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JPMorgan's (JPM) Q1 Earnings Top on NII, High Provisions Ail
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Support from the consumer banking business, higher rates and decent loan demand drive JPMorgan’s (JPM - Free Report) first-quarter 2023 adjusted earnings of $4.10 per share, which surpassed the Zacks Consensus Estimate of $3.41. The results included net investment securities losses of 22 cents per share in the Corporate segment. Our estimate for earnings was $3.01 per share.
Shares of the company gained almost 6% in pre-market trading as quarterly numbers widely outpaced expectations. The company’s results show the resilience of the banking industry amid the industry-wide turmoil and rising recession risk. Investors are also encouraged by the company’s upbeat net interest income (NII) 2023 guidance.
Higher interest rates, solid consumer spending and decent loan balance (up 5% year over year) boosted NII during the quarter. Management now expects NII (excluding CIB Markets NII) to reach approximately $81 billion in 2023, up from the prior target of $74 billion.
Among other positives, Commercial Banking average loan balances were up 13% year over year. Further, debit and credit card sales volume increased 10%. Credit card loans were up 18% with persistently robust new account originations.
Markets revenues declined 4% to $8.4 billion, primarily due to “a very strong prior year.” Specifically, fixed-income markets revenues were stable at $5.7 billion, while equity trading numbers were disappointing at $2.68 billion (down 12%). Our estimates for equity and fixed-income markets revenues were $2.71 billion and $4.86 billion, respectively.
Also, as expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees declined 6% and 34%, respectively. Also, advisory fees were down 6%. Hence, IB fees fell 19% from the prior-year quarter.
Further, mortgage fees and related income tanked 52% to $221 million as mortgage rates remained above the 6% mark in the first quarter. During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expense guidance of $81 billion for this year.
During the first quarter, the company set aside provisions of $2.3 billion as it expects “financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending.”
The turmoil related to the collapse of Silicon Valley Bank and Signature Bank as well as other financial products offering higher yields weighed on JPMorgan’s deposit balances, which declined 7% from the prior-year quarter.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments recorded a rise in net income on a year-over-year basis. Overall, net income jumped 52% to $12.6 billion.
Revenues & Costs Rise
Net revenues, as reported, were $38.3 billion, up 25% year over year. The top line also beat the Zacks Consensus Estimate of $35.2 billion. Our estimate for the metric was $33.7 billion.
NII jumped 49% year over year to $20.7 billion. Non-interest income grew 5% to $17.6 billion, primarily on solid markets revenues, partially offset by higher net investment securities losses and a fall in IB fees. Our estimates for NII and non-interest income were $20.2 billion and $13.4 billion, respectively.
Non-interest expenses (on managed basis) were $20.1 billion, up 5%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $20.2 billion.
Credit Quality Worsening
Provision for credit losses was $2.3 billion, up 56% from the prior-year quarter. This mainly reflected a deterioration in the economic outlook (now includes “a moderate recession”). Our estimate for the metric was $2.4 billion.
Also, net charge-offs (NCOs) jumped 95% to $1.13 billion. Our estimate for NCOs was $951.6 million.
However, as of Mar 31, 2023, non-performing assets (NPAs) were $7.4 billion, down 14% from Mar 31, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.4% at the first quarter-end, up from 13.7% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13.8%, up from 11.9%. Total capital ratio was 17.4% (estimated), up from 15.4%.
Book value per share was $94.34 as of Mar 31, 2023, compared with $86.16 in the corresponding period of 2021. Tangible book value per common share was $76.69 at the end of March 2023, up from $69.58.
Share Repurchases
During the quarter, JPMorgan repurchased shares worth $1.9 billion. The company resumed share buyback in the first quarter after suspending the same last year.
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
Earnings Dates & Expectations of Other Major Banks
Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2023 numbers on Apr 18.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 79 cents, implying a 1.3% decline from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report first-quarter 2023 numbers on Apr 20.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved marginally lower to $1.13. This indicates an 8.1% fall from the prior-year quarter.
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JPMorgan's (JPM) Q1 Earnings Top on NII, High Provisions Ail
Support from the consumer banking business, higher rates and decent loan demand drive JPMorgan’s (JPM - Free Report) first-quarter 2023 adjusted earnings of $4.10 per share, which surpassed the Zacks Consensus Estimate of $3.41. The results included net investment securities losses of 22 cents per share in the Corporate segment. Our estimate for earnings was $3.01 per share.
