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JPMorgan Chase reported Q2 June 2011 financial results on Thursday, July 14
* Charts and commentary have been updated for JPMorgan Q2 June 2011 financial results *
JPMorgan Chase Reports Flat Q2 2011 Financial Results: Strong, But Not Accelerating
JPMorgan Summary Q2 2011 JP Morgan's Q2 2011 financial results overall were strong, but somewhat mixed, and not an overall improvement over the prior Q1 2011 peak. JPMorgan has definitely rebounded from the depths of the Great Recession and USA Financial System Crisis in 2008 and 2009, has adequate capital, and is profitable. Annual return on assets is a respectable 0.94%. Whether financial performance can be accelerated anytime soon is the question.
JPMorgan Income Statement Q2 2011 Financial performance continues strong, compared to the dismal results during the USA Financial System Crisis and Great Recession. Q2 2011 was $26.8B net revenues, $5.4B net income, and $1.27 earnings per share. For QoQ, net revenues were up +6.18%, net income was down -2.23%, and earnings per share were down -0.78% from the prior quarter Q1 2011. For YoY, net revenues were up +6.68%, net income was up +13.26%, and earnings per share were up +16.51% from prior year Q1 2010. However, QoQ results were slightly disappointing and YoY results are downshifting and will become flat if future quarterly financial performance does not accelerate. Net income has been above $4 billion and earnings per share above $1.00 for 5 quarters, maintaining an overall improvement since the dismal performance of Q3 and Q4 of 2008 at the lows of the USA Financial System Crisis. Both the operating margin of 30.35% and net margin of 20.28% continue strong, but dipped below the prior quarter Q1 2011 of 31.95% and 22.03%, respectively. The operating expense ratio (55.08%) continues historically high.
JPMorgan Balance Sheet Q2 2011 JPMorgan's "fortress balance sheet" of $2.247 trillion in total assets maintains an adequate capital ratio of 8.14% and adequate Tier 1 Capital and Tier 1 Common ratios of 12.4% and 10.1%, respectively. Total assets were up QoQ +2.21%.
JPMorgan Financial Performance by the Quarters (Charts)
JPMorgan Earnings Per Share (Chart) Below is a chart of quarterly earnings per diluted share. The EPS dipped during the Global Recession and USA Financial System Crisis but subsequently improved and has remained above $1.00 for 5 consecutive quarters. The Post-Great Recession peak has been the prior Q1 2011 of $1.28 as Q2 2011 dipped slightly below at $1.27.
JPMorgan Net Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly net revenues, operating income, and net income. Because JPMorgan is a huge, complex financial organization with several divisions, consolidated revenues are reported net of interest expense. Therefore, there is no gross profit and margin compared to companies in other industries or sectors. Net Revenues peaked in Q1 2010 ($27.671B) and have yet to be regained although Q2 2011 is the second highest to-date ($26.779B). Current Operating Income of $8.127B is at an all-time high. Current Net Income of $5.431B has dipped just below the all-time high of $5.555B last quarter, Q1 2011.
JPMorgan Operating Margin, Net Margin, and Capital to Assets Ratio (Chart) Below is a chart of quarterly operating margin, net margin, and the capital to assets ratio. The current Operating Margin of 30.35% continues strong, but below the prior quarter and Post-Great Recession high of 31.95%. The current Net Margin of 20.28% continues strong, but below prior quarter and Post-Great Recession high of 22.03%. The Capital-to-Assets ratio (Capital Ratio) is stockholders' equity to total assets ratio, not the Tier 1 capital or common ratio. Tier 1 ratios are financial regulatory ratios and generally higher than the capital to assets ratio. JPMorgan's latest quarterly capital ratio is reasonable at 8.14% and within range of the previous 4 quarters. The December regulatory Tier 1 and Tier 1 capital and common ratios are 12.4% and 10.1%, respectively, which is adequate.
JPMorgan Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA dipped during the Global Recession but has significantly rebounded. The ROA has improved an impressive 9 consecutive quarters to the current and respectable 0.94%. Although JPMorgan is a huge, complex financial organization with $2+ trillion in total assets, a 1.00% ROA is a banking benchmark that has not quite been reached.
