As guessed by the market, JPMorgan Chase & Co. JPM proved its mettle in the opening quarter of 2015. The nation's largest bank has been able to turn things in favor with earnings of $1.45 per share, beating the Zacks Consensus Estimate of $1.39. The bottom line also improved 13.3% over the year-ago earnings of $1.28 per share.
The primary factor affecting the results was an after-tax legal expense of $487 million. This has caused a 13 cents per share earnings decline. This confirms that the company is on track to pay its pending legal charges.
These aside, JPMorgan’s operating expenses were down substantially, depicting that its cost-saving initiatives are paying off. Also, overall expenses showed a sequential improvement. While provision for credit losses did not work in favor, an improvement in revenue was sufficient to cover it.
Shares of JPMorgan gained about 2% in the morning trade, indicating that this earnings beat is satisfactory to the market. The price reaction during the full trading session will give a better idea about how investors consider the results.
All its business segments except Corporate showed year-over-year improvement in net income. Most noticeably, Consumer & Community Banking witnessed solid growth in deposits and client investment assets. Corporate & Investment Bank earned 19% more than the prior-year quarter and maintained its #1 rank in Global Investment Banking fees. Commercial Banking also witnessed an 11% year-over-year growth in period-end loan balances.
Quarter in Detail
Managed net revenue of $24.8 billion in the quarter was up 4% from the year-ago quarter. It also compared favorably with the Zacks Consensus Estimate of $24.4 billion. The increase was primarily driven by solid performance in the Corporate & Investment Bank. Higher fee revenue in Asset Management and Mortgage Banking were the other supports.
However, net interest income remained essentially flat with the year-ago quarter.
Non-interest expense was $14.9 billion, 2% higher than the year-ago quarter. The legal expenses were primarily responsible for this increase. However, excluding legal expenses, the expense line showed a decent decline, reflecting business reorganization and decline in core expenses.
Credit Quality
JPMorgan’s credit quality depicted a mixed bag during the quarter. As of Mar 31, 2015, nonperforming assets were $7.7 billion, down 19% from $9.5 billion a year ago. Net charge-offs decreased 17% year over year to $1.1 billion. As a result, the total retained net charge-off rate, excluding PCI loans, improved to 0.61% from 0.77% a year ago.
Provision for credit losses increased 13% year over year to $959 million primarily due to lower reserve releases.
Capital Position
JPMorgan’s capital ratios also showed improvement. Tier 1 capital ratio was 12.1% as of Mar 31, 2015, compared with 11.6% as of Dec 31, 2014. Tier 1 common equity capital ratio was 10.7% as of Mar 31, 2015, up from 10.2% as of Dec 31, 2014. Total capital ratio came in at 13.6% as of Mar 31, 2015 compared with 13.1% as of Dec 31, 2014.
Book value per share was $57.77 as of Mar 31, 2015 compared with $56.98 as of Dec 31, 2014 and $53.97 as of Mar 31, 2014. Tangible book value per common share came in at $45.45 as of Mar 31, 2015, compared with $44.60 as of Dec 31, 2014 and $41.65 as of Mar 31, 2014.
What Sense Does Q1 Report Make?
JPMorgan’s impressive performance, despite the outflow related to legal settlements and some industry headwinds, indicates that it is regaining fundamental strength.
Along with its win over clocking top-line improvement through reorganized operations, keeping core expenses in check was the key strength during the quarter. The trend in expense line over the last several quarters, signals continued support to its bottom line in the next few quarters.
However, nagging legal issues, though subdued to a great extent now, and a prevalent tough industry backdrop, would continue to curb the company’s bottom-line improvement.
Further, pressure on interest margin with further uncertainty on interest rate hike and the impact of a stringent regulatory environment might mar its results going forward. Nevertheless, improving performance in almost all its segments is impressive.
Wells Fargo & Company WFC has reported Q1 earnings along with JPMorgan today. The results of these two companies exhibit an impressive start to bank earnings.
The industry’s performance will be reconfirmed by the results from Bank of America Corp. BAC and Citigroup Inc. C on Apr 15.
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