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JPMorgan (JPM) Q2 Earnings Beat on Reserve Release, IB Fees
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Large reserve releases, solid investment banking (“IB”) performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
Results included credit reserve releases. Excluding this, earnings amounted to $3.03 per share. The company had earned $1.38 in the prior-year quarter.
The company’s shares were down 1.3% in pre-market trading as total revenues witnessed a fall. The top line was hurt by weaknesses in trading and mortgage banking businesses. Lower interest rates too were a major headwind.
As projected by the CEO Jamie Dimon in mid-June at an investors conference, markets revenues were “north of $6 billion” at $6.8 billion, down 30% year over year. Fixed income markets revenues plunged 44% due to lower revenues across products, while equity markets revenues grew 13% on the back of solid performance across products.
Mortgage fees and related income decreased 40% to $551 million. Despite modest rise in loan balance (consumer, credit cards and wholesale portfolios) during the quarter, flattening of the yield curve and low interest rate environment hurt the bank’s interest income.
Operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 12% year over year.
During the quarter, the company reported net reserve releases of $3 billion. In a statement, Dimon said, “This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits. Our earnings, not including the reserve release, were $9.6 billion.”
Now coming to IB performance, equity and debt underwriting fees rose 9% and 26%, respectively. Continued stellar deal making activities during the quarter led JPMorgan to record a 52% jump in advisory fees. Hence, investment banking fees grew 25% from the prior-year quarter. This was well above management’s expectation of “up 20%.”
Among other positives, Asset & Wealth Management average loan balances grew 21% from the year-ago quarter. Credit card sales volume jumped 51%, reflecting steadily rising consumer confidence and economic outlook.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Banking and Corporate, reported improvement in net income on a year-over-year basis.
Net income increased substantially from the prior-year quarter to $11.9 billion.
Weak Trading Hurt Revenues, Costs Rise
Net revenues as reported were $30.48 billion, down 8% from the year-ago quarter. The decline was largely owing to fall in trading and mortgage banking fees, and lower interest rates, while higher IB income was an offsetting factor. The top line beat the Zacks Consensus Estimate of $29.98 billion.
Net interest income declined 8% year over year to $12.7 billion.
Non-interest income also declined 8% to $17.7 billion, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $17.7 billion, up 4% from the year-ago quarter. The increase was mainly due to continued investments in business including technology and front office hiring.
Credit Quality Improves
Provision for credit losses was a net benefit $1.3 billion against a provision of $10.5 billion in the prior-year quarter. Further, net charge-offs plunged 53% to $734 million.
As of Jun 30, 2021, non-performing assets were $9.8 billion, up 1% from Jun 30, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.1% at second quarter-end compared with 14.3% on Jun 30, 2020. Tier 1 common equity capital ratio (estimated) was 13.0%, up from 12.4%. Total capital ratio was 17.1% (estimated) compared with 16.7% as of Jun 30, 2020.
Book value per share was $84.85 as of Jun 30, 2021 compared with $76.91 in the corresponding period of 2020. Tangible book value per common share was $68.91 at the end of June, up from $61.76.
Capital Deployment Updates
During the quarter, JPMorgan repurchased shares worth $5.9 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
In June-end, following the clearance of this year’s stress test, JPMorgan announced plans to hike dividend by 11.1% to $1 per share, effective third quarter. The company intends to continue with the previously announced share buyback plan. For 2021, it had authorized to repurchase shares worth up to $30 billion.
Our Take
Branch expansion efforts, strategic buyouts and solid robust IB performance are likely to continue supporting JPMorgan’s revenues. Slight rise in loan balance is a major tailwind as the economy re-opens. However, lower rates, and disappointing trading and mortgage banking performance are near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) are scheduled to come out with quarterly numbers on Jul 15.
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JPMorgan (JPM) Q2 Earnings Beat on Reserve Release, IB Fees
Large reserve releases, solid investment banking (“IB”) performance and modest rise in loan demand drove JPMorgan’s (JPM - Free Report) second-quarter 2021 earnings of $3.78 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.
