Higher rates and average loan growth fuel JPMorgan's earnings and shares

High demand for loans and high loan rates Higher interest rates that boosted its net interest income boosted JPMorgan Chase's (JPM) second-quarter earnings, despite the inclusion of financial data from the troubled First Republic Bank acquired in May. JPMorgan shares rose about 2% in early trading Friday after the news.


  • JPMorgan reported strong second-quarter results, despite adjusting for the financial performance of struggling First Republic Bank, which it acquired in May.
  • The rate hike led to a 44% increase in retail banking net interest income, or a 38% increase after adjusting for the First Republic.
  • The average loan in all business segments increased 18% from the same quarter last year.
  • JPMorgan net income was $14.5 billion dollars, up 40% from the same period last year.

Why is this important?

While the campaign for the Federal Reserve interest rate hikes have made borrowing more expensive for consumers, they have helped the finances of banks such as JPMorgan.

Largest bank by assets in the United States , JPMorgan reported a strong performance from its retail banking business in the second quarter. Retail banking net income jumped 71% from the same period last year to $5.3 billion. This number adjusts to a still impressive 61% when taking into account the finances of the First Republic.

Behind this growth is the surge in net income interest from the bank which, at $21.9 billion, represents a 44% increase over the same period last year. Adjusting for the First Republic numbers, it still posted 38% year-over-year growth.

Debit and credit card sales have increased 7%, while average loans in the consumer and non-consumer sectors increased 13% for the quarter.

Jamie Dimon, chairman and CEO of JPMorgan Chase, was positive about the resilience of the US economy. "Consumer balance sheets remain healthy and consumers are spending, albeit a bit slower" he said.

However, Dimon implemented watch for the risks ahead, including stubborn inflation that is burning through consumers' cash reserves and leading to quantitative tightening, as well as the continuation of the war in Ukraine.

Other numbers

Financial institution exceeded expectations market by reporting EPS of $4.75 on revenue of $41.3 billion in the second quarter of 2023. Analysts expected the bank to earn $3.97 per share on revenue of $38.97 billion for the reporting period.

Excluding the First Republic transaction, at $14.5 billion, net income was up 40% from the same period last year. Almost every business segment saw growth in the second quarter, with credit card lending up 18% and payment revenue in commercial banking up 79%. Although investment banking fees fell 6%, due to lower advisory fees, the New York-based bank has gained market share year-to-date.

JPM shares increased by 39; about 13% compared to the 18% of the S&P 500 since the beginning of the year. Fears of a possible recession could lead to a slowdown in credit demand which is impacting the banking sector. Higher funding costs may also tempt investors away, although JPMorgan is benefiting from some flight-to-safety investment streams.


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Source: investopedia.com

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