Launching Q2 earnings season, moments ago JPM reported Q2 an adjusted record Net Income of $7.03 billion and EPS of $1.82, which however included an 11 cent legal benefit, beating expectations $1.57 and 27 cents higher than a year ago, on "managed" revenue of $26.4BN, beating consensus expectations of $25.1BN.
JPM reported average core loans up 8% Y/Y with net interest income also 8% higher to $12.5bn, “primarily driven by the net impact of rising rates and loan growth" even as average NIM missed.
Commenting on the result, Jamie Dimon said: “We continued to post very solid results against a stable-to-improving global economic backdrop. The U.S. consumer remains healthy, evidenced in our strong underlying performance in Consumer & Community Banking. Loans and deposits continue to grow strongly, and card sales and merchant processing volumes were up double digits, reflecting our consistent investment in the business. In the Corporate & Investment Bank, we maintained our leadership in Banking, while Markets revenue was down amid lower volatility and client activity.”
Dimon concluded:“We are also pleased to announce increases to our capital return plans while continuing to invest in our businesses for long-term profitability – reflecting the financial strength of our company and the significant capital and liquidity improvements we have made over the past several years.”
Some other headline data:
- 2Q Basel III common equity Tier 1 ratio 12.5%, above the est. 12.42%, with a 12% return on capital
- Q2 Adjusted expense of $14.4BN and adjusted overhead ratio of 56%
- 2Q compensation expenses $7.71 billion, estimate $7.96 billion
- $4.5BN returned to shareholders in 2Q17, including $2.7B of net repurchases
- Common dividend of $0.50 per share
- Average core loans up 8% YoY and 2% QoQ
JPM also reported that its provision for credit losses in Q2 was $1.22BN, below the $1.33BN expected as loan consumer reserves were $9.2BN in Q2, up $252MM to $9.2BN while wholesale reserves eclined by $241MM to $5.3BN.
More importantly, in light of the collapse in the yield curve, JPM announced that in Q2 its "net yield on interest-earning assets" or NIM declined from 2.33% in Q1 to 2.31% in Q2, below the 2.37% expected.
However, despite the record top and bottom line, JPM's sales and trading disappointed again, with JPM reporting total markets revenue of $4.8 billion, down 14% as both FICC and equity sales & trading revenue for Q2 quarter that missed estimates.
- 2Q FICC sales & trading revenue $3.22 billion, down 19% Y/Y, missing the estimate of $3.25 billion due to "due to reduced flows driven by sustained low volatility and tighter credit spreads, against a strong prior year"
- 2Q equities sales & trading revenue $1.59 billion, estimate $1.62 billion
On the other hand, 2Q investment banking revenue $1.70 billion, up 14% Y/Y and beating expectations of $1.65 billion. On the expense side, JPM reported Corporate and IBank overhead of $4.8B, down 5% YoY, driven by lower compensation expense.
JPM also reported average VaR of only $27, well below the $44 reported a year ago.
Overall, corporate and IBank revenue fell 3% Y/Y to $8.9 billion, although due to lower overhead net income rose 9% to $2.7 billion.
As noted above, Jamie Dimon blamed "lower volatility, client activity" for the disappointing print.
Offsetting the poor trading data was solid report by the bank's lending arm. The details:
- Record revenue of $2.1B, up 15% YoY and 3% QoQ
- Record net income of $902mm, up 30% YoY and 13% QoQ
- Net interest income of $1.5B, up 22% YoY and 6% QoQ
- Average loan balances of $198B, up 12% YoY and 3% QoQ
- C&I loans up 9% YoY and 4% QoQ
- CRE loans up 15% YoY and 2% QoQ
- Average client deposits of $173B, up 1% YoY and down 2% QoQ
- Credit costs net benefit of $130mm
- Net charge-off rate of 2 bps
- Net reserve release driven by Energy
Sadly, for some unexplained reason, this time JPM did not provide a breakdown of the trend in its consumer credit chargeoffs, which as a reminder, was among the biggest flags reported last quarter.
Finally, JPM provided the following guidance:
- Expect 2017 net interest income to be up $4B+ YoY, market dependent
- Expect 2017 adjusted expense to be ~$58B
- Expect 2017 net charge-offs to be $5B+/-1
- Expect 2017 average core loan growth to be ~8%
As a result, after a modst kneejerk reaction higher, the stock is now down just under 1%.
Full Q2 earnings presentation below (link):