JPMorgan Chase Reports Record Third-Quarter 2012 Net Income of $5.7 Billion, or Record $1.40 Per Sha

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JPMorgan Chase Reports Record Third-Quarter 2012 Net Income of $5.7 Billion, or Record $1.40 Per Share, on Revenue1of $25.9 Billion

STRONG PERFORMANCE ACROSS ALL BUSINESSES

  • Continued momentum in all our businesses; strong lending in Commercial Banking, Business Banking, Mortgage Banking and Asset Management2
    • Investment Bank reported favorable Fixed Income results; maintained #1 ranking for Global Investment Banking fees
    • Consumer & Business Banking average deposits up 9%; Business Banking loan growth for the eighth consecutive quarter to a record $19 billion, up 8%
    • Mortgage Banking record production revenue; originations of $47 billion, up 29%
    • Credit Card sales volume1up 11%
    • Commercial Banking reported record revenue; loan growth for the ninth consecutive quarter to a record $124 billion, up 15%
    • Treasury & Securities Services reported record assets under custody of $18.2 trillion, up 12%
    • Asset Management reported fourteenth consecutive quarter of positive net long-term product flows; record loan balances of $75 billion
  • JPMorgan Chase supported consumers, businesses and our communities2
    • Provided $200 billion of credit1to consumers YTD; originated 664,000 mortgages YTD
    • Provided $15 billion of credit1to U.S. small businesses YTD, up 21%
    • Provided over $380 billion of credit1to corporations YTD
    • Raised nearly $670 billion of capital for clients YTD
    • $52 billion of capital raised and credit1provided for more than 1,300 nonprofit and government entities YTD, including states, municipalities, hospitals and universities
    • Hired more than 4,500 U.S. veterans since the beginning of 2011
  • Third-quarter results included the following significant items:
    • $900 million pretax benefit ($0.14 per share after-tax increase in earnings) from reduced mortgage loan loss reserves in Real Estate Portfolios
    • $825 million pretax incremental charge-offs ($0.13 per share after-tax decrease in earnings) due to regulatory guidance on certain residential loans in Real Estate Portfolios
    • $888 million pretax benefit ($0.14 per share after-tax increase in earnings) due to extinguishment gains on redeemed trust preferred capital debt securities in Corporate
    • $684 million pretax expense ($0.11 per share after-tax decrease in earnings) for additional litigation reserves in Corporate
  • Fortress balance sheet strengthened
    • Basel I Tier 1 common1of $135 billion; or 10.4%, up from 9.9% in the prior quarter
    • Estimated Basel III Tier 1 common1of 8.4%3, up from 7.9% in the prior quarter
    • Loan loss reserves of $23 billion; Global Liquidity Reserve of $449 billion

NEW YORK--(BUSINESS WIRE)-- JPMorgan Chase & Co. (NYS: JPM) today reported record net income for third-quarter 2012 of $5.7 billion, compared with net income of $4.3 billion in the third quarter of 2011. Earnings per share were a record $1.40, compared with $1.02 in the third quarter of 2011. The Firm's return on tangible common equity1 for the third quarter of 2012 was 16%, compared with 13% in the prior year.


Jamie Dimon, Chairman and Chief Executive Officer, commented on financial results: "The Firm reported strong performance across all our businesses in the third quarter of 2012. Revenue for the quarter was $25.9 billion, up 6% compared with the prior year, or 16% before the impact of DVA. These results reflected continued momentum in all our businesses."

Dimon continued: "The Investment Bank reported favorable Fixed Income Markets results and maintained its #1 ranking for Global Investment Banking fees. Consumer & Business Banking average deposits were up 9% and Business Banking loan balances grew for the eighth consecutive quarter to a record $19 billion, up 8% compared with the prior year. Mortgage Banking originations were $47 billion, up 29% compared with the prior year. Credit Card sales volume1 was up 11% compared with the prior year. Commercial Banking reported record revenue and grew loan balances for the ninth consecutive quarter to a record $124 billion, up 15% compared with the prior year. Treasury & Securities Services assets under custody rose to a record $18.2 trillion, up 12% compared with the prior year. Asset Management reported positive net long-term product flows for the fourteenth consecutive quarter and record loan balances of $75 billion."

