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Higher interest rates, the First Republic Bank deal, modest improvement in investment banking (IB) business and solid loan balance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2023 adjusted earnings to $3.97 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.73.
The results excluded net investment securities losses and the FDIC special assessment charges. After including these, earnings were $3.04 per share.
Jamie Dimon noted that “the U.S. economy continues to be resilient" but stated a number of headwinds, including the possibility that inflation remains “stickier and rates to be higher than markets expect.” He added, “And the ongoing wars in Ukraine and the Middle East have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost. These significant and somewhat unprecedented forces cause us to remain cautious.”
The company's shares gained almost 1.7% in pre-market trading as quarterly numbers widely outpaced expectations. JPM’s results show the continuous resilience of the U.S. economy, though headwinds are lurking.
Higher interest rates, decent consumer spending and a solid loan balance (up 17% year over year) supported NII during the quarter. Management projects NII to be approximately $90 billion this year, compared with $89.3 billion in 2023.
Among other positives, Commercial Banking average loan balances were up 19% year over year. Further, debit and credit card sales volume increased 7%. Credit card loans were up 14%, with persistently robust new account originations.
Mortgage fees and related income jumped substantially to $263 million. We had projected the metric to be $321.4 million. Last year's quarter mortgage fees and related income were very low.
As expected, the performance of the IB business improved. Equity underwriting fees jumped 30% and debt underwriting fees were up 21%. Further, advisory fees rose 2%. Hence, total IB fees increased 13% from the prior-year quarter to $1.65 billion.
Markets revenues grew 2% to $5.8 billion. Specifically, fixed-income markets revenues were up 8% to $4.03 billion, while equity trading numbers were hugely disappointing at $1.78 billion (down 8%). Our estimates for equity and fixed-income markets revenues were $1.91 billion and $3.88 billion, respectively.
Further, the company witnessed a 3% year-over-year rise in deposit balance.
During the quarter, operating expenses witnessed a rise. Management expects adjusted non-interest expense to be roughly $90 billion this year.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments, except for Corporate & Investment Bank and Others, recorded a rise in net income on a year-over-year basis. Overall, net income declined 15% to $9.31 billion. We had projected net income to be $10.75 billion.
Revenues & Costs Rise
Net revenues, as reported, were $38.57 billion, up 12% year over year. The top line lagged the Zacks Consensus Estimate of $39.09 billion.
NII jumped 19% year over year to $24.05 billion. This was driven by higher rates and higher revolving balances in Card Services, partially offset by lower deposit balances. Our estimate for NII was $23.2 billion.
Non-interest income grew 1% to $14.52 billion. Our estimate for non-interest income was $14.65 billion.
Non-interest expenses (on a managed basis) were $24.49 billion, surging 29%. This upswing was mainly due to the FDIC special assessment charge of $2.9 billion and a rise in compensation expenses. We had projected non-interest expenses to be $22 billion (this didn’t include the FDIC special assessment charge).
Credit Quality Weakens
Provision for credit losses was $2.76 billion, up 21% from the prior-year quarter. Our estimate for the metric was $2.56 billion.
Net charge-offs (NCOs) jumped significantly to $2.16 billion. Also, as of Dec 31, 2023, non-performing assets (NPAs) were $8.06 billion, up 5% from the Dec 31, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 16.6% at the fourth quarter-end, up from 14.9% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 15%, up from 13.2%. Total capital ratio was 18.4% (estimated), up from 16.8%.
Book value per share was $104.45 as of Dec 31, 2023, compared with $90.29 a year ago. Tangible book value per common share was $86.08 at the end of December 2023, up from $73.12.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased 15.2 million shares for $2.3 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, a potential economic slowdown, reduction in loan demand and mounting expenses are major near-term concerns.
JPMorgan Chase & Co. Price, Consensus and EPS Surprise
Earnings Dates & Expectations of Other Major Banks
The PNC Financial Services Group (PNC - Free Report) is scheduled to announce fourth-quarter and full-year 2023 numbers on Jan 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved 4.7% lower to 2.82 cents. This implies a 19.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2023 numbers on Jan 18.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has remained unchanged at 88 cents. This indicates a 32.3% plunge from the prior-year quarter.
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JPMorgan (JPM) Q4 Earnings Beat on Higher Rates, Loans & IB
Higher interest rates, the First Republic Bank deal, modest improvement in investment banking (IB) business and solid loan balance drove JPMorgan’s (JPM - Free Report) fourth-quarter 2023 adjusted earnings to $3.97 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.73.