Results included credit reserve releases. Excluding this, earnings amounted to $3.03 per share. The company had earned $1.38 in the prior-year quarter.
The company’s shares were down 1.3% in pre-market trading as total revenues witnessed a fall. The top line was hurt by weaknesses in trading and mortgage banking businesses. Lower interest rates too were a major headwind.
As projected by the CEO Jamie Dimon in mid-June at an investors conference, markets revenues were “north of $6 billion” at $6.8 billion, down 30% year over year. Fixed income markets revenues plunged 44% due to lower revenues across products, while equity markets revenues grew 13% on the back of solid performance across products.
Mortgage fees and related income decreased 40% to $551 million. Despite modest rise in loan balance (consumer, credit cards and wholesale portfolios) during the quarter, flattening of the yield curve and low interest rate environment hurt the bank’s interest income.
Operating expenses witnessed a rise. Further, Commercial Banking average loan balances were down 12% year over year.
During the quarter, the company reported net reserve releases of $3 billion. In a statement, Dimon said, “This quarter we once again benefited from a significant reserve release as the environment continues to improve, but as we have said before, we do not consider these core or recurring profits. Our earnings, not including the reserve release, were $9.6 billion.”
Now coming to IB performance, equity and debt underwriting fees rose 9% and 26%, respectively. Continued stellar deal making activities during the quarter led JPMorgan to record a 52% jump in advisory fees. Hence, investment banking fees grew 25% from the prior-year quarter. This was well above management’s expectation of “up 20%.”
Among other positives, Asset & Wealth Management average loan balances grew 21% from the year-ago quarter. Credit card sales volume jumped 51%, reflecting steadily rising consumer confidence and economic outlook.
Overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Banking and Corporate, reported improvement in net income on a year-over-year basis.
Net income increased substantially from the prior-year quarter to $11.9 billion.
Weak Trading Hurt Revenues, Costs Rise
Net revenues as reported were $30.48 billion, down 8% from the year-ago quarter. The decline was largely owing to fall in trading and mortgage banking fees, and lower interest rates, while higher IB income was an offsetting factor. The top line beat the Zacks Consensus Estimate of $29.98 billion.
Net interest income declined 8% year over year to $12.7 billion.
Non-interest income also declined 8% to $17.7 billion, mainly due to dismal mortgage banking and principal transactions performance.
Non-interest expenses (on managed basis) were $17.7 billion, up 4% from the year-ago quarter. The increase was mainly due to continued investments in business including technology and front office hiring.
Credit Quality Improves
Provision for credit losses was a net benefit $1.3 billion against a provision of $10.5 billion in the prior-year quarter. Further, net charge-offs plunged 53% to $734 million.
As of Jun 30, 2021, non-performing assets were $9.8 billion, up 1% from Jun 30, 2020 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.1% at second quarter-end compared with 14.3% on Jun 30, 2020. Tier 1 common equity capital ratio (estimated) was 13.0%, up from 12.4%. Total capital ratio was 17.1% (estimated) compared with 16.7% as of Jun 30, 2020.
Book value per share was $84.85 as of Jun 30, 2021 compared with $76.91 in the corresponding period of 2020. Tangible book value per common share was $68.91 at the end of June, up from $61.76.
Capital Deployment Updates
During the quarter, JPMorgan repurchased shares worth $5.9 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.
In June-end, following the clearance of this year’s stress test, JPMorgan announced plans to hike dividend by 11.1% to $1 per share, effective third quarter. The company intends to continue with the previously announced share buyback plan. For 2021, it had authorized to repurchase shares worth up to $30 billion.
Our Take
Branch expansion efforts, strategic buyouts and solid robust IB performance are likely to continue supporting JPMorgan’s revenues. Slight rise in loan balance is a major tailwind as the economy re-opens. However, lower rates, and disappointing trading and mortgage banking performance are 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 #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Date of Other Big Banks
Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) are scheduled to come out with quarterly numbers on Jul 15.