JPMorgan Chase Reports Second-Quarter 2013 Net Income of $6.5 Billion, or $1.60 Per Share, on Revenu

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JPMorgan Chase Reports Second-Quarter 2013 Net Income of $6.5 Billion, or $1.60 Per Share, on Revenue1of $26.0 Billion

17% Return on Tangible Common Equity1

Supported Consumers, Businesses and Communities


NEW YORK--(BUSINESS WIRE)-- JPMorgan Chase & Co. (NYSE: JPM):

  • Strong performance across our businesses2
    • Consumer & Community Banking deposits were up 10%; mortgage originations were $49.0 billion, up 12%; Credit Card sales volume1was a record $105.2 billion, up 10%; auto originations were up 17%
    • Corporate & Investment Bank reported strong performance in Banking and Markets & Investor Services, maintaining its #1 ranking for Global Investment Banking fees; client deposits were $369.1 billion, up 6%
    • Asset Management achieved its seventeenth consecutive quarter of positive net long-term client flows, with $25 billion for the second quarter; client assets were $2.2 trillion, up 10%; loan balances were a record $86.0 billion
  • Second-quarter common stock dividend increased to $0.38 per share from the previous quarter's $0.30 per share, returning to its highest level
  • Fortress balance sheet strengthened
    • Basel I Tier 1 common1of $147 billion, or 10.4%
    • Estimated Basel III Tier 1 common1ratio of 9.3%, including the estimated impact of final Basel III rules issued on July 2, 2013
    • High Quality Liquid Assets3of $454 billion; estimated Basel III Liquidity Coverage Ratio of 118%
  • Second-quarter results included the following significant items
    • $950 million pretax benefit ($0.15 per share after-tax increase in earnings) from reduced loan loss reserves in Real Estate Portfolios
    • $550 million pretax benefit ($0.09 per share after-tax increase in earnings) from reduced loan loss reserves in Card Services
    • $600 million pretax expense ($0.09 per share after-tax decrease in earnings) for additional litigation reserves in Corporate
  • JPMorgan Chase supported consumers, businesses and our communities
    • $1.0 trillion of credit1provided and capital raised in the first six months of 2013

      - $154 billion of credit1provided for consumers; originated more than 500,000 mortgages

      - $9 billion of credit1provided for U.S. small businesses

      - $294 billion of credit1provided for corporations


      - $552 billion of capital raised for clients

      - $35 billion of credit1provided and capital raised for nonprofit and government entities, including states, municipalities, hospitals and universities

  • Hired more than 5,600 U.S. veterans and service members since the beginning of 2011

1

For notes on non-GAAP measures, including managed basis reporting, see page 12.For additional notes on financial measures, see page 13.

2

Percentage comparisons noted in the bullet points are calculated versus prior-year second quarter.

3

High Quality Liquid Assets ("HQLA") is the estimated amount of assets the Firm believes will qualify for inclusion in the Basel III Liquidity Coverage Ratio based on its current understanding of the proposed rules.

 
 

NEW YORK, July 12, 2013 -- JPMorgan Chase & Co. (NYS: JPM) today reported net income of $6.5 billion for the second quarter of 2013, compared with net income of $5.0 billion in the second quarter of 2012. Earnings per share were $1.60, compared with $1.21 in the second quarter of 2012. Revenue1 for the quarter was $26.0 billion, compared with $22.9 billion in the prior year. The Firm's return on tangible common equity1 for the second quarter of 2013 was 17%, compared with 15% in the prior year.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the financial results: "Our earnings reflected strong performance across our businesses. We maintained our #1 ranking in Global Investment Banking fees. Consumer deposits were up 10% compared with the prior year and Credit Card sales volumes were a record $105.2 billion, up 10%. And notably, Asset Management had $25 billion of net long-term client flows, the seventeenth consecutive quarter of positive net long-term client flows. Net charge-offs remain near historical lows in our Credit Card business, have dropped to less than half of what they were a year ago for our Real Estate Portfolios and remained very low in our wholesale portfolios. In light of these trends, we reduced the allowance for loan losses in Consumer & Community Banking in the second quarter by a total of $1.5 billion. Loan growth across the industry continued to be soft, reflecting a cautious stance by consumers, many small businesses and corporations. However, we continue to see broad-based signs that the U.S. economy is improving and we are hopeful that, as jobs are added and confidence builds, the U.S. economy will strengthen over time."

