was 181%.
Material changes versus the prior comparable period
- Net income declined primarily because the prior-year period benefited from a $4.2 billion net credit-loss provision benefit, while 1Q22 included a $1.5 billion provision expense.
- Noninterest revenue decreased because of lower investment-banking fees, lower mortgage production revenue, losses on legacy equity investments and a $524 million loss in CIB Credit Adjustments & Other.
- Investment banking fees fell 32% to $2.0 billion, reflecting lower equity and debt issuance activity; advisory fees increased 18%.
- Mortgage fees and related income declined 35% to $460 million, while mortgage origination volume fell 37% to $24.7 billion.
- Credit card sales volume increased 21%, but card income declined 28%, largely because of higher amortization of new-account origination costs.
- Noninterest expense increased despite the prior-year $550 million contribution to the Firm’s Foundation, reflecting investments and higher structural costs in technology, marketing, compensation and professional services.
- Consumer & Community Banking net income fell 57% to $2.9 billion; CIB net income fell 26% to $4.4 billion; Commercial Banking net income fell 28% to $850 million; and Asset & Wealth Management net income fell 20% to $1.0 billion.
- Accumulated other comprehensive loss increased to $9.6 billion from $84 million at year-end, primarily because of unrealized losses on investment securities and cash-flow hedges as interest rates rose.
Guidance, outlook, risks and unusual items
- For full-year 2022, management expected net interest income excluding Markets to exceed $53 billion, subject to market conditions, and adjusted expense to be approximately $77 billion.
- The allowance increase reflected greater weighting of adverse macroeconomic scenarios because of inflation, monetary-policy changes and geopolitical risks, including the war in Ukraine. It also included Russia- and Russia-associated client downgrades.
- The Firm stated that Russia and Russia-associated exposure was not material to its financial condition or results of operations; country-risk exposure to Russia was approximately $650 million at March 31, 2022.
- Management identified continuing risks from the war in Ukraine, sanctions compliance, market volatility, commodity and energy-market movements, counterparty credit risk, inflation, recessionary pressures, supply-chain disruption and potential cyberattacks.
- Legal proceedings remained significant. The Firm estimated aggregate reasonably possible litigation losses in excess of established reserves at between zero and approximately $1.4 billion, although some matters could not be estimated and actual losses may differ materially.
- The Firm adopted the Standardized Approach for Counterparty Credit Risk on January 1, 2022; management estimated that adoption reduced the March 31, 2022 standardized CET1 ratio by approximately 30 basis points.
- The CECL capital transition benefit was being phased out; $2.2 billion of benefit remained in CET1 capital at March 31, 2022.
- After quarter-end, the Firm announced a new $30 billion common-share repurchase authorization effective May 1, 2022. It also announced the acquisition of Frosch Travel Group and an agreement to acquire Global Shares, subject to regulatory approvals.
- In April 2022, the Firm transferred $65.9 billion of investment securities from available-for-sale to held-to-maturity classification for capital management purposes; the securities had $4.7 billion of pretax unrealized losses at transfer.
Most important facts for investors to verify
- Whether higher interest rates and balance-sheet growth sustain the projected net interest income excluding Markets above $53 billion.
- Whether adverse macroeconomic scenarios, inflation, monetary tightening or geopolitical developments require additional credit-loss provisions.
- The sensitivity of Markets revenue, investment securities valuations, accumulated other comprehensive income and capital ratios to interest-rate, commodity and credit-spread volatility.
- The trajectory of investment-banking fees, mortgage production, credit-card spending and expense growth against the approximately $77 billion full-year adjusted-expense outlook.
- The impact and timing of the Frosch Travel Group and Global Shares transactions, as well as the new $30 billion share-repurchase authorization.
- Developments in litigation, sanctions-related compliance, cybersecurity and other operational-risk matters, including potential losses beyond recorded reserves.
- The final impact of the CECL transition phase-out, SA-CCR adoption and future regulatory capital requirements on distributions and capital management.