Image Source: Gideon Benari
By Matthew Warren
On October 15, JPMorgan (JPM) posted third-quarter earnings of $2.68 per share, ahead of the average analyst estimate of $2.45. Revenue of $30.06 billion advanced 8.1% compared to the same period last year and $1.7 billion ahead of consensus. Basically, the company managed to overcome very muted expectations for the quarter.
Return on tangible common equity continued along at a high level of 18%, versus 17% in the same quarter last year. Importantly, the overhead ratio improved to 55% from 56% last year. The balance sheet remains very strong with a common equity Tier 1 ratio of 12.3%, up slightly sequentially. Loans were flat compared to last year but were up 3% excluding loan sales in Home Lending–where the economics of holding mortgages on the balance sheet aren’t overly attractive. Average bank-wide deposits were up an impressive 5% compared to last year, pointing to the strength of the deposit franchise.
Image Source: 3Q19 Financial Results Presentation
The Consumer & Community Banking Segment remains JPMorgan’s largest segment by earnings and by far the crown jewel of the bank (see image above). The division put up a 32% ROE compared to 31% in last year’s quarter, as the overhead ratio improved to 51% from 53%. Loans were up 4% and deposits up 3% in the segment, while net charge offs remained very benign in this elongated business cycle. Clearly, job gains combined with above-inflation wage gains continue to propel the consumer forward, and consumer banking is floating along nicely on the same tide.
JPMorgan CEO Jamie Dimon admitted plainly that the current benign credit losses are better than through-the-cycle averages during the conference call. He also acknowledged that revenues will come under pressure when the down cycle eventually hits. Until that time, JPMorgan is going from strength to strength, and this bank is clearly well positioned to take market share from weaker hands when the downcycle ultimately arrives. The high end of our fair value estimate range stands at $125 per share.
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Matthew Warren does not own shares in any of the securities mentioned above. Some of the other companies written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.