Dimon commented: "Importantly, we believe the housing market has turned the corner. In our Mortgage Banking business, we were encouraged that credit trends continued to modestly improve, and, as a result, the Firm reduced the related loan loss reserves by $900 million. Despite this improvement, the absolute level of charge-offs remains elevated. We also expect to see high default-related expense for a while longer. We are acting responsibly to help homeowners and prevent foreclosures, offering nearly 1.4 million mortgage modifications and completing 578,000 since 2009. Credit trends in our credit card portfolio continued to improve, and the wholesale credit environment remained stable."

"The underlying strength in the Firm's results is reflected in our support for customers, corporate clients and communities around the world. The Firm has provided credit and raised capital of over $1.3 trillion for our commercial and consumer clients during the first nine months of 2012. This included more than $15 billion of credit provided for U.S. small businesses, an increase of 21% compared with the same period last year. This also included $52 billion of capital raised and credit1 provided for more than 1,300 nonprofit and government entities so far this year, including states, municipalities, hospitals and universities."

Dimon added: "There were several significant items that affected our results this quarter - some positively, some negatively. As we always do, we discuss these significant items in detail within our disclosures."

Commenting on the balance sheet, Dimon said: "We strengthened our fortress balance sheet, ending the third quarter with a strong Basel I Tier 1 common ratio1 of 10.4%, up from 9.9% in the second quarter. We estimate that our Basel III Tier 1 common ratio1 was approximately 8.4%3 at the end of the third quarter, up from 7.9% in the second quarter."

Dimon concluded: "I am proud of the momentum we are seeing throughout our businesses. The exceptional power of our franchise is evident in the solid foundation of our fortress balance sheet and the tremendous capacity of JPMorgan Chase to support our customers and communities around the world while making significant investments for the future."

In the discussion below of the business segments and of JPMorgan Chase as a Firm, information is presented on a managed basis. For more information about managed basis, as well as other non-GAAP financial measures used by management to evaluate the performance of each line of business, see page 14. The following discussion compares the third quarters of 2012 and 2011 unless otherwise noted.

INVESTMENT BANK (IB)

 

Results for IB       2Q12  3Q11
($ millions)   3Q12 2Q12 3Q11  $ O/(U) O/(U) %  $ O/(U) O/(U) %
Net Revenue   $6,277 $6,766 $6,369  ($489) (7)%  ($92) (1)%
Provision for Credit Losses   (48) 21 54  (69) NM  (102) NM
Noninterest Expense   3,907 3,802 3,799  105 3  108 3
Net Income   $1,572 $1,913 $1,636  ($341) (18)%  ($64) (4)%

Discussion of Results:

Net income was $1.6 billion, down 4% from the prior year. These results reflected higher noninterest expense and lower net revenue, largely offset by a benefit from the provision for credit losses compared with a provision for credit losses in the prior year. Net revenue was $6.3 billion, compared with $6.4 billion in the prior year. Net revenue included a $211 million loss from DVA on certain structured and derivative liabilities resulting from the tightening of the Firm's credit spreads compared with a gain of $1.9 billion in the prior year. Excluding the impact of DVA, net income was $1.7 billion1, up $1.2 billion from the prior year, and net revenue was $6.5 billion1, up $2.0 billion from the prior year.

Investment banking fees were $1.4 billion (up 38%), which consisted of debt underwriting fees of $805 million (up 62%), equity underwriting fees of $235 million (up 32%), and advisory fees of $389 million (up 7%). Combined Fixed Income and Equity Markets revenue was $4.8 billion, flat compared with the prior year. The portion of the synthetic credit portfolio transferred from the Chief Investment Office in Corporate to the IB on July 2, 2012 experienced a modest loss, which was included in Fixed Income Markets revenue. Credit Portfolio reported net revenue of $90 million.

