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JPMorgan (JPM) Q3 Earnings Top on M&A Boom, Modest Loan Growth

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Robust advisory business, reserve release, and a modest rise in demand for loans drove JPMorgan’s (JPM - Free Report) third-quarter 2021 earnings of $3.74 per share. The bottom line also handily outpaced the Zacks Consensus Estimate of $3.00.

Results included credit reserve releases and tax benefit related to finalizing the company’s 2020 U.S. federal tax return. Excluding these, earnings came in at $3.03 per share. The company had earned $2.92 in the prior-year quarter.

As projected by Marianne Lake, the co-CEO of the company’s CCB segment in mid-September, at an investors conference, markets revenues declined both year over year and sequentially. Also, as guided, equity markets revenues showed strength (up 30% year over year), while fixed income markets revenues disappointed, declining 20%.

Also, mortgage fees and related income plunged 45% to $600 million.

Operating expenses witnessed a slight rise. Further, Commercial Banking average loan balances were down 7% year over year.

During the third quarter, the company reported net reserve releases of $2.1 billion on the back of continued improvement in “economic outlook.”

Now coming to investment banking (“IB”) performance, equity and debt underwriting fees rose 41% and 3%, respectively. Continued stellar deal-making activities across the globe during the quarter led JPMorgan to record a 187% surge in advisory fees. So, IB fees jumped 52% from the prior-year quarter. This was in line with management’s expectation of “up year-on-year but down sequentially.”

While lower rates continued to hurt the bank’s interest income, it was more than offset by a modest rise in loan balance (consumer, credit cards and wholesale portfolios) and steepening of the yield curve during the quarter.

Among other positives, Asset & Wealth Management average loan balances grew 20% from the year-ago quarter. Debit and credit card sales volume increased 26%, reflecting a steadily improving consumer confidence and economic outlook.

The overall performance of JPMorgan’s business segments, in terms of net income generation, was impressive. All segments, except Corporate, reported improvement in net income on a year-over-year basis.

Net income increased 24% from the prior-year quarter to $11.7 billion. Excluding the above-mentioned significant items, net income stood at $9.6 billion.

Loan Demand, Advisory Fees Aid Revenues, Costs Rise

Net revenues as reported were $29.65 billion, up 1% from the year-ago quarter. This rise was largely driven by higher IB fees and an increase in the loan balance. The top line beat the Zacks Consensus Estimate of $29.45 billion.

Net interest income inched up 1% year over year to $13.1 billion.

Non-interest income also grew 2% to $16.6 billion, primarily driven by a robust IB performance, and higher lending- and deposit-related fees. These were partially offset by fall in mortgage banking and related fees, card income and principal transactions.

Non-interest expenses (on managed basis) were $17.1 billion, up 1%. This upswing was mainly due to the continued investments in business, including marketing and technology, and rise in volume- and revenue-related expenses.

Credit Quality Improves

Provision for credit losses was a net benefit of $1.5 billion against the provision of $611 million in the prior-year quarter. Further, net charge-offs plunged 56% to $524 million.

As of Sep 30, 2021, non-performing assets were $8.9 billion, down 23% from Sep 30, 2020 level.

Solid Capital Position

Tier 1 capital ratio (estimated) was 15% at the third quarter-end, on par with the prior-year quarter level. Tier 1 common equity capital ratio (estimated) was 12.9%, down from 13.1%. Total capital ratio was 16.9% (estimated) compared with 17.3% as of Sep 30, 2020.

Book value per share was $86.36 as of Sep 30, 2021 compared with $79.09 in the corresponding period of 2020. Tangible book value per common share was $69.87 at the end of September, up from $63.96.

Share Repurchase Update

During the quarter, JPMorgan repurchased shares worth $5 billion.

Our Viewpoint

New branch openings, strategic acquisitions, global expansion plan and robust IB performance are likely to continue supporting JPMorgan’s revenues. Slight rise in loan balance is a major tailwind as the economy re-opens. However, lower rates, and disappointing trading and mortgage banking performance are near-term concerns.

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

JPMorgan Chase & Co. price-consensus-eps-surprise-chart | JPMorgan Chase & Co. Quote

JPMorgan currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Earnings Date of Other Big Banks

Bank of America (BAC - Free Report) , Citigroup (C - Free Report) and Wells Fargo (WFC - Free Report) are scheduled to come out with quarterly numbers on Oct 14.

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