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JPMorgan (JPM) Q3 Earnings Top on Bond Trading, Underwriting

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Better-than-expected underwriting business performance, rise in mortgage banking fees and higher bond trading income drove JPMorgan’s (JPM - Free Report) third-quarter 2019 earnings of $2.68 per share, which outpaced the Zacks Consensus Estimate of $2.44. Following the release, the stock rallied more than 2% in pre-market trading, indicating that investors have taken the results in their stride.

Rise in wholesale and credit card loans supported net interest income amid the Federal Reserve’s interest rate cuts and decline in consumer loans. Moreover, home lending revenues rose 12% year over year, mainly due to substantially higher mortgage origination volume.

Additionally, as expected, fixed income trading revenues jumped 25%, given the strong client activity across products. Further, underwriting revenues increased as both equity underwriting income and debt underwriting fees recorded a rise of 22% and 17%, respectively.

Among other positives, credit card sales volume was up 10% and merchant processing volume grew 11%. Further, Commercial Banking average core balances jumped 3% and Asset & Wealth Management average loan balances were up 7%.

On the other hand, equity trading income was down 5% and advisory fees witnessed a 13% decline. Further, operating expenses increased in the reported quarter. Also, provision for credit losses recorded a significant rise.

The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Commercial Banking and Asset & Wealth Management, reported a rise in net income on a year-over-year basis.

Net income increased 8% to $9.1 billion.

Fee Income Majorly Aids Revenues, Costs Rise

Net revenues as reported were $29.3 billion, up 8% from the year-ago quarter. Growth in balance sheet and higher fixed income markets results were the primary reasons for the improvement. These were partially offset by lower interest rates. Also, the top line beat the Zacks Consensus Estimate of $28.4 billion.

Net interest income increased 2% to $14.2 billion. Non-interest income was $15.1 billion, up 13%, mainly driven by impressive mortgage banking performance.

Non-interest expenses (on managed basis) were $16.4 billion, up 5% from the year-ago quarter. The rise was primarily due to investments in business and auto loan depreciation.

Deteriorating Credit Quality

Provision for credit losses was $1.5 billion, a jump of 60% year over year. This surge reflects absence of reserve releases and net recoveries that were recorded in the prior-year quarter.

Also, as of Sep 30, 2019, non-performing assets were $5.3 billion, up 6% from Sep 30, 2018. Further, net charge-offs surged 33% year over year to $1.4 billion.

Strong Capital Position

Tier 1 capital ratio (estimated) was 14.1% as of third-quarter end compared with 13.6% on Sep 30, 2018. Tier 1 common equity capital ratio (estimated) was 12.3% as of Sep 30, 2019, up from 12.0%. Total capital ratio was 15.9% (estimated) at the end of the third quarter compared with 15.4% as on Sep 30, 2018.

Book value per share was $75.24 as of Sep 30, 2019 compared with $69.52 on Sep 30, 2018. Tangible book value per common share was $60.48 at the end of September compared with $55.68 a year ago.

Our Take

Branch expansion efforts and decent investment banking performance are likely to continue supporting JPMorgan’s revenues. Also, lower rates will aid mortgage banking fees. However, dismal trading and advisory performance is expected to be a near-term concern.

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 Dates of Other Major Banks

Bank of America (BAC - Free Report) , PNC Financial (PNC - Free Report) and U.S. Bancorp (USB - Free Report) are scheduled to come out with quarterly numbers on Oct 16.

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