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JPMorgan (JPM) Beats Q2 Earnings as Trading Income Rises
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Driven by improved trading revenues, JPMorgan Chase & Co.’s (JPM - Free Report) second-quarter 2016 earnings of $1.55 per share handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period. Notably, the results included a legal benefit of $430 million.
Improved fixed income and equity trading revenues, and rise in mortgage banking fees drove the results. Further, higher net interest income, perhaps attributable to the rise in loan demand and favorable impact from the Fed’s Dec rate hike supported top line.
Additionally, a decent decrease in operating expenses and a legal benefit aided the bottom line growth. However, a fall in investment banking income (depicting lower equity underwriting fees) and higher provisions (pertaining largely to energy sector lending) marginally hurt the results.
Notably, shares of JPMorgan gained more than 2.5% in the pre-market trading. Perhaps, the earnings beat led to positive investor sentiments. However, the actual picture will emerge after the full day’s trading session once investors and analysts go through the core results.
The overall performance of JPMorgan’s business segments in terms of net income generation was impressive. All segments except Corporate reported a rise in net income on a year-over-year basis.
Consumer & Community Banking increased 5% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking grew 6% and 33%, respectively, while the Corporate segment incurred net loss.
Among the other positives, credit card sales volume improved 8% and merchant processing volume grew 13%. Commercial Banking average loan balances increased 13% and Asset Management average loan balances rose 4%.
Higher Fixed Income Trading Revenues, Lower Costs
Managed net revenue of $25.2 billion in the quarter was up 3% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $24.06 billion. A 35% surge in fixed income markets revenue and 5% rise in mortgage banking income led to the improvement in top line.
Non-interest expense was $13.6 billion, 6% lower than the year-ago quarter. The decline was primarily due to lower legal expense and continued cost reduction initiatives.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Jun 30, 2016, nonperforming assets were $7.8 billion, up 2% from the year ago period.
Net charge-offs increased 17% year over year to $1.2 billion. Further, provision for credit losses increased 50% year over year to $1.4 billion, primarily due to increases in wholesale reserves versus reserve releases in the year-ago quarter.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.6% as of Jun 30, 2016 compared with 12.8% as of Jun 30, 2015. Tier 1 common equity capital ratio (estimated) was 12.0% as of Jun 30, 2016, up from 11.2% as of Jun 30, 2015. Total capital ratio came in at 15.2% (estimated) as of Jun 30, 2016 compared with 14.4% as of Jun 30, 2015.
Book value per share was $62.67 as of Jun 30, 2016 compared with $58.49 as of Jun 30, 2015. Tangible book value per common share came in at $50.21 as of Jun 30, 2016 compared with $46.13 as of Jun 30, 2015.
Bottom Line
As expected by management, bond and equity trading revenues rebounded during the quarter, driven by the continued investments by JPMorgan to technologically upgrade its systems. Further, Brexit also helped the company in improving trading results. Hence, while other banks are moving away from fixed income business, JPMorgan has gained further market share.
Further, improvement in loans and deposits reflect improving economy. However, the energy sector debacle continued to adversely impact JPMorgan’s asset quality.
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
Among the other major banks, Wells Fargo & Company (WFC - Free Report) and Citigroup Inc. (C - Free Report) are scheduled to release their results on Jul 15, and Bank of America Corp. (BAC - Free Report) will report on Jul 18.
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JPMorgan (JPM) Beats Q2 Earnings as Trading Income Rises
Driven by improved trading revenues, JPMorgan Chase & Co.’s (JPM - Free Report) second-quarter 2016 earnings of $1.55 per share handily outpaced the Zacks Consensus Estimate of $1.43. Also, the figure reflects a 1% rise from the year-ago period. Notably, the results included a legal benefit of $430 million.
Improved fixed income and equity trading revenues, and rise in mortgage banking fees drove the results. Further, higher net interest income, perhaps attributable to the rise in loan demand and favorable impact from the Fed’s Dec rate hike supported top line.
Additionally, a decent decrease in operating expenses and a legal benefit aided the bottom line growth. However, a fall in investment banking income (depicting lower equity underwriting fees) and higher provisions (pertaining largely to energy sector lending) marginally hurt the results.
Notably, shares of JPMorgan gained more than 2.5% in the pre-market trading. Perhaps, the earnings beat led to positive investor sentiments. However, the actual picture will emerge after the full day’s trading session once investors and analysts go through the core results.
The overall performance of JPMorgan’s business segments in terms of net income generation was impressive. All segments except Corporate reported a rise in net income on a year-over-year basis.
Consumer & Community Banking increased 5% year over year. Asset Management earned 16% higher than the prior-year quarter. Additionally, net income for Corporate & Investment Bank and Commercial Banking grew 6% and 33%, respectively, while the Corporate segment incurred net loss.
Among the other positives, credit card sales volume improved 8% and merchant processing volume grew 13%. Commercial Banking average loan balances increased 13% and Asset Management average loan balances rose 4%.
Higher Fixed Income Trading Revenues, Lower Costs
Managed net revenue of $25.2 billion in the quarter was up 3% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $24.06 billion. A 35% surge in fixed income markets revenue and 5% rise in mortgage banking income led to the improvement in top line.
Non-interest expense was $13.6 billion, 6% lower than the year-ago quarter. The decline was primarily due to lower legal expense and continued cost reduction initiatives.
Credit Quality: A Cause of Concern
JPMorgan’s credit quality deteriorated during the quarter. As of Jun 30, 2016, nonperforming assets were $7.8 billion, up 2% from the year ago period.
Net charge-offs increased 17% year over year to $1.2 billion. Further, provision for credit losses increased 50% year over year to $1.4 billion, primarily due to increases in wholesale reserves versus reserve releases in the year-ago quarter.
Strong Capital Position
Tier 1 capital ratio (estimated) was 13.6% as of Jun 30, 2016 compared with 12.8% as of Jun 30, 2015. Tier 1 common equity capital ratio (estimated) was 12.0% as of Jun 30, 2016, up from 11.2% as of Jun 30, 2015. Total capital ratio came in at 15.2% (estimated) as of Jun 30, 2016 compared with 14.4% as of Jun 30, 2015.
Book value per share was $62.67 as of Jun 30, 2016 compared with $58.49 as of Jun 30, 2015. Tangible book value per common share came in at $50.21 as of Jun 30, 2016 compared with $46.13 as of Jun 30, 2015.
Bottom Line
As expected by management, bond and equity trading revenues rebounded during the quarter, driven by the continued investments by JPMorgan to technologically upgrade its systems. Further, Brexit also helped the company in improving trading results. Hence, while other banks are moving away from fixed income business, JPMorgan has gained further market share.
Further, improvement in loans and deposits reflect improving economy. However, the energy sector debacle continued to adversely impact JPMorgan’s asset quality.
JPMORGAN CHASE Price, Consensus and EPS Surprise
JPMORGAN CHASE Price, Consensus and EPS Surprise | JPMORGAN CHASE Quote
Currently, JPMorgan carries a Zacks Rank #3 (Hold).
Among the other major banks, Wells Fargo & Company (WFC - Free Report) and Citigroup Inc. (C - Free Report) are scheduled to release their results on Jul 15, and Bank of America Corp. (BAC - Free Report) will report on Jul 18.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report >>