The results excluded net investment securities losses and the FDIC special assessment charges. After including these, earnings were $3.04 per share.
Jamie Dimon noted that “the U.S. economy continues to be resilient" but stated a number of headwinds, including the possibility that inflation remains “stickier and rates to be higher than markets expect.” He added, “And the ongoing wars in Ukraine and the Middle East have the potential to disrupt energy and food markets, migration, and military and economic relationships, in addition to their dreadful human cost. These significant and somewhat unprecedented forces cause us to remain cautious.”
The company's shares gained almost 1.7% in pre-market trading as quarterly numbers widely outpaced expectations. JPM’s results show the continuous resilience of the U.S. economy, though headwinds are lurking.
Higher interest rates, decent consumer spending and a solid loan balance (up 17% year over year) supported NII during the quarter. Management projects NII to be approximately $90 billion this year, compared with $89.3 billion in 2023.
Among other positives, Commercial Banking average loan balances were up 19% year over year. Further, debit and credit card sales volume increased 7%. Credit card loans were up 14%, with persistently robust new account originations.
Mortgage fees and related income jumped substantially to $263 million. We had projected the metric to be $321.4 million. Last year's quarter mortgage fees and related income were very low.
As expected, the performance of the IB business improved. Equity underwriting fees jumped 30% and debt underwriting fees were up 21%. Further, advisory fees rose 2%. Hence, total IB fees increased 13% from the prior-year quarter to $1.65 billion.
Markets revenues grew 2% to $5.8 billion. Specifically, fixed-income markets revenues were up 8% to $4.03 billion, while equity trading numbers were hugely disappointing at $1.78 billion (down 8%). Our estimates for equity and fixed-income markets revenues were $1.91 billion and $3.88 billion, respectively.
Further, the company witnessed a 3% year-over-year rise in deposit balance.
During the quarter, operating expenses witnessed a rise. Management expects adjusted non-interest expense to be roughly $90 billion this year.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments, except for Corporate & Investment Bank and Others, recorded a rise in net income on a year-over-year basis. Overall, net income declined 15% to $9.31 billion. We had projected net income to be $10.75 billion.
Revenues & Costs Rise
Net revenues, as reported, were $38.57 billion, up 12% year over year. The top line lagged the Zacks Consensus Estimate of $39.09 billion.
NII jumped 19% year over year to $24.05 billion. This was driven by higher rates and higher revolving balances in Card Services, partially offset by lower deposit balances. Our estimate for NII was $23.2 billion.
Non-interest income grew 1% to $14.52 billion. Our estimate for non-interest income was $14.65 billion.
Non-interest expenses (on a managed basis) were $24.49 billion, surging 29%. This upswing was mainly due to the FDIC special assessment charge of $2.9 billion and a rise in compensation expenses. We had projected non-interest expenses to be $22 billion (this didn’t include the FDIC special assessment charge).
Credit Quality Weakens
Provision for credit losses was $2.76 billion, up 21% from the prior-year quarter. Our estimate for the metric was $2.56 billion.
Net charge-offs (NCOs) jumped significantly to $2.16 billion. Also, as of Dec 31, 2023, non-performing assets (NPAs) were $8.06 billion, up 5% from the Dec 31, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 16.6% at the fourth quarter-end, up from 14.9% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 15%, up from 13.2%. Total capital ratio was 18.4% (estimated), up from 16.8%.
Book value per share was $104.45 as of Dec 31, 2023, compared with $90.29 a year ago. Tangible book value per common share was $86.08 at the end of December 2023, up from $73.12.
Share Repurchase Update
During the reported quarter, JPMorgan repurchased 15.2 million shares for $2.3 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, a potential economic slowdown, reduction in loan demand and mounting expenses 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
The PNC Financial Services Group (PNC - Free Report) is scheduled to announce fourth-quarter and full-year 2023 numbers on Jan 16.
Over the past seven days, the Zacks Consensus Estimate for PNC’s quarterly earnings has moved 4.7% lower to 2.82 cents. This implies a 19.2% fall from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report fourth-quarter and full-year 2023 numbers on Jan 18.
Over the past month, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has remained unchanged at 88 cents. This indicates a 32.3% plunge from the prior-year quarter.