JPMorgan Chase & Company’s (JPM) first quarter earnings came in at $1.25 per share, substantially ahead of the Zacks Consensus Estimate of $1.16. Results also ascended from earnings of 74 cents in the prior-year quarter.
Earnings for the reported quarter leave out certain significant nonrecurring items, such as 29 cents per share benefit from reduced credit card loan loss reserves, loss of 16 cents from mortgage servicing rights asset adjustment and estimated 10 cents per share cost related to foreclosure matters.
Considering these items, JPMorgan reported net income of $5.6 billion or $1.28 per share, compared with $3.3 billion or 74 cents per share in the year-ago quarter.
The astonishing numbers were primarily supported by a substantial slowdown in provision for credit losses and lower non-interest expense, which more than offset a decrease in both interest and non-interest reserves.
As expected, investment banking results witnessed a slight decline from the prior-year quarter, owing to higher non-interest expense and slightly lower revenue. However, JPMorgan’s investment banking performance was definitely better than what the market had guessed owing to strong client flows. Also, this segment excelled in every respect from the prior quarter.
All the other segments except Retail Financial Services performed well on strong credit trends in its credit card and wholesale businesses.
The Quarter That Was
Managed net revenue for the quarter came in at $25.8 billion, down 8% from $28.2 billion in the year-ago quarter. However, this compares favorably with the Zacks Consensus Estimate of $25.4 billion.
Managed non-interest revenues for the quarter decreased 4% from the year-ago period to $13.8 billion. The decline was due to lower mortgage fees and related income as well as lower securities gain, partially offset by higher investment banking fees. Also, net interest income decreased 13% year over year to $12.0 billion. Lower loan and securities balances were primarily responsible for this decline.
Non-interest expenses for the quarter were $16.0 billion, almost flat with the prior-year quarter. Higher personnel expense was offset by lower other expenses.
Managed provision for credit losses decreased 83% from the year-ago quarter to $1.2 billion. Total consumer provision for credit losses was $1.6 billion, down 78% from $7.2 billion in the year-ago quarter. This reflects improved delinquency trends and a reduction in the allowance for credit losses to the credit card portfolio as a result of lower estimated losses.
Credit Quality
JPMorgan’s credit quality showed a decent improvement during the quarter. As of March 31, 2011, nonperforming assets were $15.0 billion, down from $16.6 billion in the prior quarter and $19.0 billion in the prior-year quarter. Consumer net charge-offs decreased to $3.6 billion from $7.0 billion in the prior-year quarter.
As a result, consumer net charge-off rate improved to 3.77% from 6.61% in the year-ago quarter. Also, wholesale net charge-offs substantially decreased to $165 million from $959 million a year ago. This led to an improvement in the wholesale net charge-off rate to 0.30% from 1.84% in the year-earlier quarter.
Capital Position
JPMorgan maintained a strong capital position with an estimated Tier 1 common ratio of 10.0% as of March 31, 2011, up from 9.8% as of December 31, 2010, and 9.1% as of March 31, 2010.
Book value per common share was $43.34 as of March 31, 2011, compared with $43.04 as of December 31, 2010, and $39.38 as of March 31, 2010.
JPMorgan: A Wise Investment
JPMorgan is definitely a trustworthy stock, given its repeatedly superb earnings performance. Business diversification is the primary factor that enables JPMorgan to achieve steady earnings irrespective of economic conditions.
The spread of its portfolio may prove to be as much of a positive duringthe downturn as it was during the upsurge. Within traditional banking, a diversified product portfolio has better chances of sustaining thanmany other banks, which have exited some of these areas due to recessionary pressure.
Also, considering its enhanced dividend-yielding nature, JPMorgan is now a good stock for value investors.
Following the release of Federal Reserve’s second round of stress test results last month, along with many other banks, JPMorgan got the green signal for raising dividends. Its dividend hike and share buyback actions were prohibited in the last few years on fears that it may not have sufficient capital to tide over another financial crisis.
Finally, JPMorgan increased its quarterly cash dividend to 25 cents per share. This dividend is payable on April 30, 2011 to shareholders of record at the close of business on April 6. Hence, the annual dividend payable to shareholders sums up to $1 per share. The new and improved dividend marks a five-fold increase from the prior annual dividend of 20 cents per share.
Though there are concerns related to the impact of regulatory change and slothful customer trading in fixed income, currencies and commodities, improvement in equity markets, reduction in reserves for future losses and superior commercial loan activity will be the likely drivers of results going forward.
Also, growth in credit cards and investment products along with steady international expansion will usher meaningful revenue opportunities in time.
In conclusion, if an investor has the appetite to absorb risks related to market volatility, investment in JPMorgan will not disappoint. Though the stock is not trading for less than it is worth, JPMorgan’s fundamentals remain highly promising.
JPMorgan shares are maintaining a Zacks #3 Rank, which translates into a short-term Hold recommendation. Furthermore, we maintain a long-term “Neutral” recommendation on the stock.
Following the announcement of first quarter results, the stock was up about 1.4% in before-market trade.
As JPMorgan is a banking giant with exposure to almost all major banking businesses and is among the first big U.S. banks to have reported, its results are a significant indicator of first quarter performance by other important banks.
Close on the heels of JPMorgan, among other major banks, Bank of America Corporation (BAC) is scheduled to report on April 15, Citigroup Inc. (C) on April 18, Goldman Sachs Group Inc. (GS) on April 19, Wells Fargo & Company (WFC) on April 20 and Morgan Stanley (MS) on April 21.
BANK OF AMER CP (BAC): Free Stock Analysis Report
CITIGROUP INC (C): Free Stock Analysis Report
GOLDMAN SACHS (GS): Free Stock Analysis Report
JPMORGAN CHASE (JPM): Free Stock Analysis Report
MORGAN STANLEY (MS): Free Stock Analysis Report
WELLS FARGO-NEW (WFC): Free Stock Analysis Report
Zacks Investment Research
