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JPMorgan (JPM) Q3 Earnings Top on High Rates, NII View Raised
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Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses and solid loan balance drove JPMorgan’s (JPM - Free Report) third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.
The results included net investment securities losses and legal expenses. After excluding these, earnings were $3.94 per share.
Jamie Dimon noted that U.S. consumers and businesses "generally remain healthy" but noted a number of headwinds, including the possibility that inflation remains elevated for a longer period and interest rates continue to rise. He added, “Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades.”
Shares of the company gained 1% in pre-market trading as quarterly numbers widely outpaced expectations. The company’s results show the continuous resilience of the U.S. economy, though headwinds are lurking. 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 $89 billion for 2023, up from the prior guidance of $87 billion.
Among other positives, Commercial Banking average loan balances were up 24% year over year. Further, debit and credit card sales volume increased 8%. Credit card loans were up 16%, with persistently robust new account originations.
Surprisingly, mortgage fees and related income jumped 32% to $414 million despite the mortgage rates remaining substantially high during the third quarter. We had projected the metric to be $260.5 million.
Markets revenues declined 3% to $6.6 billion. Specifically, fixed-income markets revenues were up 1% to $4.5 billion, while equity trading numbers were hugely disappointing at $2.1 billion (down 10%). Our estimates for equity and fixed-income markets revenues were $2.08 billion and $4.58 billion, respectively.
Also, as expected, the performance of the investment banking (IB) business was weak. While equity underwriting fees declined 6%, debt underwriting fees were up 8%. Advisory fees declined 10%. Hence, total IB fees fell 3% from the prior-year quarter.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expense guidance of $84 billion for this year.
Also, the company witnessed a 1% decline in deposit balance, reflecting that big banks are not immune to deposit flight under the current higher interest rate regime.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments, except Corporate & Investment Bank, recorded a rise in net income on a year-over-year basis. Overall, net income jumped 35% to $13.15 billion. We had projected net income to be $10.35 billion.
Revenues & Costs Rise
Net revenues, as reported, were $39.87 billion, up 22% year over year. The top line also surpassed the Zacks Consensus Estimate of $39.14 billion.
NII jumped 30% year over year to $22.73 billion. This was driven by higher rates and higher revolving balances in Card Services, partially offset by the reduction in deposit balances. Our estimate for NII was $22.59 billion.
Non-interest income grew 13% to $17.15 billion. Our estimate for non-interest income was $14.03 billion on the back expectations of weaker mortgage fee income performance, which surprisingly surged during the quarter.
Non-interest expenses (on a managed basis) were $21.76 billion, up 13%. This upswing was mainly due to a rise in compensation expenses and legal costs. We had projected non-interest expenses to be $21.93 billion.
Credit Quality Weakens
Provision for credit losses was $1.38 billion, down 10% from the prior-year quarter.
Net charge-offs (NCOs) jumped significantly to $1.49 billion. Our estimate for NCOs was $1.38 billion. Also, as of Sep 30, 2023, non-performing assets (NPAs) were $8.13 billion, up 12% from the Sep 30, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.9% at the third quarter-end, up from 14.1% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 14.3%, up from 12.5%. Total capital ratio was 17.8% (estimated), up from 16%.
Book value per share was $100.30 as of Sep 30, 2023, compared with $87 a year ago. Tangible book value per common share was $82.04 at the end of September 2023, up from $69.90.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased 15 million shares for $2 billion.
Our Viewpoint
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 continue to be accretive to the top and bottom lines. 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
Earnings Dates & Expectations of Other Major Banks
Bank of America (BAC - Free Report) is scheduled to announce third-quarter 2023 numbers on Oct 17.
Over the past seven days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.2% lower to 80 cents. This implies a 1.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report third-quarter 2023 numbers on Oct 19.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.2% lower to 81 cents. This indicates a 34.7% plunge from the prior-year quarter.