Excluding the impact of DVA, Fixed Income and Equity Markets combined revenue was $4.8 billion1, up 24% from the prior year, driven by solid client revenue and broad-based strength across the Fixed Income businesses. Excluding the impact of DVA, Credit Portfolio net revenue was $289 million1, driven by net interest income on retained loans and fees on lending-related commitments.

The provision for credit losses was a benefit of $48 million, compared with a provision for credit losses in the prior year of $54 million. The ratio of the allowance for loan losses to end-of-period loans retained was 2.06%, compared with 2.30% in the prior year. Excluding the impact of the consolidation of Firm-administered multi-seller conduits effective on January 1, 2010, the ratio of the allowance for loan losses to end-of-period loans retained was 3.29%1, compared with 3.60%1 in the prior year.

Noninterest expense was $3.9 billion, up 3% from the prior year, driven by higher compensation expense, partially offset by lower noncompensation expense. The compensation ratio for the current quarter was 32%1, excluding the impact of DVA.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted, and all rankings are according to Dealogic)

  • Ranked #1 in Global Investment Banking Fees for the nine months ended September 30, 2012.
  • Ranked #1 in Global Debt, Equity and Equity-related; #1 in Global Long-Term Debt; #1 in Global Syndicated Loans; #2 in Global Announced M&A; and #4 in Global Equity and Equity-related, based on year-to-date volume, for the nine months ended September 30, 2012.
  • Return on equity was 16% on $40.0 billion of average allocated capital (17%1 excluding DVA).
  • End-of-period total loans were $71.2 billion, up 18% from the prior year and down 4% from the prior quarter. Nonaccrual loans were $794 million, down 44% from the prior year and 3% from the prior quarter.

RETAIL FINANCIAL SERVICES (RFS)

 

Results for RFS       2Q12  3Q11
($ millions)   3Q12 2Q12 3Q11  $ O/(U) O/(U) %  $ O/(U) O/(U) %
Net Revenue   $8,013 $7,935 $7,535  $78 1%  $478 6%
Provision for Credit Losses   631 (555) 1,027  1,186 NM  (396) (39)
Noninterest Expense   5,039 4,726 4,565  313 7  474 10
Net Income   $1,408 $2,267 $1,161  ($859) (38)%  $247 21%

Discussion of Results:
Net income was $1.4 billion, compared with $1.2 billion in the prior year.

Net revenue was $8.0 billion, an increase of $478 million, or 6%, compared with the prior year. Net interest income was $3.9 billion, down $190 million, or 5%, driven by lower deposit margins and lower loan balances due to portfolio runoff, largely offset by higher deposit balances. Noninterest revenue was $4.1 billion, an increase of $668 million, or 19%, driven by higher mortgage fees and related income, partially offset by lower debit card revenue.

The provision for credit losses was $631 million, compared with $1.0 billion in the prior year and a benefit of $555 million in the prior quarter. The current-quarter provision reflected a $900 million reduction in the allowance for loan losses. Current-quarter total net charge-offs were $1.5 billion, including $825 million of incremental charge-offs reported in accordance with regulatory guidance requiring loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower to be charged off to their collateral value and to be considered nonaccrual, regardless of their delinquency status. Excluding these incremental charge-offs, net charge-offs during the quarter would have been $706 million compared with $1.0 billion in the prior year and $795 million in the prior quarter. The prior-quarter provision reflected a $1.4 billion reduction in the allowance for loan losses.

Noninterest expense was $5.0 billion, an increase of $474 million, or 10%, from the prior year.

Consumer & Business Banking reported net income of $785 million, a decrease of $238 million, or 23%, compared with the prior year.

Net revenue was $4.3 billion, down 7% from the prior year. Net interest income was $2.7 billion, down 2% compared with the prior year, driven by the impact of lower deposit margin, predominantly offset by higher deposit balances. Noninterest revenue was $1.7 billion, a decrease of 15%, driven by lower debit card revenue, reflecting the impact of the Durbin Amendment.

