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JPMorgan's (JPM) Q3 Earnings Beat, High Credit Costs Ail
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Higher loan balance, rising rates and solid markets performance drive JPMorgan’s (JPM - Free Report) third-quarter 2022 earnings of $3.12 per share, which surpassed the Zacks Consensus Estimate of $2.97. The results included $959 million or 24 cents of net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
After reporting better-than-expected earnings, shares of the company rallied 1.2% in pre-market trading. Investors are encouraged by JPMorgan’s quarterly performance and expectations of continued improvement in interest income. However, a worsening economic outlook, a slowdown in the mortgage business and a slump in deal-making activities were the major headwinds.
During the third quarter, the company reported credit costs of $1.5 billion. CEO Jamie Dimon said in a statement, “In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy. However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”
As expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 72% and 40%, respectively. Also, advisory fees were down 31%. Hence, IB fees plunged 47% from the prior-year quarter.
Further, mortgage fees and related income declined 48% to $314 million as mortgage rates crossed the 6% mark in September. Our estimate for the same was $297.9 million.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
On the other hand, higher interest rates and a solid rise in loan balance (up 7% year over year) aided the bank’s net interest income (NII). Management now targets NII (excluding CIB Markets NII) to reach approximately $61.5 billion for 2022. This is up from the prior target of $58 billion.
Further, as expected, fixed-income market revenues grew during the quarter to $4.5 billion, while equity trading numbers were disappointing at $2.3 billion. Total market revenues of $6.8 billion increased 8%. Our estimates for equity and fixed-income market revenues were $2.1 billion and $4.5 billion, respectively.
Among other positives, Asset & Wealth Management average loan balances rose 8% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 13%.
Debit and credit card sales volume increased 13% year over year. Further, card loans were up 19% with persistently robust new account originations. We had projected card loans to be up 15.7%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was dismal. All segments, except Corporate and Asset & Wealth Management, recorded a fall in net income on a year-over-year basis. Overall, net income declined 17% to $9.7 billion. Our estimate for the same was $9.3 billion.
Revenues & Costs Rise
Net revenues, as reported, were $32.7 billion, up 10% year over year. The top line beat the Zacks Consensus Estimate of $31.3 billion. Our estimate for the metric was $32.1 billion.
Net interest income (NII) jumped 34% year over year to $17.5 billion. Non-interest income declined 8% to $15.2 billion, primarily due to lower mortgage banking and IB fees, partly offset by improved trading income. Our estimates for NII and non-interest income were $18.7 billion and $14.3 billion, respectively.
Non-interest expenses (on managed basis) were $19.2 billion, up 12%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $19.4 billion.
Credit Quality Worsening
Provision for credit losses was $1.5 billion against a net benefit of $1.5 million in the prior-year quarter. This mainly reflected loan growth and deterioration in the economic outlook. Our estimate for the metric was $1.2 billion.
Also, net charge-offs (NCOs) rose 39% to $727 million. Our estimate for NCOs was $857.1 million.
However, as of Sep 30, 2022, non-performing assets (NPAs) were $7.2 billion, down 18% from Sep 30, 2021, level. Our estimate for NPAs was $8.2 billion.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14.1% at the third quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 12.5%, down from 12.9%. Total capital ratio was 15.9% (estimated) compared with 16.9% as of Sep 30, 2021.
Book value per share was $87 as of Sep 30, 2022, compared with $86.36 in the corresponding period of 2021. Tangible book value per common share was $69.90 at the end of September, up from $69.87.
Our View
New branch openings, strategic acquisitions, a global expansion plan, higher interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. However, raging inflation numbers, recessionary fears as well as disappointing IB and mortgage banking performance are major near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Earnings Dates & Expectations of Other Major Banks
Bank of America (BAC - Free Report) is scheduled to announce third-quarter 2022 numbers on Oct 17.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 79 cents, implying a 7.1% decline from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report third-quarter 2022 results on Oct 18.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved almost 1% lower to $1.26. This indicates an 11.3% plunge from the prior-year quarter.
