Unexpected lower provisions along with improvement in trading and mortgage banking businesses drove JPMorgan’s JPM third-quarter 2020 earnings of $2.92 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $2.35.
Results included legal expenses of $524 million or 17 cents per share. Excluding these, earnings amounted to $3.09 per share.
Shares of JPMorgan gained nearly 1% in pre-market trading as investors reacted positively to decent fee income and lower credit costs. A full day’s trading session will depict a better picture.
During the quarter, the company reported net reserve releases, which led to lower credit costs. In a statement, the CEO Jamie Dimon said, “we maintained our credit reserves at $34 billion given significant economic uncertainty and a broad range of potential outcomes.”
As expected, fixed income markets revenues increased 29%, driven by strong performance across products. Equity markets revenues jumped 32% on the back of solid client activities. Also, historically lower rates drove mortgage fees and related income to $1.1 billion, up 21%.
Further, equity and debt underwriting fees rose 42% and 5%, respectively. Conversely, despite a significant rebound in deal making activities during the quarter, JPMorgan recorded a 15% decline in advisory fees. Nonetheless, investment banking fees jumped 22% from the prior-year quarter.
Among other positives, Commercial Banking average loan balances were up 5%, and Asset & Wealth Management average loan balances grew 13% from the year-ago quarter.
However, near-zero interest rates and dismal loan demand hurt interest income. Moreover, operating expenses increased. Credit card sales volume declined 8% from the prior-year quarter.
Overall quarterly performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Consumer & Community Banking, reported an increase in net income on a year-over-year basis. However, Corporate segment recorded a loss.
Net income increased 4% from the prior-year quarter to $9.4 billion.
Fee Income Aids Revenues, Costs Rise
Net revenues as reported were $29.1 billion, relatively on par with the year-ago quarter level. The improvement reflects higher trading, mortgage and investment banking fees, while lower interest rates was an offsetting factor. The top line beat the Zacks Consensus Estimate of $28.6 billion.
Net interest income declined 9% year over year to $13 billion. Conversely, non-interest income grew 7% from the year-ago quarter to $16.1 billion, mainly driven by mortgage banking, investment banking and principal transactions performance.
Non-interest expenses (on managed basis) were $16.9 billion, up 3% from the year-ago quarter. The rise was primarily due to increase in legal costs.
Credit Quality: Mixed Bag
Provision for credit losses was $611 million, down 60% from the prior-year quarter. The decline was largely due to net reserve release. Further, net charge-offs decreased 14% to $1.2 billion.
As of Sep 30, 2020, non-performing assets were $11.4 billion, which jumped 91% from Sep 30, 2019.
Strong Capital Position
Tier 1 capital ratio (estimated) was 15% at third quarter-end compared with 14.1% on Sep 30, 2019. Tier 1 common equity capital ratio (estimated) was 13%, up from 12.3%. Total capital ratio was 17.3% (estimated) compared with 15.9% as of Sep 30, 2019.
Book value per share was $79.08 as of Sep 30, 2020 compared with $75.24 in the corresponding period of 2019. Tangible book value per common share was $63.93 at the end of September, up from $60.48.
Branch expansion efforts, and solid trading as well as mortgage banking and underwriting performances are likely to continue supporting JPMorgan’s revenues. However, lower interest rates, economic slowdown and coronavirus-related ambiguity are near-term concerns.
JPMorgan Chase Co. Price, Consensus and EPS Surprise
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 Major Banks
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