The provision for credit losses was $107 million, compared with $126 million in the prior year. Net charge-offs were $107 million (2.33% net charge-off rate), compared with $126 million (2.91% net charge-off rate) in the prior year.

Noninterest expense was $2.9 billion, up 3% from the prior year, driven by investments in sales force and new branch builds.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted; banking portal ranking is per compete.com)

  • Average total deposits were $393.8 billion, up 9% from the prior year and 1% from the prior quarter; deposit growth rates were among the best in the industry.
  • Deposit margin was 2.56%, compared with 2.82% in the prior year and 2.62% in the prior quarter.
  • Checking accounts totaled 27.7 million, up 4% from the prior year and 1% from the prior quarter.
  • Number of branches was 5,596, an increase of 200 from the prior year and 33 from the prior quarter. Chase Private Client locations were 960, an increase of 821 from the prior year and 222 from the prior quarter.
  • Record end-of-period Business Banking loans were $18.6 billion, up 8% from the prior year and 2% from the prior quarter; originations were $1.7 billion, up 17% from the prior year and down 6% from the prior quarter; Chase continues to be the #1 SBA lender (in number of loans).
  • Branch sales of credit cards were down 16% from the prior year and 7% from the prior quarter.
  • Branch sales of investment products were up 23% compared with the prior year and 2% compared with the prior quarter.
  • Client investment assets, excluding deposits, were $154.6 billion, up 17% from the prior year and 5% from the prior quarter.
  • Number of active mobile customers was 9.8 million, an increase of 35% compared with the prior year and 8% compared with the prior quarter; QuickDeposit active customers doubled compared with the prior year and QuickPay active customers tripled compared with the prior year.
  • Number of active online customers was 18.2 million, an increase of 5% compared with the prior year and 2% from the prior quarter; Chase.com is the #1 most visited banking portal in the U.S.

Mortgage Production and Servicing reported net income of $563 million, an increase of $358 million compared with the prior year.

Mortgage production reported record pretax income of $1.1 billion, an increase of $594 million from the prior year. Mortgage production-related revenue, excluding repurchase losses, was a record $1.8 billion, an increase of $475 million, or 36%, from the prior year. These results reflected wider margins, driven by favorable market conditions, and higher volumes due to historically low interest rates and the Home Affordable Refinance Programs ("HARP"). Production expense was $678 million, an increase of $182 million, or 37%, reflecting higher volumes. Repurchase losses were $13 million, compared with $314 million in the prior year and $10 million in the prior quarter.

Mortgage servicing reported a pretax loss of $159 million, compared with a pretax loss of $153 million in the prior year. Mortgage servicing revenue, including mortgage servicing rights ("MSR") asset amortization, was $754 million, an increase of $57 million, or 8%, from the prior year due to lower MSR asset amortization, largely offset by lower servicing-related revenue. MSR risk management income was $150 million, compared with $16 million in the prior year. Servicing expense was $1.1 billion, an increase of $197 million, or 23%, from the prior year. The current quarter includes approximately $100 million of incremental expense for foreclosure-related matters.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Mortgage loan originations were $47.3 billion, up 29% from the prior year and 8% compared with the prior quarter; Retail channel originations (branch and direct-to-consumer) were $25.5 billion, up 14% from the prior year and down 2% compared with the prior quarter.
  • Mortgage loan application volumes were $73.2 billion, up 26% from the prior year and 9% from the prior quarter.
  • Total third-party mortgage loans serviced were $814.8 billion, down 12% from the prior year and 5% from the prior quarter.

Real Estate Portfolios reported net income of $60 million, compared with a net loss of $67 million in the prior year. The increase was driven by a lower provision for credit losses.

Net revenue was $1.0 billion, a decrease of $145 million, or 13%, from the prior year. The decrease was driven by a decline in net interest income, resulting from lower loan balances due to portfolio runoff.

