The industry weaknesses could not stop JPMorgan Chase & Company (JPM) from showing its earnings strength in the third quarter as well. The banking giant came out with earnings of $1.62 per share, beating the Zacks Consensus Estimate of $1.39. The number also compares favorably with $1.42 earned in the year-ago quarter.
Earnings exclude the 26 cents per share impact related to the after-tax Firmwide legal expense. Considering this significant one-time item, the company has earned $1.36 per share.
Legal charges aside (though significantly lower year over year), there were no major dampeners during the quarter. Top-line strength was enough to mitigate the majority of negatives. Further, the expense line showed significant year-over-year improvement on the back of active cost containment efforts. However, provision did not work in favor.
Shares of JPMorgan lost nearly 2% in the pre-trading session, indicating that the market is not that encouraged with the earnings beat. The price reaction during the trading session will give a better sense about how investors accepted the results.
While Corporate/Private Equity and Asset Management segments showed year-over-year improvement in net income, Commercial Banking, Corporate & Investment Bank and Consumer & Community Banking witnessed deterioration.
Most noticeably, consumer and corporate deposits, card sales volume, client investment assets, and business banking loan originations showed year-over-year improvement. Though Corporate & Investment Bank earned 34% less than the prior-year quarter, it maintained its #1 rank in Global Investment Banking fees. It also had rank #1 in global debt, equity and syndicated loans for the nine months ended Sep 30, 2014.
Quarter in Detail
Managed net revenue of $25.2 billion in the quarter was up 5% from the year-ago quarter. It also compares favorably with the Zacks Consensus Estimate of $24 billion.
Managed non-interest revenues were up 7% from the year-ago quarter to $13.8 billion. Also, net interest income increased 4% to $11.4 billion, primarily reflecting the impact of higher investment securities yields and lower interest expense, partially offset by lower loan yields.
Non-interest expense was $15.8 billion, down 33% from the year-ago quarter. Lower legal expense primarily drove this improvement. Legal expense declined 88% to $1.1 billion.
The provision for credit losses was $757 million, compared with a benefit of $543 million in the year-ago quarter. Total consumer provision for credit losses was $897 million compared with a benefit of $273 million in the year-ago quarter.
Credit Quality
JPMorgan’s credit quality improved during the quarter. As of Sep 30, 2014, nonperforming assets were $8.4 billion, down 19% from $10.4 billion a year ago. Consumer net charge-offs decreased 15% year over year to $1.1 billion. As a result, the consumer net charge-off rate improved to 1.19% from 1.47% a year ago.
Capital Position
JPMorgan’s capital ratios also showed an improvement during the quarter. Tier 1 capital ratio was 11.5% as of Sep 30, 2014, compared with 11.1% as of Jun 30, 2014. Tier 1 common equity capital ratio was 10.2% as of Sep 30, 2014, compared with 9.8% as of Jun 30, 2014.
Book value per share was $56.50 as of Sep 30, 2014 compared with $55.53 as of Jun 30, 2014 and $52.01 as of Sep 30, 2013. Tangible book value per common share came in at $44.13 as of Sep 30, 2014 compared with $43.17 as of Jun 30, 2014 and $39.51 as of Sep 30, 2013.
In Our View
The banking behemoth is on track to reduce costs through realignment of its business and job cuts. It is also working hard regain top-line strength.
However, nagging legal issues though lower than before, and prevalence of a tough industry backdrop would continue to curb its bottom-line improvement, though lesser than before.
Pressure on interest margin with no chance of interest rate hike in the near term and the impact of a stringent regulatory environment might also mar its results going forward. However, improving retail and business banking, and rising credit trends are expected to be in favor.
Wells Fargo & Company (WFC) and Citigroup Inc. (C) have kicked off the Q3 earnings season with JPMorgan today. The results of all three display an impressive start to bank earnings.
Another Wall Street biggie Bank of America Corp. (BAC) is scheduled to release its third-quarter results on Oct 15.
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