Shares of the company gained almost 6% in pre-market trading as quarterly numbers widely outpaced expectations. The company’s results show the resilience of the banking industry amid the industry-wide turmoil and rising recession risk. Investors are also encouraged by the company’s upbeat net interest income (NII) 2023 guidance.
Higher interest rates, solid consumer spending and decent loan balance (up 5% year over year) boosted NII during the quarter. Management now expects NII (excluding CIB Markets NII) to reach approximately $81 billion in 2023, up from the prior target of $74 billion.
Among other positives, Commercial Banking average loan balances were up 13% year over year. Further, debit and credit card sales volume increased 10%. Credit card loans were up 18% with persistently robust new account originations.
Markets revenues declined 4% to $8.4 billion, primarily due to “a very strong prior year.” Specifically, fixed-income markets revenues were stable at $5.7 billion, while equity trading numbers were disappointing at $2.68 billion (down 12%). Our estimates for equity and fixed-income markets revenues were $2.71 billion and $4.86 billion, respectively.
Also, as expected, the performance of the IB business was hugely disappointing. Equity and debt underwriting fees declined 6% and 34%, respectively. Also, advisory fees were down 6%. Hence, IB fees fell 19% from the prior-year quarter.
Further, mortgage fees and related income tanked 52% to $221 million as mortgage rates remained above the 6% mark in the first quarter. During the quarter, operating expenses recorded a rise. Management reiterated the adjusted non-interest expense guidance of $81 billion for this year.
During the first quarter, the company set aside provisions of $2.3 billion as it expects “financial conditions will likely tighten as lenders become more conservative, and we do not know if this will slow consumer spending.”
The turmoil related to the collapse of Silicon Valley Bank and Signature Bank as well as other financial products offering higher yields weighed on JPMorgan’s deposit balances, which declined 7% from the prior-year quarter.
The performance of JPMorgan’s business segments, in terms of net income generation, was robust. All segments recorded a rise in net income on a year-over-year basis. Overall, net income jumped 52% to $12.6 billion.
Revenues & Costs Rise
Net revenues, as reported, were $38.3 billion, up 25% year over year. The top line also beat the Zacks Consensus Estimate of $35.2 billion. Our estimate for the metric was $33.7 billion.
NII jumped 49% year over year to $20.7 billion. Non-interest income grew 5% to $17.6 billion, primarily on solid markets revenues, partially offset by higher net investment securities losses and a fall in IB fees. Our estimates for NII and non-interest income were $20.2 billion and $13.4 billion, respectively.
Non-interest expenses (on managed basis) were $20.1 billion, up 5%. This upswing was mainly due to a rise in compensation expenses and technology and marketing costs. We had projected on-interest expenses to be $20.2 billion.
Credit Quality Worsening
Provision for credit losses was $2.3 billion, up 56% from the prior-year quarter. This mainly reflected a deterioration in the economic outlook (now includes “a moderate recession”). Our estimate for the metric was $2.4 billion.
Also, net charge-offs (NCOs) jumped 95% to $1.13 billion. Our estimate for NCOs was $951.6 million.
However, as of Mar 31, 2023, non-performing assets (NPAs) were $7.4 billion, down 14% from Mar 31, 2022 level.
Solid Capital Position
Tier 1 capital ratio (estimated) was 15.4% at the first quarter-end, up from 13.7% in the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 13.8%, up from 11.9%. Total capital ratio was 17.4% (estimated), up from 15.4%.
Book value per share was $94.34 as of Mar 31, 2023, compared with $86.16 in the corresponding period of 2021. Tangible book value per common share was $76.69 at the end of March 2023, up from $69.58.
Share Repurchases
During the quarter, JPMorgan repurchased shares worth $1.9 billion. The company resumed share buyback in the first quarter after suspending the same last year.
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 Major Banks
Bank of America (BAC - Free Report) is scheduled to announce first-quarter 2023 numbers on Apr 18.
Over the past week, the Zacks Consensus Estimate for BAC’s quarterly earnings has moved 1.3% south to 79 cents, implying a 1.3% decline from the prior-year reported number.
Truist Financial (TFC - Free Report) is slated to report first-quarter 2023 numbers on Apr 20.
Over the past seven days, the Zacks Consensus Estimate for Truist Financial’s quarterly earnings has moved marginally lower to $1.13. This indicates an 8.1% fall from the prior-year quarter.