The provision for credit losses was $520 million, compared with $899 million in the prior year. The current quarter provision reflected a $900 million reduction in the allowance for loan losses due to improved delinquency trends and lower estimated losses, primarily in the Home Equity Portfolio. Net charge-offs totaled $1.4 billion, including $825 million of incremental charge-offs reported in accordance with regulatory guidance requiring loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower to be charged off to their collateral value and to be considered nonaccrual, regardless of their delinquency status. Excluding these incremental charge-offs, net charge-offs during the quarter would have been $595 million, compared with $899 million in the prior year and $696 million in the prior quarter. Home equity net charge-offs were $1.1 billion (6.22% net charge-off rate1), compared with $581 million (2.82% net charge-off rate1) in the prior year. Subprime mortgage net charge-offs were $152 million (6.89% net charge-off rate1), compared with $141 million (5.43% net charge-off rate1). Prime mortgage, including option ARMs, net charge-offs were $143 million (1.37% net charge-off rate1), compared with $172 million (1.48% net charge-off rate1).

Excluding the effect of the incremental charge-offs resulting from the regulatory guidance noted above, Home Equity net charge-offs would have been $402 million (2.23% adjusted net charge-off rate1), compared with $581 million (2.82% net charge-off rate1) in the prior year. Subprime mortgage net charge-offs would have been $91 million (4.13% adjusted net charge-off rate1), compared with $141 million (5.43% net charge-off rate1). Prime mortgage, including option ARMs, net charge-offs would have been $97 million (0.93% adjusted net charge-off rate1), compared with $172 million (1.48% net charge-off rate1).

Nonaccrual loans were $8.1 billion, compared with $6.3 billion in the prior year and $6.7 billion in the prior quarter. Before the impact of several changes noted below, nonaccrual loans would have been $5.1 billion for the third quarter, down from $6.3 billion in the prior year and $5.3 billion in the prior quarter. The current quarter included $1.7 billion of loans that were reported as nonaccrual as a result of the regulatory guidance noted above. The current quarter nonaccrual loans also reflected the effect of regulatory guidance implemented in the first quarter of 2012 as a result of which the Firm began reporting performing junior liens that are subordinate to nonaccrual senior liens as nonaccrual loans. Such junior liens were $1.3 billion in the current quarter and $1.5 billion in the prior quarter.

Noninterest expense was $386 million, up by $23 million, or 6%, from the prior year due to an increase in servicing costs.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted. Average loans include PCI loans)

  • Average home equity loans were $93.2 billion, down by $11.6 billion.
  • Average mortgage loans were $90.5 billion, down by $10.6 billion.
  • Allowance for loan losses was $11.3 billion, compared with $14.7 billion.
  • Allowance for loan losses to ending loans retained, excluding PCI loans was 4.63%, compared with 7.12%.

CARD SERVICES & AUTO (Card)

 

Results for Card       2Q12  3Q11
($ millions)   3Q12 2Q12 3Q11  $ O/(U) O/(U) %  $ O/(U) O/(U) %
Net Revenue   $4,723 $4,525 $4,775  $198 4%  ($52) (1)%
Provision for Credit Losses   1,231 734 1,264  497 68  (33) (3)
Noninterest Expense   1,920 2,096 2,115  (176) (8)  (195) (9)
Net Income   $954 $1,030 $849  ($76) (7)%  $105 12%

Discussion of Results:
Net income was $954 million, an increase of $105 million, or 12%, compared with the prior year. The increase was driven by lower noninterest expense and lower provision for credit losses, partially offset by lower net revenue.

Net revenue was $4.7 billion, a decrease of $52 million, or 1%, from the prior year. Net interest income was $3.4 billion, down $78 million, or 2%, from the prior year. The decrease was driven by narrower loan spreads, lower average loan balances, and lower late fee income. These decreases were largely offset by lower revenue reversals associated with lower net charge-offs. Noninterest revenue was $1.3 billion, an increase of $26 million, or 2%, from the prior year. The increase was driven by higher net interchange and merchant servicing revenue, largely offset by higher amortization of direct loan origination costs.

