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JPMorgan Chase & Co JPM

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JPMorgan Posts Solid Q3 Results; Most Reserve Releases Now Used Up as We Wait for Loan Growth

Eric Compton, CFA Senior Equity Analyst

Analyst Note

| Eric Compton, CFA |

Wide-moat JPMorgan reported excellent third-quarter earnings, beating the FactSet consensus estimate of $3.00 per share with reported EPS of $3.74. This equates to a return on tangible common equity of 22%. The bank once again benefitted heavily from reserve releases, which totaled roughly $2 billion this quarter. Excluding the release of reserves, EPS was closer to $3.03 and the bank's ROTCE was closer to 18%. As we had expected, reserve releases are slowing down, and the latest release gets the bank pretty close to our estimate of “normalized” reserve levels. Although we believe that there are still potentially a bit more left in reserves for the bank to release, we think it might be less than a billion that remains on JPMorgan's books. Management essentially left its 2021 guidance unchanged, with the main update being a decrease in expected card net charge-offs to 2% for the year from 2.5%. After updating our projections, we are increasing our fair value estimate for the bank to $149 per share from $143. This change was driven by time value of money (roughly $2), lower expected credit costs and higher fees.

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Company Profile

Business Description

JPMorgan Chase is one of the largest and most complex financial institutions in the United States, with more than $3 trillion in assets. It is organized into four major segments--consumer and community banking, corporate and investment banking, commercial banking, and asset and wealth management. JPMorgan operates, and is subject to regulation, in multiple countries.

383 Madison Avenue
New York, NY, 10179
T +1 212 270-6000
Sector Financial Services
Industry Banks - Diversified
Most Recent Earnings Jun 30, 2021
Fiscal Year End Dec 31, 2020
Stock Type Cyclical
Employees 260,110