J.P. Morgan exceeds expectations as earnings season gets underway
Q3 earnings season is underway as banking giants J.P. Morgan (JPM) and Wells Fargo (WFC) announced Q3 results.
JPMorgan Chase's Q3 results exceeded analyst expectations on several fronts. Managed net interest income was reported at $23.53 billion, surpassing the consensus estimate of $22.8 billion, and adjusted revenue was $43.32 billion, higher than the expected $41.9 billion. EPS was solid at $4.37, with loans slightly beating expectations at $1.34 trillion versus the $1.33 trillion forecast. Total deposits also exceeded projections, coming in at $2.43 trillion compared to the $2.4 trillion estimate. The bank's investment banking revenue came in at $2.35 billion, above the estimated $2.13 billion.
Shares of JPM initially rallied 4% on the surprise top and bottom line beat. The stock has pulled back to the $215 area on some profit-taking. We await the conference call at 8:30am ET but these results represent an impressive start for the banking sector.
The provision for credit losses was $3.11 billion, slightly above the estimated $2.94 billion, while net charge-offs were lower than expected at $2.09 billion versus $2.37 billion. Non-interest expenses were $22.57 billion, coming in below the expected $22.85 billion. The net yield on interest-earning assets matched the estimate at 2.58%, while the standardized CET1 ratio was stronger at 15.3% compared to the 15.1% forecast. The return on equity and return on tangible common equity also outperformed, at 16% and 19%, respectively, against estimates of 14.5% and 17.5%.
In terms of valuation, JPMorgan Chase currently trades at 2.22 times its tangible book value per share and 1.86 times its book value per share, reflecting its strong financial performance and market position. These valuations suggest a premium relative to its peers, highlighting investor confidence in its profitability and capital management strategies.
The provision for credit losses reached $3.1 billion, consisting of net charge-offs of $2.1 billion and a net reserve build of $1.0 billion. The $2.1 billion in net charge-offs increased by $590 million, largely driven by Card Services. The net reserve build included $882 million allocated to Consumer, primarily within Card Services, and $144 million to Wholesale. In comparison, the prior year's provision was $1.4 billion, which included net charge-offs of $1.5 billion and a net reserve release of $113 million.
Jamie Dimon expressed concern over the current geopolitical landscape, highlighting that conditions are becoming increasingly volatile and unpredictable. He noted the significant human suffering involved and emphasized that these developments could have both immediate economic impacts and lasting historical consequences. While acknowledging that inflation is easing and the U.S. economy remains strong, Dimon pointed to ongoing challenges such as fiscal deficits, infrastructure demands, trade adjustments, and global remilitarization. He stressed the importance of staying prepared for any scenario in light of these uncertainties, even as they hope for more positive outcomes.
JPMorgan Chase's Consumer & Community Banking (CCB) segment reported Q3 net revenue of $17.8 billion, down 3% year-over-year. Banking & Wealth Management revenue declined 11% to $10.1 billion, mainly due to lower net interest income from deposit margin compression and reduced deposit balances, though this was partially offset by higher asset management fees. Home Lending revenue rose 3% to $1.3 billion, while Card Services & Auto saw an 11% increase to $6.4 billion, driven by higher revolving balances. Noninterest expenses rose 5% to $9.6 billion, primarily due to increased compensation and investments in marketing. The provision for credit losses was $2.8 billion, with net charge-offs of $1.9 billion and a net reserve build of $876 million, reflecting the impact of credit normalization and macroeconomic factors, particularly in Card Services.
JPMorgan Chase's Corporate & Investment Bank (CIB) segment reported Q3 net income of $5.7 billion, up 13%, with net revenue rising 8% to $17.0 billion. Banking & Payments revenue increased 8% to $8.6 billion, with Investment Banking revenue surging 29% to $2.4 billion, driven by a 31% rise in fees across all products. Payments revenue grew 4% to $4.4 billion, while Lending revenue slightly declined by 2% to $1.9 billion. Markets & Securities Services revenue also climbed 8% to $8.4 billion, with Equity Markets revenue up 27% due to strong trading performance. Fixed Income Markets revenue remained flat at $4.5 billion. Noninterest expenses decreased by 1% to $8.8 billion, driven by lower legal expenses despite higher compensation and technology costs. The provision for credit losses was $316 million, reflecting a net reserve build of $160 million and net charge-offs of $156 million, compared to a net benefit of $95 million in the prior year.
JPMorgan Chase updated its full-year 2024 guidance with several positive revisions. The bank raised its net interest income (NII) outlook to approximately $92.5 billion, up from the previous estimate of $91 billion, reflecting improved market conditions. For NII excluding Markets, the guidance also increased slightly to $91.5 billion, compared to the prior $91 billion estimate. On the expense front, JPMorgan lowered its expected full-year adjusted expense to about $91.5 billion, down from the earlier projection of $92 billion, indicating better cost control. The adjusted expense includes factors such as the FDIC special assessment and the Foundation contribution. The bank reaffirmed its forecast for the Card Services net charge-off (NCO) rate, maintaining the outlook at approximately 3.4%.