Dimon continued: "This quarter, we exceeded the proposed Basel III Liquidity Coverage Ratio requirement - as of the end of the second quarter, our estimated ratio was 118% - and we are committed to achieving a Basel III Tier 1 common ratio1 of 9.5% by the end of this year. We estimate that our Basel III Tier 1 common ratio1, reflecting the final rules approved by the Federal Reserve on July 2, 2013, was approximately 9.3%at the end of the second quarter, including the reduction of the value of our investment securities that are available for sale because of higher long-term interest rates."

Dimon added: "While we have put extensive focus on our control agenda, we have continued to serve our clients and communities around the world. During the first six months of the year we raised capital and provided credit2 totaling $1.0 trillion for our clients, from individuals to large multinational corporations. Regarding our control agenda, we have taken some of our best people, given them enormous resources and tasked them with ensuring that our systems, practices, controls and technology meet the highest standards. We are confident that these investments will pay off and we will be a better company for it."

Dimon concluded: "I am proud of this Company and what our employees do every day to serve our clients, customers and communities in over a hundred countries."

In the discussion below of the business segments and of JPMorgan Chase as a Firm, information is presented on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see page 12. The following discussion compares the second quarters of 2013 and 2012 unless otherwise noted. Footnotes in the sections that follow are described on pages 12 and 13.

 

CONSUMER & COMMUNITY BANKING (CCB)

 

Results for CCB
($ millions)
    1Q13 2Q12
 2Q13 1Q13 2Q12 $ O/(U)O/(U) % $ O/(U) O/(U) %
Net Revenue $12,015  $11,615  $12,450  $400 3% $(435) (3)%
Provision for Credit Losses (19) 549  179  (568)NM  (198) NM 
Noninterest Expense 6,864  6,790  6,837  74 1  27  - 
Net Income $3,089  $2,586  $3,282  $503 19% $(193) (6)%

Discussion of Results:
Net income was $3.1 billion, a decrease of $193 million, or 6% compared with the prior year, due to lower net revenue and higher noninterest expense, partially offset by lower provision for credit losses.

Net revenue was $12.0 billion, a decrease of $435 million, or 3%, compared with the prior year. Net interest income was $7.1 billion, down $67 million, or 1%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $4.9 billion, a decrease of $368 million, or 7%, driven by lower mortgage fees and related income, partially offset by higher merchant servicing revenue, auto lease income and net interchange income.

The provision for credit losses was a benefit of $19 million, compared with a provision for credit losses of $179 million in the prior year and $549 million in the prior quarter. The current-quarter provision reflected a $1.5 billion reduction in the allowance for loan losses and total net charge-offs of $1.5 billion. The prior-quarter provision reflected a $1.2 billion reduction in the allowance for loan losses and total net charge-offs of $1.7 billion. The prior-year provision reflected a $2.1 billion reduction in the allowance for loan losses and total net charge-offs of $2.3 billion.

Noninterest expense was $6.9 billion, an increase of $27 million from the prior year, driven by continued investments in the business, offset by lower mortgage servicing expense and lower remediation expense, inclusive of a current-quarter charge, related to an exited non-core product.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted; banking portal ranking is per compete.com, as of May 2013)

  • Return on equity was 27% on $46.0 billion of average allocated capital.
  • Average total deposits were $453.6 billion, up 10% from the prior year and 3% from the prior quarter. Deposit growth is among the highest in the industry2.
  • Number of branches was 5,657, an increase of 94 from the prior year and 25 from the prior quarter.
  • Active mobile customers were up 32% to 14.0 million over the prior year.
  • Active online customers (including mobile) were up 6% to 32.2 million over the prior year.

    Consumer & Business Banking
  • Chase Private Client locations totaled 1,691, an increase of 953 from the prior year and 299 from the prior quarter.
  • Client investment assets were $171.9 billion, up 16% from the prior year and 2% from the prior quarter.
  • Branch sales of investment products were up 53% compared with the prior year and 3% compared with the prior quarter.

    Mortgage Banking
  • Mortgage originations were $49.0 billion, up 12% from the prior year and down 7% from the prior quarter, including purchase originations of $17.4 billion, up 50% from the prior year and 44% from the prior quarter.

    Card, Merchant Services & Auto
  • Credit Card sales volume2 was a record $105.2 billion, up 10% from the prior year and 11% from the prior quarter. Card Services general purpose credit card sales volume growth has outperformed the industry for 21 consecutive quarters2.
  • Merchant processing volume was $185.0 billion, up 15% from the prior year and 5% from the prior quarter. Total transactions processed were 8.8 billion, up 24% from the prior year and 6% from the prior quarter.
  • Auto originations were $6.8 billion, up 17% from the prior year, outpacing the industry2.

