JPMorgan Chase & Co. — Form 10-Q Summary
Business context and reporting period
JPMorgan Chase & Co. is a global financial services firm operating through Consumer & Community Banking, Corporate & Investment Bank, Commercial Banking, Asset & Wealth Management, and Corporate. This unaudited Form 10-Q covers the three and nine months ended September 30, 2022, compared primarily with the corresponding 2021 periods, and presents results under U.S. GAAP unless otherwise noted.
Key financial metrics
| Metric | Third quarter 2022 | Year-to-date 2022 |
|---|---|---|
| Total net revenue | $32.7 billion, up 10% | $94.1 billion, up 2% |
| Net interest income | $17.5 billion, up 34% | $46.5 billion, up 20% |
| Noninterest revenue | $15.2 billion, down 8% | $47.6 billion, down 11% |
| Noninterest expense | $19.2 billion, up 12% | $57.1 billion, up 7% |
| Pre-provision profit | $13.5 billion, up 8% | $37.0 billion, down 5% |
| Provision for credit losses | $1.5 billion | $4.1 billion |
| Net income | $9.7 billion, down 17% | $26.7 billion, down 30% |
| Diluted EPS | $3.12, down 17% | $8.51, down 29% |
| ROE / ROTCE | 15% / 18% | 14% / 17% |
| Overhead ratio | 59% | 61% |
Net interest income benefited from higher interest rates and balance-sheet growth. Net interest income excluding Markets increased 51% in the quarter and 29% year to date. Markets revenue was $6.8 billion in the quarter, up 8%, led by Fixed Income Markets, while noninterest revenue was pressured by lower investment-banking fees, investment-securities losses, and weaker mortgage production.
At September 30, 2022, total assets were $3.8 trillion, loans were $1.1 trillion, deposits were $2.4 trillion, long-term debt was $287.5 billion, and total stockholders’ equity was $288.0 billion. Loans increased 3% from December 31, 2021, while deposits declined 2%.
Nine-month operating cash flow was $5.9 billion, compared with cash used of $7.0 billion in the prior-year period. Investing activities used $86.3 billion and financing activities provided $16.1 billion. Cash, due from banks, and deposits with banks totaled $644.2 billion at September 30, 2022.
Liquidity remained substantial: average firmwide HQLA was approximately $716.1 billion and average LCR was 113%. Including approximately $771 billion of unencumbered marketable securities, management identified approximately $1.5 trillion of liquidity sources. The firm’s CET1 ratio was 12.5%, Tier 1 leverage ratio was 6.2%, and SLR was 5.3%.
Material changes versus the prior comparable periods
- Quarterly net income declined 17%, and year-to-date net income declined 30%, primarily because 2022 included credit-loss provisions versus significant reserve releases in 2021.
- Quarterly provision for credit losses was $1.5 billion, compared with a $1.5 billion benefit in 2021. The allowance for credit losses increased to $20.8 billion, with additions driven primarily by wholesale loan growth, lending commitments, and less favorable macroeconomic scenarios.
- Investment-banking fees fell 49% in the quarter and 46% year to date, reflecting lower issuance and M&A activity amid volatile markets.
- Investment-securities losses increased to $959 million in the quarter and $1.5 billion year to date, largely from repositioning U.S. government agency MBS and U.S. Treasury portfolios.
- Noninterest expense rose 12% in the quarter, driven by compensation, structural costs, technology, marketing, and continued business investment.
- Firmwide loans increased 7% on an average basis year over year, while average deposits increased 3%; period-end deposits fell as non-operating and wealth-management deposits migrated into investments.
- Common share repurchases were suspended beginning July 14, 2022, in anticipation of higher regulatory capital requirements. The quarterly common dividend remained $1.00 per share.
- The firm transferred $73.2 billion of securities from available-for-sale to held-to-maturity during the second quarter, contributing to a significant increase in unrealized losses recorded in accumulated other comprehensive income.
Guidance, outlook, risks and unusual items
Management expected fourth-quarter 2022 net interest income of approximately $19 billion and full-year net interest income of approximately $66 billion, both market dependent. Full-year net interest income excluding Markets was expected to be approximately $61.5 billion. Adjusted full-year expense was expected to be approximately $77 billion, and the full-year Card net charge-off rate was expected to be approximately 1.5%.
Management increased the weighting of adverse macroeconomic scenarios. The weighted-average adverse scenario assumed U.S. unemployment peaking at 5.0% in the third quarter of 2023 and U.S. real GDP 1.6% below the central scenario exiting the fourth quarter of 2023. Credit-loss estimates remain sensitive to unemployment, GDP, equity prices, credit spreads, oil prices, commercial real estate prices, and home prices.
- The war in Ukraine, sanctions, inflation, interest-rate changes, market volatility, foreign-exchange movements, and geopolitical developments may affect credit, trading, operational, and compliance risks. Russia exposure was described as approximately $600 million under the firm’s internal country-risk framework and not material to the firm’s financial condition.
- Cybersecurity and operational risks remain elevated, including risks associated with sanctions compliance and potential retaliation related to the war in Ukraine.
- U.S. dollar LIBOR principal tenors were scheduled to cease publication on June 30, 2023; the firm continued its transition and client outreach efforts.
- Regulatory capital requirements increased. The firm announced redemptions of $5.43 billion of preferred stock and issued $3.5 billion of subordinated notes to rebalance capital components.
- The firm announced an agreement to acquire Renovite Technologies, a cloud-native payments technology company. The filing does not provide transaction consideration or expected closing terms.
- Aggregate reasonably possible legal losses in excess of established reserves were estimated at up to approximately $1.2 billion as of September 30, 2022, excluding matters for which a reliable estimate could not be made.
- The firm adopted SA-CCR in 2022, increasing standardized risk-weighted assets by approximately $40 billion based on year-end 2021 derivatives exposure. It planned to adopt new accounting guidance for troubled debt restructurings and vintage disclosures on January 1, 2023.
Most important facts for investors to verify
- Whether higher interest rates continue to support net interest income after considering deposit repricing, deposit migration, funding costs, and Markets performance.
- Whether credit-card delinquencies and charge-offs continue to normalize: the Card 30-plus-day delinquency rate was 1.23% and the quarterly net charge-off rate was 1.40%.
- Future credit-loss provisions and allowance adequacy under changing unemployment, GDP, home-price, commercial-real-estate, and market assumptions.
- The effect of unrealized investment-securities losses, AOCI volatility, and the AFS-to-HTM transfer on tangible equity and regulatory capital.
- Progress toward the firm’s 12.5% fourth-quarter 2022 and 13.0% first-quarter 2023 standardized CET1 targets, including the status of share repurchases.
- Execution of the approximately $77 billion adjusted-expense outlook and the return on ongoing technology, distribution, marketing, and international-consumer investments.
- Potential exposure from litigation, regulatory investigations, sanctions, LIBOR transition, cybersecurity incidents, guarantees, and other off-balance-sheet commitments.