JPMorgan (JPM) Q2 Earnings Top on FRC Deal, NII View Raised
Support from the First Republic Bank acquisition, consumer banking business, higher rates and solid loan balance drove JPMorgan’s JPM second-quarter 2023 adjusted earnings to $4.37 per share. The bottom line handily surpassed the Zacks Consensus Estimate of $3.62.
The results excluded significant items related to the FRC acquisition on May 1 and net investment securities losses. After considering these, earnings were $4.75 per share.
Shares of the company gained almost 3% in pre-market trading as quarterly numbers widely outpaced expectations. The company’s results show the continuous resilience of the U.S. economy. Investors are also encouraged by the company’s upbeat net interest income (NII) 2023 guidance.
Higher interest rates, decent consumer spending and a solid loan balance (up 18% year over year) boosted NII during the quarter. Management lifted NII (excluding CIB Markets NII) target to $87 billion for 2023, up from the prior guidance of $84 billion.
Among other positives, Commercial Banking average loan balances were up 23% year over year. Further, debit and credit card sales volume increased 7%. Credit card loans were up 16%, with persistently robust new account originations.
Markets revenues declined 10% to $7 billion. Specifically, fixed-income markets revenues were down 3% to $4.6 billion, while equity trading numbers were hugely disappointing at $2.5 billion (down 20%). Our estimates for equity and fixed-income markets revenues were $2.92 billion and $4.95 billion, respectively.
Also, as expected, the performance of the investment banking (IB) business was discouraging. While equity underwriting fees jumped 30%, debt underwriting fees were down 6%. Also, advisory fees declined 19%. Hence, total IB fees fell 6% from the prior-year quarter.
Further, mortgage fees and related income slid 26% to $278 million as mortgage rates remained above the 6% mark in the second quarter. We had projected the metric to be $204.7 million.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expense guidance of $84.5 billion for this year.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments recorded a rise in net income on a year-over-year basis. Overall, net income jumped 67% to $14.47 billion. We had projected net income to be $10.7 billion.
Revenues & Costs Rise
Net revenues, as reported, were $41.31 billion, up 34% year over year. The top line also surpassed the Zacks Consensus Estimate of $37.17 billion.
NII jumped 44% year over year to $21.78 billion. Our estimate for NII was $21.54 billion.
Non-interest income grew 25% to $19.53 billion. This included the estimated bargain purchase gain of $2.7 billion recorded in other income related to the FRC acquisition. Our estimate for non-interest income was $15.09 billion and did not include the bargain purchase gain.
Non-interest expenses (on managed basis) were $20.82 billion, up 11%. This upswing was mainly due to a rise in compensation expenses and marketing costs. The number included expenses of $599 million related to the FRC deal. We had projected non-interest expenses to be $21.26 billion.
Credit Quality Worsening
Provision for credit losses was $2.9 billion, up substantially from the prior-year quarter. As a result of the acquisition of FRC, provisions increased $1.2 billion. Our estimate for the metric was $2 billion.
Also, net charge-offs (NCOs) jumped significantly to $1.41 billion. Our estimate for NCOs was $1.11 billion.
As of Jun 30, 2023, non-performing assets (NPAs) were $7.84 billion, relatively stable with the Jun 30, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.3% at the second quarter-end, up from 14.1% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13.8%, up from 12.2%. Total capital ratio was 17.3% (estimated), up from 15.7%.
Book value per share was $98.11 as of Jun 30, 2023, compared with $86.38 a year ago. Tangible book value per common share was $79.90 at the end of June 2023, up from $69.53.
Capital Deployment Update
During the reported quarter, JPMorgan repurchased shares worth $1.8 billion. The company resumed share buyback in the first quarter of 2023 after suspending the same last year.
Also, following the clearance of the 2023 stress test, JPMorgan announced plans to increase the quarterly dividend by 5% to $1.05 per share. Further, the company intends to continue with its previously announced share repurchase program.
Our Take
New branch openings, strategic acquisitions, a global expansion plan, high interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. Also, the buyout of First Republic Bank is expected to be accretive to earnings. However, potential economic slowdown, waning loan demand and disappointing IB and mortgage banking performance are major near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote
JPMorgan currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates & Expectations of Other Major Banks
Bank of America BAC is scheduled to announce second-quarter 2023 numbers on Jul 18.
Over the past 30 days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.2% lower to 84 cents, implying a 15.1% rise from the prior-year reported number.
Truist Financial TFC is slated to report second-quarter 2023 numbers on Jul 20.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 8.3% lower to 99 cents. This indicates a 17.5% fall from the prior-year quarter.
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