JPMorgan Income Statement Components (Chart) Below is a chart of major income statement components: NonInterest Revenue, Net Interest Income, Provision for Credit Losses, NonInterest Expense, and Net Income. Current NonInterest Revenue jumped to an all-time and Post-Great Recession high of $14.943B. Net Interest Income however has decreased 5 consecutive quarters to the current $11.836B, an 11-quarter low (since Q3 September 2008). Current Provision for Credit Losses rose above the prior quarter Post-Great Recession and multi-year low ($1.169B) to $1.810B. The Provision is still well below the damaging heights reached prior years in excess of $7B and $8B. Current NonInterest Expense, operating expenses, at $16.842B continue to increase dramatically and are almost double compared to Q1 2008. Current Net Income of $5.431B dipped below the prior quarter Post-Great Recession and multi-year high ($5.555B).
JPMorgan Growth Rates (Chart) Below is a chart of the quarterly (QoQ, Q/Q, quarterly change) growth rates for net revenues and earnings per share. Net revenues and earnings per share have been surprisingly volatile for such a huge financial company ($2+ trillion in total assets). As the USA financial system and economy stabilize, the growth rates would be expected to also stabilize for net revenues and earnings per share. JPMorgan financial performance has continued to improve from the lows of the Great Recession. The chart below covers only some recent quarters through the latest quarter reported. The rapid plunge in net revenues and earnings per share and the subsequent impressive rebound as a result of the Great Recession and subsequent recovery resulted in some extreme percentages that obscure recent data. For the current Q2 2011, Net Revenues increased +6.18% QoQ while Earnings per Share decreased -0.78% QoQ.
JPMorgan Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio for JPMorgan. This is a negative trend of an increasing operating expense ratio (NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income). An increasing share of each dollar of revenues is being spent on operating expenses. Ultimately a continuation of this trend will affect profitability and already has. The current Operating Expense Ratio (55.08%) has exceeded 55% for the 2nd consecutive quarter. The ratio peaked last quarter at 55.23% has been above 50% for 6 consecutive quarters.
JPMorgan Chase Reports Second-Quarter 2011 Net Income of $5.4 Billion, or $1.27 per Share Revenue1 of $27.4 Billion, Up 7% Over Prior Year, Up 6% Over Prior Quarter
New York, July 14, 2011 - JPMorgan Chase & Co. (NYSE: JPM) today reported second-quarter 2011 net income of $5.4 billion, compared with net income of $4.8 billion in the second quarter of 2010. Earnings per share were $1.27, compared with $1.09 in the second quarter of 2010.
Jamie Dimon, Chairman and Chief Executive Officer, commented: "Our second-quarter earnings reflected solid performance across most of our businesses. The Investment Bank delivered strong earnings across most products and maintained its #1 ranking in Global Investment Banking Fees. Commercial Banking reported record revenue and continued loan growth for the quarter. Retail Financial Services demonstrated good underlying performance in Retail Banking but continued to experience high losses for mortgage-related issues."
Dimon continued: "We are pleased to report that our results for the quarter reflected continued improvement in credit trends across our consumer and wholesale portfolios. With respect to our credit card portfolio, delinquencies and net charge-offs improved, and we reduced loan loss reserves by $1.0 billion as estimated losses declined. We expect credit card net charge-offs to continue to improve next quarter as we approach a more normalized credit environment. Within our wholesale credit portfolio, credit trends appear to have normalized."
"With respect to our mortgage portfolio, delinquency and net charge-off trends improved modestly compared with the prior quarter; however, net charge-offs remained high, and we expect credit losses to remain elevated. We have been working hard to fix our problems and address past mistakes. We have already incurred significant costs, charged-off substantial amounts and established significant reserves for mortgage-related issues. Unfortunately, it will take some time to resolve these issues and it is possible we will incur additional costs along the way. However, in time, these costs will normalize as well."
