JPMorgan Chase beats analysts' estimates on higher rates, better-than-expected bond trading

JPMorgan Chase reported second-quarter earnings Friday that topped analysts' expectations, as the company benefited from higher interest rates and better-than-expected bond trading.

Here's what the company reported:

Net income surged 67% to $14.5 billion, or $4.75 per share. When excluding the impact of its First Republic acquisition in early May — a $2.7 billion "bargain purchase gain" from the government-brokered takeover, as well as loan reserve builds and securities losses tied to the purchase — earnings were $4.37 per share.

Revenue rose 34% to $42.4 billion as JPMorgan took advantage of higher rates and solid loan growth. Revenue gains were fueled by a 44% jump in net interest income to $21.9 billion, which topped the StreetAccount estimate by roughly $700 million. Average loans climbed 13%, while deposits fell 6%.

"The U.S. economy continues to be resilient," CEO Jamie Dimon said in the earnings release. "Consumer balance sheets remain healthy, and consumers are spending, albeit a little more slowly. Labor markets have softened somewhat, but job growth remains strong."

Dimon added that there were "salient risks in the immediate view" including dwindling consumer balances, the risk that interest rates would be higher for longer than expected, and geopolitical tension including the Ukraine war.

JPMorgan increased its guidance for 2023 net interest income to $87 billion, which is $3 billion higher than its guidance from May and the bank's third increase to its NII forecast this year.

Shares of the bank climbed about 2%.

JPMorgan's retail banking division was its main source of strength this quarter. Profit surged 71% in the business to $5.3 billion on a 37% jump in revenue.

The bank's results also benefited from better-than-expected trading and investment banking activity. In May, the bank said revenue from the Wall Street activities was headed for a 15% decline from a year earlier.

But fixed income trading revenue only dipped 3% to $4.6 billion, topping the StreetAccount estimate by nearly $500 million. Equity trading revenue of $2.5 billion edged out the $2.41 billion estimate. And investment banking revenue of $1.5 billion topped the $1.42 billion estimate.

"The results were outstanding and really showed strength across the board," said Octavio Marenzi, CEO of consultancy Opimas. "Consumer banking was particularly strong, but even investment banking, which has been a problem child over the past year or so, is starting to show signs of life."

JPMorgan has been a standout recently on several fronts. Whether it's about deposits, funding costs or net interest income — all hot-button topics since the regional banking crisis began in March — the bank has outperformed smaller peers.

That's helped shares of the bank climb 11% so far this year as of Thursday, compared with the 16% decline of the KBW Bank Index. When JPMorgan last reported results in April, its shares had their biggest earnings day increase in two decades.

This time around, JPMorgan had the benefit of owning First Republic for most of the quarter.

The acquisition, which added roughly $203 billion in loans and securities and $92 billion in deposits, helped cushion JPMorgan against some of the headwinds faced by the industry. Banks are losing low-cost deposits as customers find higher-yielding places to park their cash, causing the industry's funding costs to rise.

That's pressuring the industry's profit margins. Last month, several regional banks disclosed lower-than-expected interest revenue, and analysts expect more banks to do the same in coming weeks. On top of that, banks are expected to disclose a slowdown in loan growth and rising costs related to commercial real estate debt, all of which squeeze banks' bottom lines.

Wells Fargo and Citigroup also reported earnings Friday. Bank of America and Morgan Stanley report Tuesday. Goldman Sachs discloses results Wednesday.