JPMorgan Chase & Co. (NYSE:JPM) may not have hit a grand slam with its third-quarter numbers posted Friday morning, but all things considered, its earnings report should be plenty satisfying to owners of JPMorgan stock.
Revenue was up a solid 8%, and both the top line and the bottom line rolled in better than expected for the period.
The end result? JPM stock was up a respectable 1.4% (it’s since fallen to a 10 basis-point gain) on the heels of the news, extending what’s now become a 28% advance from its February low, and moving to a 3.7% year-to-date gain.
JPMorgan stock remains vulnerable to the wishy-washy economy, and still has issues it must contend with. But, JPM just became at least a little easier to own.
JPM Earnings Recap
For its recently completed fiscal third quarter, JPMorgan Chase & Co. turned $25.51 billion worth of revenue into a per-share profit of $1.58. The top line was 8% better than the year-ago revenue tally of $23.5 billion, though the bottom line came up short of the $1.68 per share of JPM reported in Q3 of 2015. Nevertheless, last quarter’s numbers topped expectations for earnings of $1.39 per share and sales of $24.3 billion.
It’s also worth noting the earnings dip wasn’t one that was entirely operationally driven.
In the same quarter a year earlier, the bottom line of $6.8 billion was boosted by a $2.2 billion tax benefit. Last quarter, JPMorgan booked a tax expense, leading to net income of $6.2 billion. Were it not for the timing of tax factors, JPMorgan Chase may have seemingly done even better.
CEO Jamie Dimon commented on last quarter’s numbers, “We delivered strong results this quarter with each of our businesses performing well.”
Earnings Growth Breakdown
There’s little doubt as to the highlight last quarter: fixed income, currencies and commodities (or FICC). That division’s revenue was up 45% last quarter, to $4.33 billion, thanks to a swell of trading activity after the Brexit vote in June. Those flames were fanned by strong improvements in credit-based products.
Other bright spots include commercial banking. Net income for its commercial banking arm grew 50% on a year-over-year basis, to $778 million. Corporate and investment banking income nearly doubled, reaching $2.91 billion on a 14% uptick in revenues. The bond trading desk saw a 48% increase in revenues.
Dimon added:
“We had record net income in Commercial Banking and record loan balances in Asset Management. The Corporate & Investment Bank reported its best third quarter revenue. In the Consumer businesses, we grew both loans and deposits [by] double-digits.”
Strong forward progress wasn’t seen across the board, however. The bank’s consumer and community banking group’s net income fell 16% to $2.2 billion. And, though core loans made by its commercial banking arm were up 14%, the company’s provisions for loan losses jumped 86% to $1.27 billion; bad oil and gas industry loans continue to plague banks.
Bottom Line for JPMorgan Stock
All told, the JPMorgan’s return on tangible common equity (or ROTCE) fell to 13% thanks to rising credit costs, despite a 6% decrease in non-interest expenses. The company has set a ROTCE target of 15%.
It was by no means a perfect quarter for JPMorgan, and questions remain as to how long the bank’s fixed income and currency exchange business can maintain Q3’s impressive growth rate.
Even as the overall economy superficially appears to be losing traction, demand for banking services and an increasing amount of economic activity — especially at the threshold of an interest rate hike — bodes well for JPM stock.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