Consumer & Business Banking net income was $698 million, a decrease of $233 million, or 25%, compared with the prior year, due to higher noninterest expense, a small benefit in the prior-year provision for credit losses and lower net revenue.

Net revenue was $4.3 billion, down 1% compared with the prior year. Net interest income was $2.6 billion, down 2% compared with the prior year, driven by lower deposit margins, predominantly offset by higher deposit balances. Noninterest revenue was $1.7 billion, an increase of 1%, driven by higher debit card revenue and investment sales revenue, predominantly offset by lower deposit-related fees.

The provision for credit losses and net charge-offs were both $74 million (1.58% net charge-off rate), compared with a benefit of $2 million and net charge-offs of $98 million (2.20% net charge-off rate) in the prior year.

Noninterest expense was $3.0 billion, up 10% from the prior year, primarily driven by investments in the business and certain adjustments in the prior year.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Return on equity was 25% on $11.0 billion of average allocated capital.
  • Average total deposits were $432.8 billion, up 11% from the prior year and 3% from the prior quarter. Deposit growth is among the highest in the industry2.
  • Deposit margin was 2.31%, compared with 2.62% in the prior year and 2.36% in the prior quarter.
  • Accounts2 totaled 28.9 million, up 6% from the prior year and 1% from the prior quarter, reflecting historically low customer attrition.
  • Average Business Banking loans were $18.7 billion, up 4% from the prior year and flat compared with the prior quarter. Originations were $1.3 billion, down 26% from the prior year and up 7% from the prior quarter.
  • Chase.com remains the #1 most visited banking portal in the U.S.

Mortgage Banking net income was $1.1 billion, a decrease of $179 million, or 14%, compared with the prior year, driven by lower net revenue, partially offset by lower noninterest expense and lower provision for credit losses.

Net revenue was $3.1 billion, a decrease of $551 million compared with the prior year. Net interest income was $1.1 billion, a decrease of $83 million, or 7%, driven by lower loan balances due to portfolio runoff. Noninterest revenue was $1.9 billion, a decrease of $468 million, driven by lower mortgage fees and related income.

The provision for credit losses was a benefit of $657 million2, compared with a benefit of $553 million in the prior year. The current quarter reflected a $950 million reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends across all products, compared with a reduction of $1.25 billion in the prior year.

Noninterest expense was $1.8 billion, a decrease of $150 million from the prior year, due to lower servicing expense.

Mortgage Production pretax income was $582 million, a decrease of $349 million from the prior year, reflecting lower margins and higher expense, partially offset by higher volumes and lower repurchase losses. Mortgage production-related revenue, excluding repurchase losses, was $1.3 billion, a decrease of $275 million, or 18%, from the prior year, reflecting lower revenue margins. Production expense2 was $720 million, an increase of $100 million from the prior year, driven by higher headcount-related expense as the business built origination capacity. Repurchase losses for the current quarter reflected a benefit of $16 million, compared with losses of $10 million in the prior year and $81 million in the prior quarter. The current quarter reflected a $185 million reduction in the repurchase liability and lower realized repurchase losses compared with the prior year and prior quarter.

Mortgage Servicing pretax income was $133 million, an increase of $68 million from the prior year. Mortgage servicing revenue, including changes to the mortgage servicing rights ("MSR") asset fair value, was $770 million, a decrease of $15 million, or 2%, from the prior year. MSR risk management income was $78 million, compared with $233 million in the prior year. Servicing expense was $715 million, a decrease of $238 million from the prior year, reflecting lower servicing headcount and lower costs associated with the Independent Foreclosure Review.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Mortgage application volumes were $65.0 billion, down 3% from the prior year and up 7% from the prior quarter.
  • Period-end total third-party mortgage loans serviced were $832.0 billion, down 3% from the prior year and 2% from the prior quarter.

Real Estate Portfolios pretax income was $1.2 billion, down $16 million from the prior year. Net revenue was $908 million, a decrease of $132 million, or 13%, from the prior year. The decrease was largely driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.

The provision for credit losses was a benefit of $662 million, compared with a benefit of $554 million in the prior year. The current-quarter provision reflected a $950 million reduction in the allowance for loan losses due to lower estimated losses reflecting continued home price improvement and favorable delinquency trends, compared with a reduction of $1.25 billion in the prior year. Net charge-offs were $288 million. Home equity net charge-offs were $236 million (1.49% net charge-off rate1), compared with $466 million (2.53% net charge-off rate1) in the prior year. Subprime mortgage net charge-offs were $33 million (1.69% net charge-off rate1), compared with $112 million (4.94% net charge-off rate1). Prime mortgage, including option ARMs, net charge-offs were $16 million (0.15% net charge-off rate1), compared with $114 million (1.08% net charge-off rate1).

