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JPMorgan (JPM) Q4 Earnings Top on NII, High Credit Costs Ail
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Higher loan balance, rising rates and solid markets performance drive JPMorgan’s (JPM - Free Report) fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. The results excluded gains from the sale of Visa B shares and net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
Despite reporting better-than-expected earnings, shares of the company tanked more than 3% in pre-market trading. Investors are disappointed with JPMorgan’s adjusted expenses guidance and “mild recession” expectation. A slowdown in the mortgage business and a slump in deal-making activities were the other major headwinds.
During the fourth quarter, the company reported credit costs of $2.3 billion. CEO Jamie Dimon said in a statement, “The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy. However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”
As expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 89% and 58%, respectively. Also, advisory fees were down 53%. Hence, IB fees plunged 58% from the prior-year quarter.
Further, mortgage fees and related income declined 69% to $98 million as mortgage rates remained above the 6% mark in the fourth quarter.
During the quarter, operating expenses recorded a rise. Management projects the adjusted non-interest expenses to be $81 billion for this year.
On the other hand, higher interest rates and a solid rise in loan balance (up 5% year over year) aided the bank’s net interest income (NII). Management targets NII (excluding CIB Markets NII) to reach approximately $74 billion in 2023.
Further, as expected, fixed-income market revenues grew during the quarter to $3.8 billion, while equity trading numbers were disappointing at $1.9 billion. Total market revenues of $5.7 billion increased 7%. Our estimates for equity and fixed-income market revenues were $1.9 billion and $4.9 billion, respectively.
Among other positives, Asset & Wealth Management average loan balances rose 2% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 14%.
Debit and credit card sales volume increased 9% year over year. Further, credit card loans were up 20% with persistently robust new account originations. We had projected card loans to be up 14.3%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank, recorded a rise in net income on a year-over-year basis. Overall, net income grew 6% to $11 billion.
Revenues & Costs Rise
Net revenues, as reported, were $34.5 billion, up 18% year over year. The top line beat the Zacks Consensus Estimate of $34 billion. Our estimate for the metric was $32.1 billion.
NII jumped 48% year over year to $20.2 billion. Non-interest income declined 8% to $14.4 billion, primarily due to a drastic plunge in mortgage banking and IB fees, partly offset by improved trading income. Our estimates for NII and non-interest income were $18.8 billion and $13.3 billion, respectively.
Non-interest expenses (on managed basis) were $19 billion, up 6%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $19.2 billion.
Credit Quality Worsening
Provision for credit losses was $2.3 billion against a net benefit of $1.2 million in the prior-year quarter. This mainly reflected loan growth and deterioration in the economic outlook (now includes a mild recession). Our estimate for the metric was $1.8 billion.
Also, net charge-offs (NCOs) jumped 61% to $887 million. Our estimate for NCOs was $889 million.
However, as of Dec 31, 2022, non-performing assets (NPAs) were $7.2 billion, down 13% from Dec 31, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14.8% at the fourth quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13.2%, up from 13.1%. Total capital ratio was 16.8% (estimated), in line with the Dec 31, 2021 figure.
Book value per share was $90.29 as of Dec 31, 2022, compared with $88.07 in the corresponding period of 2021. Tangible book value per common share was $73.12 at the end of December 2022, up from $71.53.
Our Take
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, high 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
Morgan Stanley (MS - Free Report) is scheduled to announce fourth-quarter and full-year 2022 numbers on Jan 17.
Over the past week, the Zacks Consensus Estimate for MS’ quarterly earnings has moved 7.4% south to $1.25, implying a 39.9% plunge from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2022 numbers on Jan 19.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.5% lower to $1.28. This indicates a 7.3% fall from the prior-year quarter.
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JPMorgan (JPM) Q4 Earnings Top on NII, High Credit Costs Ail
Higher loan balance, rising rates and solid markets performance drive JPMorgan’s (JPM - Free Report) fourth-quarter 2022 adjusted earnings of $3.56 per share, which surpassed the Zacks Consensus Estimate of $3.11. The results excluded gains from the sale of Visa B shares and net investment securities losses in the Corporate segment. Our estimate for earnings was $2.98 per share.
