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JPMorgan Chase & Co. reported Wednesday third-quarter net income that increased 24%, mostly due to a boost from releasing more credit reserves, while the profit it made from lending edged up by 1%.
The bank notched gains in its auto lending and investment banking businesses, but reported a drop in loan activity, a key metric that Wall Street was watching closely. The bank’s revenue number also missed estimates.
Shares of JPMorgan Chase
JPM,
fell 4.5%, giving back some gains from the year. Shares had rallied 30.1% this year through Tuesday, compared with a rise of 15.8% by the S&P 500 SPX.
The bank earned $11.69 billion, or $3.74 a share, up from $9.44 billion, or $2.92 a share, in the year-ago period. The latest result included $2.1 billion, or 52 cents a share, in credit reserve releases.
Reported net revenue increased to $29.65 billion from $29.26 billion, while managed net revenue increased to $30.44 billion from $29.94 billion. Net interest income increased 1% to $13.2 billion.
Analysts expected the bank to earn $3.00 a share on revenue of $29.79 billion, with net interest income of $13.1 billion, according to a FactSet survey.
Shares of JPMorgan Chase fell 2.7%, giving back some of their gains from the year. Shares had rallied 30.1% this year through Tuesday, compared with a rise of 15.8% by the S&P 500 SPX.
Deutsche Bank analyst Matt O’Connor said the company still beat earnings projections after breaking out the “large” loan loss reserve release of 52 cents a share, and lower than expected charge-offs for unpaid balances by customers, as well as a boost of 19 cents a share from tax credits. Net interest income, fees and costs all came in ahead of expectations, he said.
Slightly better loan performance drove the upside surprise in net interest income, with fourth-quarter results to benefit from modest cash deployment of cash into securities. Trading, investment banking fees and asset management revenue also beat his target. The bank also booked $256 million of losses in securities, $145 million of mortgage servicing rights losses, $76 million of legal costs and a strategy equity investment gain of $160 million.
JPMorgan Chase Chairman and CEO Jamie Dimon said the results were “strong” as the economy continues to show good growth, despite the dampening effect of the delta variant and supply chain disruptions. The bank continues to focus on strategic, add-on acquisitions, he said.
The company expects 2021 net interest income of about $52.5 billion, compared with an analyst projection of $52.3 billion.
Breaking down third-quarter results, average loans increased by 5%; average deposits were up 19%.
Commercial banking revenue rose 10.3% to $2.52 billion, ahead of the FactSet consensus estimate of$2.12 billion. Consumer and community banking revenue fell 2.9% to $12.52 billion, below the analyst estimate of $12.78 billion. Corporate and investment bank revenue rose 7.4% to $12.4 billion, above the $11.69 billion estimate.
In its consumer and community banking unit, combined debit and credit card spending increased by 26%, but loans were down 2% amid prepayments in mortgages and the impact of forgiveness of Paycheck Protection Program (PPP) loans. The loan drop was primarily offset by a 12% increase in auto lending.
Originations in home lending increased by 43% to $42 billion, and remain at historically high levels.
In its corporate and investment bank, global investment banking fees jumped 52% amid a surge in M&A activity and initial public offerings. The bank said its commercial banking unit earned a record $1.3 billion of gross investment banking income.
Commercial banking loans fell 7%, however, but the bank said it’s seeing early signs of commercial real-estate loan growth.
The bank’s assets under management in its wealth management unit climbed 17% to $3 trillion.
During the third quarter, JPMorgan Chase became the first bank to operate branches in all of the Lower 48 states. It is more than half way through its plan to open 400 branches in new markets by the end of 2022, including 30% of these branches in low-to-moderate income communities.
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