The provision for credit losses was $1.2 billion, compared with $1.3 billion in the prior year and $734 million in the prior quarter. The current-quarter provision reflected lower net charge-offs and a small reduction in the allowance for loan losses. The prior-year provision included a $370 million reduction in the allowance for loan losses. The Credit Card net charge-off rate1 was 3.57%, down from 4.70% in the prior year and 4.32% in the prior quarter; and the 30+ day delinquency rate1 was 2.15%, down from 2.89% in the prior year and up from 2.13% in the prior quarter. The Auto net charge-off rate was 0.74%, up from 0.36% in the prior year and from 0.17% in the prior quarter. Regulatory guidance requiring loans discharged under Chapter 7 bankruptcy and not reaffirmed by the borrower to be charged off to their collateral value, regardless of their delinquency status, resulted in an incremental $55 million of net charge-offs. Excluding these incremental charge-offs, Auto net charge-offs would have been $35 million for the current quarter, and the net charge-off rate would have been 0.29%.

Noninterest expense was $1.9 billion, a decrease of $195 million, or 9%, from the prior year, driven by lower marketing expense.

Key Metrics and Business Updates:
(All comparisons refer to the prior-year quarter except as noted)

  • Return on equity was 23% on $16.5 billion of average allocated capital.
  • Credit Card average loans were $124.3 billion, down 2% from prior year and 1% from the prior quarter.
  • #1 credit card issuer in the U.S. based on outstandings2; #1 Global Visa issuerbased on consumer and business credit card sales volume.2
  • Credit Card sales volume2 was $96.6 billion, up 11% compared with the prior year and 1% compared with the prior quarter; Card Services general purpose credit card sales volume growth has outperformed the industry since the first quarter of 2008.2
  • Credit Card new accounts of 1.6 million were opened; Credit Card open accounts of 63.9 million.
  • Card Services net revenue as a percentage of average loans was 12.46%, compared with 12.36% in the prior year and 11.91% in the prior quarter.
  • Merchant processing volume was $163.6 billion, up 18% from the prior year and 2% from the prior quarter; total transactions processed were 7.4 billion, up 21% from the prior year and 4% from the prior quarter.
  • Average auto loans were $48.4 billion, up 4% from the prior year and flat compared with the prior quarter.
  • Auto originations were $6.3 billion, up 7% from the prior year and 9% from the prior quarter.

COMMERCIAL BANKING (CB)

 

Results for CB       2Q12  3Q11
($ millions)   3Q12 2Q12 3Q11  $ O/(U) O/(U) %  $ O/(U) O/(U) %
Net Revenue   $1,732 $1,691 $1,588  $41 2%  $144 9%
Provision for Credit Losses   (16) (17) 67  1 6  (83) NM
Noninterest Expense   601 591 573  10 2  28 5
Net Income   $690 $673 $571  $17 3%  $119 21%

Discussion of Results:
Net income was $690 million, an increase of $119 million, or 21%, from the prior year. The improvement was driven by an increase in net revenue and lower provision for credit losses, partially offset by higher expense.

Net revenue was a record $1.7 billion, an increase of $144 million, or 9%, from the prior year. Net interest income was $1.1 billion, up by $82 million, or 8%, driven by growth in loan and liability balances, partially offset by spread compression on loan products. Noninterest revenue was $586 million, up $62 million, or 12%, compared with the prior year, primarily driven by higher investment banking revenue.

Revenue from Middle Market Banking was $838 million, an increase of $47 million, or 6%, from the prior year. Revenue from Commercial Term Lending was $298 million, flat compared with the prior year. Revenue from Corporate Client Banking was $370 million, an increase of $64 million, or 21%, from the prior year. Revenue from Real Estate Banking was $106 million, an increase of $2 million, or 2%, from the prior year.

The provision for credit losses was a benefit of $16 million, compared with a provision for credit losses of $67 million in the prior year. There were net recoveries of $18 million in the current quarter (0.06% net recovery rate), compared with net charge-offs of $17 million (0.06% net charge-off rate) in the prior year and net recoveries of $9 million (0.03% net recovery ra

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