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JPMorgan's (JPM) Q3 Earnings Beat, High Credit Costs Ail
Higher loan balance, rising rates and solid markets performance drive JPMorgan’s (JPM - Free Report) third-quarter 2022 earnings of $3.12 per share, which surpassed the Zacks Consensus Estimate of $2.97. The results included $959 million or 24 cents of net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
After reporting better-than-expected earnings, shares of the company rallied 1.2% in pre-market trading. Investors are encouraged by JPMorgan’s quarterly performance and expectations of continued improvement in interest income. However, a worsening economic outlook, a slowdown in the mortgage business and a slump in deal-making activities were the major headwinds.
During the third quarter, the company reported credit costs of $1.5 billion. CEO Jamie Dimon said in a statement, “In the U.S., consumers continue to spend with solid balance sheets, job openings are plentiful and businesses remain healthy. However, there are significant headwinds immediately in front of us – stubbornly high inflation leading to higher global interest rates, the uncertain impacts of quantitative tightening, the war in Ukraine, which is increasing all geopolitical risks, and the fragile state of oil supply and prices.”
As expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 72% and 40%, respectively. Also, advisory fees were down 31%. Hence, IB fees plunged 47% from the prior-year quarter.
Further, mortgage fees and related income declined 48% to $314 million as mortgage rates crossed the 6% mark in September. Our estimate for the same was $297.9 million.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expenses target of $77 billion for the year.
On the other hand, higher interest rates and a solid rise in loan balance (up 7% year over year) aided the bank’s net interest income (NII). Management now targets NII (excluding CIB Markets NII) to reach approximately $61.5 billion for 2022. This is up from the prior target of $58 billion.
Further, as expected, fixed-income market revenues grew during the quarter to $4.5 billion, while equity trading numbers were disappointing at $2.3 billion. Total market revenues of $6.8 billion increased 8%. Our estimates for equity and fixed-income market revenues were $2.1 billion and $4.5 billion, respectively.
Among other positives, Asset & Wealth Management average loan balances rose 8% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 13%.
Debit and credit card sales volume increased 13% year over year. Further, card loans were up 19% with persistently robust new account originations. We had projected card loans to be up 15.7%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was dismal. All segments, except Corporate and Asset & Wealth Management, recorded a fall in net income on a year-over-year basis. Overall, net income declined 17% to $9.7 billion. Our estimate for the same was $9.3 billion.
Revenues & Costs Rise
Net revenues, as reported, were $32.7 billion, up 10% year over year. The top line beat the Zacks Consensus Estimate of $31.3 billion. Our estimate for the metric was $32.1 billion.
Net interest income (NII) jumped 34% year over year to $17.5 billion. Non-interest income declined 8% to $15.2 billion, primarily due to lower mortgage banking and IB fees, partly offset by improved trading income. Our estimates for NII and non-interest income were $18.7 billion and $14.3 billion, respectively.
Non-interest expenses (on managed basis) were $19.2 billion, up 12%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $19.4 billion.
Credit Quality Worsening
Provision for credit losses was $1.5 billion against a net benefit of $1.5 million in the prior-year quarter. This mainly reflected loan growth and deterioration in the economic outlook. Our estimate for the metric was $1.2 billion.
Also, net charge-offs (NCOs) rose 39% to $727 million. Our estimate for NCOs was $857.1 million.
However, as of Sep 30, 2022, non-performing assets (NPAs) were $7.2 billion, down 18% from Sep 30, 2021, level. Our estimate for NPAs was $8.2 billion.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14.1% at the third quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 12.5%, down from 12.9%. Total capital ratio was 15.9% (estimated) compared with 16.9% as of Sep 30, 2021.
Book value per share was $87 as of Sep 30, 2022, compared with $86.36 in the corresponding period of 2021. Tangible book value per common share was $69.90 at the end of September, up from $69.87.
Our View
New branch openings, strategic acquisitions, a global expansion plan, higher interest rates and decent loan demand are likely to keep supporting JPMorgan’s revenues. However, raging inflation numbers, recessionary fears as well as 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 #3 (Hold). 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 - Free Report) is scheduled to announce third-quarter 2022 numbers on Oct 17.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 79 cents, implying a 7.1% decline from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report third-quarter 2022 results on Oct 18.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved almost 1% lower to $1.26. This indicates an 11.3% plunge from the prior-year quarter.