Noninterest expense was $404 million, a decrease of $8 million, or 2%, compared with the prior year.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted. Average loans include PCI loans)

  • Mortgage Banking return on equity, including Mortgage Production, Mortgage Servicing and Real Estate Portfolios, was 23% on $19.5 billion of average allocated capital.
  • Average home equity loans were $83.8 billion, down $12.3 billion.
  • Average mortgage loans were $88.1 billion, down $4.8 billion.
  • Allowance for loan losses was $9.0 billion, compared with $12.2 billion.
  • Allowance for loan losses to ending loans retained, excluding PCI loans1, was 2.85%, compared with 5.20%.

Card, Merchant Services & Auto net income was $1.2 billion, an increase of $219 million, or 21%, compared with the prior year, driven by lower provision for credit losses, higher net revenue and lower noninterest expense.

Net revenue was $4.7 billion, up $145 million, or 3%, compared with the prior year. Net interest income was $3.3 billion, up $63 million compared with the prior year. The impact of lower revenue reversals associated with lower net charge-offs in Credit Card was largely offset by lower average credit card loan balances and spread compression in Auto. Noninterest revenue was $1.3 billion, up $82 million compared with the prior year, primarily driven by higher merchant servicing revenue, auto lease income and net interchange income.

The provision for credit losses was $564 million, compared with $734 million in the prior year and $686 million in the prior quarter. The current-quarter provision reflected lower net charge-offs and a $550 million reduction in the allowance for loan losses due to lower estimated losses reflecting improved delinquency trends. The prior-year provision included a $751 million reduction in the allowance for loan losses. The Credit Card net charge-off rate1 was 3.31%, down from 4.32% in the prior year and 3.55% in the prior quarter; the 30+ day delinquency rate1 was 1.69%, down from 2.13% in the prior year and 1.94% in the prior quarter. The Auto net charge-off rate was 0.18%, up from 0.17% in the prior year and down from 0.32% in the prior quarter.

Noninterest expense was $2.0 billion, a decrease of $108 million, or 5%, from the prior year, primarily driven by lower remediation expense, inclusive of a current-quarter charge, related to an exited non-core product.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Return on equity was 32% on $15.5 billion of average allocated capital.
  • Period-end Credit Card loan balances were $124.3 billion, flat compared with the prior year and up 2% from the prior quarter. Credit Card average loans were $122.9 billion, down 2% from prior year and 1% from the prior quarter.
  • #1 credit card issuer in the U.S. based on outstandings2; #1 global Visa issuerbased on consumer and business credit card sales volume2.
  • Card Services net revenue as a percentage of average loans was 12.59%, compared with 11.91% in the prior year and 12.83% in the prior quarter.
  • Average auto loans were $50.7 billion, up 5% from the prior year and 1% from the prior quarter.
     

CORPORATE & INVESTMENT BANK (CIB)

 
Results for CIB
($ millions)
1Q13 2Q12
 2Q13 1Q13 2Q12 $ O/(U) O/(U) % $ O/(U) O/(U) %
Net Revenue $9,876  $10,140  $8,986  $(264) (3)% $890  10%
Provision for Credit Losses (6) 11  29  (17) NM  (35) NM 
Noninterest Expense 5,742  6,111  5,293  (369) (6) 449  8 
Net Income $2,838  $2,610  $2,376  $228  9% $462  19%

Discussion of Results:
Net income was $2.8 billion, up 19% compared with the prior year. These results primarily reflected higher net revenue, partially offset by higher noninterest expense. Net revenue was $9.9 billion, compared with $9.0 billion in the prior year. Net revenue included a $355 million gain from debit valuation adjustments ("DVA") on structured notes and derivative liabilities resulting from the widening of the Firm's credit spreads; the prior year included a gain from DVA of $755 million. Excluding the impact of DVA, net income was $2.6 billion1, up 37% from the prior year, and net revenue was $9.5 billion1, up 16% from the prior year.

Banking revenue was $3.1 billion, compared with $2.7 billion in the prior year. Investment banking fees were $1.7 billion (up 38%), driven by higher debt underwriting fees of $956 million (up 50%) and equity underwriting fees of $457 million (up 83%), partially offset by lower advisory fees of $304 million (down 15%). Treasury Services revenue was $1.1 billion, down 2% compared with the prior year, driven by lower trade finance spreads. Lending revenue was $373 million, primarily reflecting net interest income on retained loans and fees on lending-related commitments, compared with $370 million in the prior year.

