Credit Cards Help Push JPMorgan Chase Earnings

In a period of low loan demand, consumer credit cards are a bright spot for JPMorgan Chase. The nation’s #1 bank is seeing major card account growth, growth in card balances, and a continuing normalization towards a greater share of card volume that’s revolving, rather than being paid off in the same cycle.

“Loan demand remains quite muted everywhere except card,” said Jeremy Barnum, CFO, during the company’s second quarter earnings briefing. He said that the bank faces no capital constraints on card business growth, so it has freedom to follow market demand.

“Whatever growth makes sense there, in terms of our customer franchise and our ability to acquire accounts and retain accounts, and what fits inside our credit risk appetite is growth that’s going to make sense,” said Barnum.

(The bank also saw a major uptick in investment banking fees in the second quarter in its Commercial and Investment Bank, according to Barnum. The company noted that the growth came off a lower base, but fees jumped 50% over the second quarter 2023 and 17% over the first quarter of 2024.)

Meanwhile, Chase’s consumer operation opened more than 450,000 net new checking accounts in the second quarter, marking the institution’s 50th straight quarter of new account growth.

The continuing growth of accounts at the bank comes at a time when Chase continues to aggressively expand into new markets with branches, and increases its cadre of active mobile account users. In the second quarter, active mobile customers rose to 55.6 million, an increase of 6.9% over the second quarter of 2023 and 1.6% over the first quarter 2024.

These milestones come at an interesting moment, given recent remarks by Marianne Lake, CEO of Consumer and Community Banking in an interview with the Wall Street Journal. Lake, one among a handful of potential successors to Jamie Dimon, chairman and CEO, sent a shot across Washington’s bows by suggesting that new regulations on late fees and overdraft charges could threaten the existence of free consumer checking accounts—at Chase, at least.

The Big Picture for Chase Earnings

Overall, Chase reported net revenue of $51 billion for the quarter, up 20% over the year earlier, with net income hitting $18.1 billion, up 25%. The income figure included a one-time net gain resulting from the bank’s sale of shares in Visa. Deducting that, income hit $13.1 billion for the quarter.

The performance of certain Chase groups was pulled down somewhat because of the financial impact of the company’s May 2023 acquisition of First Republic Bank. Those assets are now being apportioned to various Chase lines of business. Before this quarter, most expenses attributable to the acquisition were booked at the corporate level.

Barnum and analysts also discussed the concept of Chase “over-earning,” a conversation that began in earlier briefings. This term describes higher-than-normal earnings levels for given activities due to economic and business factors enjoyed by Chase.

Average deposits were down at the company level, 1% year over year, a negligible change from the first quarter. In the consumer group, however, average deposits were down 7% year over year and down 1% compared to the first quarter.

Barnum said that deposits face “headwinds” into the rest of 2024. This includes wholesale deposits, which the bank expects will continue migrating from noninterest bearing accounts to interest-bearing accounts. Some of this migration is happening internally and some of it means money leaving Chase for deposit opportunities with other institutions.

“But one of the things that we are encouraged by is the extent to which we are actually capturing a large portion of that yield-seeking flow through CDs and money market offerings across our various franchise,” said Barnum. The migration will continue and contribute to “modest headwinds that we expect for new interest income.”

Digging into Chase’s Card Trends

Barnum said that card outstanding balances were up 12% over 2023 “due to strong account acquisition and the continued normalization of revolve.” The bank saw higher card-related income in part because of higher card sales volume — combined debit and credit card sales volume increased 7% year over year. The net revenue for the card services and auto sub-group rose 14% over 2023. Barnum attributed most of this to higher card net interest income and the higher rate of revolving balances.

Chase has a give-back on the card front in the form of card delinquencies and higher chargeoffs.

Overall, the bank’s credit costs for the quarter came to $3.1 billion, including net charge-offs of $2.2 billion and a net reserve build of $821 million. Barnum indicated that net chargeoffs were up $820 million over 2023’s second quarter level, mostly due to cards.

In response to a question from analyst Ken Usdin of Jefferies & Co., Barnum put the issue of card delinquencies into perspective.

“It’s still normalization, not deterioration,” said Barnum. But when specific cardholder groups are analyzed, performance differences emerge.

“You can see a little bit of evidence of behavior that’s consistent with a little bit of weakness in the lower-income segments,” said Barnum. “You can see a bit of rotation of the spend out of discretionary spending into non-discretionary.”

However, he added, “the effects are really quite subtle, and in my mind definitely entirely consistent with the type of economic environment we are seeing.” Elaborating, Barnum said the economy was much stronger than had been expected given the tightness of money, but added that slightly higher unemployment has slowed GDP growth.

“So it is not entirely surprising that you’re seeing a tiny bit of weakness in some pockets of spend,” Barnum said.

Read more about cards and consumer credit:

How Much Longer for ‘Over-Earning’ at Chase?

At first, “over-earning” sounds like a great place to be. But the term has been kicked around in earnings briefings with Chase officials due to their explanation that unusual circumstances in recent years have driven results that have been stronger than would normally be the case.

In the first quarter earnings briefing, for example, Barnum touched on examples of “over-earning.” Among them:

Chase has been enjoying fatter net interest margins, though they are coming down now. Barnum considered that the leading cause of over-earnings, or, in an alternative phrase he used, “excess earnings.”
Barnum also noted that wholesale chargeoffs had been especially low. In that briefing, he noted that while card charge-offs were growing again, “We did go through an extended period of charge-offs being very low by historical standards.”

At that briefing he also acknowledged under questioning by analyst Glenn Schorr of Evercore ISI that the investment banking operation was “under earning” at that time.

In the latest briefing, in an exchange with Mike Mayo, analyst with Wells Fargo Securities, Barnum said the bank was still sticking to its stance of being in a state of “over-earning.”

For example, he said, “our deposit margins are well above historical norms, and that is a big part of the reason that we still are emphasizing the over-earning narrative.”