JPMorgan’s Q2 Results: Three Key Takeaways

JPMorgan Chase (NYSE:JPM) comfortably beat investor expectations for its second quarter results late last week by reporting a strong increase in revenues across its operating division for the period. While the bank’s loans-and-deposits banking business (which includes its consumer banking and commercial banking reporting divisions) benefited from a sizable increase in loans, the bank also did well to report investment banking revenues that were 14% higher than the figure a year ago.

We have summarized JPMorgan’s Q2 2018 earnings and also detailed the major takeaways from the announcement in our interactive dashboard for the company, the key parts of which are captured in the charts below. Notably, JPMorgan’s dominant position across financial services including retail banking, investment banking, commercial banking as well as custody banking puts it in an enviable position in the industry – especially given the strong positive outlook for all these services. We have increased our price estimate for JPMorgan’s stock upwards from $118 to $120 in view of the stronger-than-expected Q2 performance as well as its recently disclosed payout plan for the next twelve months.

See our full analysis of JPMorgan

Net Interest Income Trends Higher Despite Shrinking Net Interest Margin

The rate hikes implemented by the Fed have helped the interest rate environment in the country recover steadily from the record low levels seen over 2014-15. The ongoing rate hike process helped JPMorgan’s NIM figure climb from 2.22% in Q4 2016 to 2.48% in Q1 2018. However, the flattening yield curve over recent months hurt the bank’s NIM figure this time around, as it fell to 2.46% primarily because interest expenses grew at a faster rate than interest income.

This did not deter the steady growth in JPMorgan’s net interest income figure, though, which swelled to almost $13.5 billion – the second-highest net interest income figure for the bank since the record $13.7 billion it reported in Q1 2010. These gains can be attributed to a healthy growth in interest-earnings assets for the period, especially the total portfolio of outstanding loans.

Investment Banking Revenues Soar From Upbeat Equity Market Showing

The second quarter of the year is seasonally a slower period for investment banking activities compared to the first quarter. However, JPMorgan made the most of increased volatility in capital markets towards the end of the quarter to report equity trading revenues nearly identical to those for the previous quarter. At the same time, the bank’s substantially higher wallet share in the global equity capital markets over Q2 helped it report $570 million in equity underwriting fees for the quarter – the highest figure in the bank’s history excluding the extremely turbulent period in mid-2009.

As shown in the chart below, JPMorgan’s total investment banking revenues were $7.55 billion in Q2 2018 – a good 14% higher than the $6.64-billion figure a year ago. This represents a 9% sequential decline in these revenues, though, as seasonal factors led the bank’s fixed-income, currencies and commodities (FICC) trading revenues lower.

Strong Loan Growth Boosts Top Line

As we pointed out above, a key reason for JPMorgan’s strong top line growth in Q2 was the sizable growth in its loan portfolio. JPMorgan’s total loan portfolio resumed its growth trajectory after a seasonally slow start to the year, and swelled to a record level of almost $950 billion by the end of Q2 2018. This represents a 4% jump year-on-year, and a 1% increase sequentially. Card loans and commercial loans witnessed the most growth, although weak activity in the mortgage industry resulted in nearly no change in outstanding mortgages for the bank.

The loan growth did not come at the expense of higher loan losses, though, with the provision for loan losses remaining largely level compared to the figures in Q2 2017 and Q1 2018 thanks to upbeat economic conditions. This allowed gains from the swelling loan portfolio to accrue to JPMorgan’s bottom line.

Based on JPMorgan’s Q2 2018 results, we now expect the bank to report EPS of $9.23 for full-year 2018. Taken together with our estimated P/E ratio of 13, this works out to a price estimate of $120 for JPMorgan’s shares, which is about 10% ahead of the current market price.

What’s behind Trefis? See How it’s Powering New Collaboration and What-Ifs
For CFOs and Finance Teams | Product, R&D, and Marketing Teams
More Trefis Research
Like our charts? Explore example interactive dashboards and create your own