Markets & Investor Services revenue was $6.7 billion, up 7% from the prior year. Fixed Income and Equity Markets combined revenue was $5.4 billion, up 18% from the prior year, reflecting solid client revenue, as well as improved performance in credit-related and equities products. Securities Services revenue was $1.1 billion, up 1% from the prior year. Credit Adjustments & Other revenue was $274 million, compared with $683 million in the prior year; both periods were predominantly driven by the impact of DVA.

The provision for credit losses was a benefit of $6 million, compared with a provision for credit losses of $29 million in the prior year. The ratio of the allowance for loan losses to period-end loans retained was 1.21%, compared with 1.31% in the prior year. Excluding the impact of the consolidation of Firm-administered multi-seller conduits and trade finance loans, the ratio of the allowance for loan losses to period-end loans retained1 was 2.35%, compared with 2.75% in the prior year.

Noninterest expense was $5.7 billion, up 8% from the prior year, primarily driven by higher compensation expense on increased revenue. The compensation ratiofor the current quarter was 31%, excluding the impact of DVA1.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted, and all rankings are according to Dealogic)

  • Ranked #1 in Global Investment Banking Fees for the six months ended June 30, 2013.
  • Ranked #1 in Global Debt, Equity and Equity-related; #1 in Global Long-Term Debt; #1 in Global Syndicated Loans; #2 in Global Announced M&A and #2 in Global Equity and Equity-related, based on volume, for the six months ended June 30, 2013.
  • Average client deposits and other third-party liabilities were $369.1 billion, up 6% from the prior year and 3% from the prior quarter.
  • Assets under custody were $18.9 trillion, up 7% from the prior year and down 2% from the prior quarter.
  • International revenue was $4.8 billion, up 11% from the prior year, representing 48% of total revenue (48% of total revenue excluding DVA1).
  • Return on equity was 20% on $56.5 billion of average allocated capital (19%excluding DVA1).
  • Period-end total loans were $110.8 billion, down 5% from the prior year and 6% from the prior quarter. Nonaccrual loans were $375 million, down 54% from the prior year and 16% from the prior quarter.
  • Period-end trade finance loans were $36.4 billion, up 3% from the prior year and down 7% from the prior quarter.
     

COMMERCIAL BANKING (CB)

 
Results for CB
($ millions)
1Q13 2Q12
 2Q13 1Q13 2Q12 $ O/(U) O/(U) % $ O/(U) O/(U) %
Net Revenue $1,728  $1,673  $1,691  $55  3% $37  2%
Provision for Credit Losses 44  39  (17) 5  13  61  NM 
Noninterest Expense 652  644  591  8  1  61  10 
Net Income $621  $596  $673  $25  4% $(52) (8)%

Discussion of Results:
Net income was $621 million, a decrease of $52 million, or 8%, compared with the prior year, reflecting a higher provision for credit losses and an increase in noninterest expense, partially offset by higher net revenue.

Net revenue was $1.7 billion, an increase of $37 million, or 2%, compared with the prior year. Net interest income was $1.2 billion, an increase of $48 million, or 4%, driven by higher loan and liability balances, partially offset by lower purchase discounts recognized on loan repayments and spread compression on liability products. Noninterest revenue was $551 million, a decrease of $11 million, or 2% compared with the prior year, driven by lower community development investment-related revenue, partially offset by increased deposit-related fees, credit card revenue, and investment banking fees.

Revenue from Middle Market Banking was $777 million, an increase of $37 million, or 5%, from the prior year. Revenue from Corporate Client Banking was $444 million, an increase of $8 million, or 2%, compared with the prior year. Revenue from Commercial Term Lending was $315 million, an increase of $24 million, or 8%, compared with the prior year. Revenue from Real Estate Banking was $113 million, flat compared with the prior year.

The provision for credit losses was $44 million, compared with a benefit of $17 million in the prior year. Net charge-offs were $9 million (0.03% net charge-off rate), compared with net recoveries of $9 million (0.03% net recovery rate) in the prior year and net recoveries of $7 million (0.02% net recovery rate) in the prior quarter. The allowance for loan losses to period-end loans retained was 2.06%, down from 2.20% in the prior year and up from 2.05% in the prior quarter. Nonaccrual loans were $513 million, down $404 million, or 44%, from the prior year, and down by $156 million, or 23%, from the prior quarter, mainly due to repayments.

Noninterest expense was $652 million, up 10% compared with the prior year, reflecting higher headcount-related2 expense and increa

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