JPMorgan Chase & Co. (NYSE: JPM – $120.97), the largest bank in the United States, kicked off the bank earnings season with better-than-expected September-quarter results. The company earned $2.68 a share, exceeding the $2.34 it earned in the year-earlier period and $0.23 better than analysts’ views. Although net interest income inched only 1% higher, fee-based income advanced 22%, supporting a 7% increase in revenues, which offset larger loan loss provisions and a 4% increase in expenses.
The Consumer & Community Banking segment led the way. Segment revenues rose 5%, driven by home loan production, auto lease volume and higher card income. Efficiency efforts and lower deposit insurance charges helped hold expense growth to 4%. Credit costs ticked up, largely reflecting an increase in reserves for credit card loan losses and a smaller reduction in reserves for home loans than in the like period of 2018. The Corporate & Investment Bank unit also performed well, although profits in the September period weren’t as strong as in the first two quarters of 2019. Segment revenues increased 6% year-over-year, largely propelled by higher debt and equity underwriting income and strong fixed-income markets revenues, reflecting improved market conditions. But margin compression depressed treasury management revenues and Equity Markets income declined 5% compared to a strong prior year. Segment expense, however, rose only 3%, allowing Corporate & Investment Banking division profits to advance 7% year to year.
JPMorgan’s two other business segments didn’t fare as well. Profits in the Commercial Banking division fell 14% year-to-year. Revenues slipped 3%, driven by margin compression and expenses ticked up 3%, due to investments in the business. Asset & Wealth Management income declined 8%. Segment revenues about matched the year-earlier tally, with the benefit of higher average market levels and loan growth offset by margin pressure. Investments in technology and advisors pushed expenses modestly higher.
While it was a decent quarter for Chase, the operating climate clearly has become more challenging. Lower interest rates are contributing to the margin compression throughout the company. And loan growth has slowed to a 3% pace if one excludes home loans sold in the September term. In addition, credit costs probably will continue to rise somewhat as JPM builds up loan loss reserves. On the other hand, diversification ought to work to the company’s advantage in the year ahead. Strength in fee-based revenues should help offset further pressure on net interest income in the next several quarters. Revenue growth should also benefit from expansion in new markets and the company’s continued heavy investment in technology and its businesses. Given the 15% share-net advance in the September quarter, full-year per share earnings are now expected to be around $10.40. Next year may be a more difficult year, but still look for results to increase modestly to $10.75 a share. As for the stock, which reached an all-time high following the earning’s release, the 3.1% dividend yield is attractive and may interest income-oriented investors willing to accept the risks inherent in economy-driven financials.