Commenting on the Firm's balance sheet, Dimon said: "We maintained our fortress balance sheet, ending the second quarter with a Basel I Tier 1 Common ratio of 10.1%. Our strong and growing capital base enabled us to buy back $3.5 billion of stock during the second quarter, and we will continue to buy back stock opportunistically. We estimate that our Basel III Tier 1 Common ratio was approximately 7.6% at the end of the second quarter. This level is well in excess of what is required today under existing rules and is greater than the level we expect will be required under the proposed rules for up to five years, including the additional buffer for global systemically important financial institutions. Our strong capital position and significant earnings power will allow us to actively grow our business and rapidly meet any proposed Basel III requirements as they are phased in. We intend to keep our capital ratios approximately where they are as we do not see a need to manage to higher ratios ahead of time."
Dimon also remarked: "Through the recession, we have helped hospitals, school systems, banks, state governments, countries and central banks, and we will continue to do so. During the first six months of 2011, JPMorgan Chase provided credit to and raised capital of over $990 billion for our clients. We originated mortgages to more than 360,000 people; we provided credit cards to approximately 4.6 million people; we lent or increased credit to more than 16,800 small businesses; we lent to more than 800 not-for-profit and government entities, including states, municipalities, hospitals and universities; we extended or increased loan limits to approximately 3,000 middle-market companies; and we lent to or raised capital for more than 5,000 other corporations. We are the #1 Small Business Administration lender in the U.S., with more loans made than any other lender. In 2009 and 2010, we lent more than $7 billion and $10 billion, respectively, to small businesses, and we have committed to lend at least $12 billion more this year. We remain committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, we have offered 1,177,000 trial modifications to struggling homeowners."
Dimon concluded: "Looking forward, we continue to see substantial opportunities for the company. We are building our international presence, with more bankers, branches and products to serve our multinational clients where they want to be served. In the U.S., we are also investing in new branches and adding bankers and salespeople, expanding the reach of our consumer and wholesale businesses."
Commenting on the Firm's balance sheet, Dimon said: "We maintained our fortress balance sheet, ending the second quarter with a Basel I Tier 1 Common ratio of 10.1%. Our strong and growing capital base enabled us to buy back $3.5 billion of stock during the second quarter, and we will continue to buy back stock opportunistically. We estimate that our Basel III Tier 1 Common ratio was approximately 7.6% at the end of the second quarter. This level is well in excess of what is required today under existing rules and is greater than the level we expect will be required under the proposed rules for up to five years, including the additional buffer for global systemically important financial institutions. Our strong capital position and significant earnings power will allow us to actively grow our business and rapidly meet any proposed Basel III requirements as they are phased in. We intend to keep our capital ratios approximately where they are as we do not see a need to manage to higher ratios ahead of time."
Dimon also remarked: "Through the recession, we have helped hospitals, school systems, banks, state governments, countries and central banks, and we will continue to do so. During the first six months of 2011, JPMorgan Chase provided credit to and raised capital of over $990 billion for our clients. We originated mortgages to more than 360,000 people; we provided credit cards to approximately 4.6 million people; we lent or increased credit to more than 16,800 small businesses; we lent to more than 800 not-for-profit and government entities, including states, municipalities, hospitals and universities; we extended or increased loan limits to approximately 3,000 middle-market companies; and we lent to or raised capital for more than 5,000 other corporations. We are the #1 Small Business Administration lender in the U.S., with more loans made than any other lender. In 2009 and 2010, we lent more than $7 billion and $10 billion, respectively, to small businesses, and we have committed to lend at least $12 billion more this year. We remain committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, we have offered 1,177,000 trial modifications to struggling homeowners."
Dimon concluded: "Looking forward, we continue to see substantial opportunities for the company. We are building our international presence, with more bankers, branches and products to serve our multinational clients where they want to be served. In the U.S., we are also investing in new branches and adding bankers and salespeople, expanding the reach of our consumer and wholesale businesses."
About JPMorgan Chase & Co.
JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.2 trillion and operations in more than 60 countries. The Firm is a leader in investment banking, financial services for consumers, small-business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com
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