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JPMorgan (JPM) Q3 Earnings Top on High Rates, NII View Raised
Support from higher interest rates, the First Republic Bank deal, robust consumer and commercial banking businesses and solid loan balance drove JPMorgan’s (JPM - Free Report) third-quarter 2023 earnings to $4.33 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.89.
The results included net investment securities losses and legal expenses. After excluding these, earnings were $3.94 per share.
Jamie Dimon noted that U.S. consumers and businesses "generally remain healthy" but noted a number of headwinds, including the possibility that inflation remains elevated for a longer period and interest rates continue to rise. He added, “Furthermore, the war in Ukraine compounded by last week’s attacks on Israel may have far-reaching impacts on energy and food markets, global trade, and geopolitical relationships. This may be the most dangerous time the world has seen in decades.”
Shares of the company gained 1% in pre-market trading as quarterly numbers widely outpaced expectations. The company’s results show the continuous resilience of the U.S. economy, though headwinds are lurking. 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 $89 billion for 2023, up from the prior guidance of $87 billion.
Among other positives, Commercial Banking average loan balances were up 24% year over year. Further, debit and credit card sales volume increased 8%. Credit card loans were up 16%, with persistently robust new account originations.
Surprisingly, mortgage fees and related income jumped 32% to $414 million despite the mortgage rates remaining substantially high during the third quarter. We had projected the metric to be $260.5 million.
Markets revenues declined 3% to $6.6 billion. Specifically, fixed-income markets revenues were up 1% to $4.5 billion, while equity trading numbers were hugely disappointing at $2.1 billion (down 10%). Our estimates for equity and fixed-income markets revenues were $2.08 billion and $4.58 billion, respectively.
Also, as expected, the performance of the investment banking (IB) business was weak. While equity underwriting fees declined 6%, debt underwriting fees were up 8%. Advisory fees declined 10%. Hence, total IB fees fell 3% from the prior-year quarter.
During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expense guidance of $84 billion for this year.
Also, the company witnessed a 1% decline in deposit balance, reflecting that big banks are not immune to deposit flight under the current higher interest rate regime.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments, except Corporate & Investment Bank, recorded a rise in net income on a year-over-year basis. Overall, net income jumped 35% to $13.15 billion. We had projected net income to be $10.35 billion.
Revenues & Costs Rise
Net revenues, as reported, were $39.87 billion, up 22% year over year. The top line also surpassed the Zacks Consensus Estimate of $39.14 billion.
NII jumped 30% year over year to $22.73 billion. This was driven by higher rates and higher revolving balances in Card Services, partially offset by the reduction in deposit balances. Our estimate for NII was $22.59 billion.
Non-interest income grew 13% to $17.15 billion. Our estimate for non-interest income was $14.03 billion on the back expectations of weaker mortgage fee income performance, which surprisingly surged during the quarter.
Non-interest expenses (on a managed basis) were $21.76 billion, up 13%. This upswing was mainly due to a rise in compensation expenses and legal costs. We had projected non-interest expenses to be $21.93 billion.
Credit Quality Weakens
Provision for credit losses was $1.38 billion, down 10% from the prior-year quarter.
Net charge-offs (NCOs) jumped significantly to $1.49 billion. Our estimate for NCOs was $1.38 billion. Also, as of Sep 30, 2023, non-performing assets (NPAs) were $8.13 billion, up 12% from the Sep 30, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.9% at the third quarter-end, up from 14.1% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 14.3%, up from 12.5%. Total capital ratio was 17.8% (estimated), up from 16%.
Book value per share was $100.30 as of Sep 30, 2023, compared with $87 a year ago. Tangible book value per common share was $82.04 at the end of September 2023, up from $69.90.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased 15 million shares for $2 billion.
Our Viewpoint
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 continue to be accretive to the top and bottom lines. 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 - Free Report) is scheduled to announce third-quarter 2023 numbers on Oct 17.
Over the past seven days, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.2% lower to 80 cents. This implies a 1.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report third-quarter 2023 numbers on Oct 19.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved 1.2% lower to 81 cents. This indicates a 34.7% plunge from the prior-year quarter.