JPMorgan (JPM) Q3 Earnings Top on Lower Credit Cost, Trading

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.

Our Take

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 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 Major Banks

Bank of America BAC and Wells Fargo WFC are scheduled to come out with quarterly numbers on Oct 14, while Truist Financial TFC is set to report the same on Oct 15.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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