Despite reporting better-than-expected earnings, shares of the company tanked more than 3% in pre-market trading. Investors are disappointed with JPMorgan’s adjusted expenses guidance and “mild recession” expectation. A slowdown in the mortgage business and a slump in deal-making activities were the other major headwinds.
During the fourth quarter, the company reported credit costs of $2.3 billion. CEO Jamie Dimon said in a statement, “The U.S. economy currently remains strong with consumers still spending excess cash and businesses healthy. However, we still do not know the ultimate effect of the headwinds coming from geopolitical tensions including the war in Ukraine, the vulnerable state of energy and food supplies, persistent inflation that is eroding purchasing power and has pushed interest rates higher, and the unprecedented quantitative tightening.”
As expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees tanked 89% and 58%, respectively. Also, advisory fees were down 53%. Hence, IB fees plunged 58% from the prior-year quarter.
Further, mortgage fees and related income declined 69% to $98 million as mortgage rates remained above the 6% mark in the fourth quarter.
During the quarter, operating expenses recorded a rise. Management projects the adjusted non-interest expenses to be $81 billion for this year.
On the other hand, higher interest rates and a solid rise in loan balance (up 5% year over year) aided the bank’s net interest income (NII). Management targets NII (excluding CIB Markets NII) to reach approximately $74 billion in 2023.
Further, as expected, fixed-income market revenues grew during the quarter to $3.8 billion, while equity trading numbers were disappointing at $1.9 billion. Total market revenues of $5.7 billion increased 7%. Our estimates for equity and fixed-income market revenues were $1.9 billion and $4.9 billion, respectively.
Among other positives, Asset & Wealth Management average loan balances rose 2% from the year-ago quarter. Likewise, Commercial Banking average loan balances were up 14%.
Debit and credit card sales volume increased 9% year over year. Further, credit card loans were up 20% with persistently robust new account originations. We had projected card loans to be up 14.3%.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank, recorded a rise in net income on a year-over-year basis. Overall, net income grew 6% to $11 billion.
Revenues & Costs Rise
Net revenues, as reported, were $34.5 billion, up 18% year over year. The top line beat the Zacks Consensus Estimate of $34 billion. Our estimate for the metric was $32.1 billion.
NII jumped 48% year over year to $20.2 billion. Non-interest income declined 8% to $14.4 billion, primarily due to a drastic plunge in mortgage banking and IB fees, partly offset by improved trading income. Our estimates for NII and non-interest income were $18.8 billion and $13.3 billion, respectively.
Non-interest expenses (on managed basis) were $19 billion, up 6%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $19.2 billion.
Credit Quality Worsening
Provision for credit losses was $2.3 billion against a net benefit of $1.2 million in the prior-year quarter. This mainly reflected loan growth and deterioration in the economic outlook (now includes a mild recession). Our estimate for the metric was $1.8 billion.
Also, net charge-offs (NCOs) jumped 61% to $887 million. Our estimate for NCOs was $889 million.
However, as of Dec 31, 2022, non-performing assets (NPAs) were $7.2 billion, down 13% from Dec 31, 2021 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 14.8% at the fourth quarter-end, down from 15% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13.2%, up from 13.1%. Total capital ratio was 16.8% (estimated), in line with the Dec 31, 2021 figure.
Book value per share was $90.29 as of Dec 31, 2022, compared with $88.07 in the corresponding period of 2021. Tangible book value per common share was $73.12 at the end of December 2022, up from $71.53.
Our Take
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, high 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 Banks
Morgan Stanley (MS - Free Report) is scheduled to announce fourth-quarter and full-year 2022 numbers on Jan 17.
Over the past week, the Zacks Consensus Estimate for MS’ quarterly earnings has moved 7.4% south to $1.25, implying a 39.9% plunge from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2022 numbers on Jan 19.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.5% lower to $1.28. This indicates a 7.3% fall from the prior-year quarter.