Earnings beat expectations
J.P. Morgan (JPM) reported first quarter earnings on April 14, 2015. The bank reported net income for the quarter of $5.9 billion, or $1.45 per share, and $24.8 billion in revenue. It beat expectations of $1.40 earnings per share on $24.5 billion in revenue. The stock closed 1.6% up on the day of the announcement.
Wells Fargo (WFC) also reported its 1Q15 results on April 14. The bank recorded a 2% decline in net income for the first time since 2008. Higher staff costs, higher provisions relating to its energy portfolio, and squeezed interest margins contributed to the decline.
Net income increases
J.P. Morgan’s net income was up 12% from the prior year, primarily driven by higher revenue. The growth in revenue was mainly driven by strong performance in the Corporate and Investment Bank segment in both the Markets and Investment Banking businesses. Higher trading revenues were driven mostly by higher volatility.
Net interest income was relatively flat compared to the prior year. The above chart provides highlights of the bank’s 1Q15 results.
Adjusted expense declines
Non-interest expense increased compared to the prior year, driven by higher legal expenses. On an adjusted basis, expense declined compared to the prior year. The decline in expense was driven by business simplification and lower non-interest expense.
The provision for credit losses increased despite lower net charge-offs. This reflects lower reserve releases of $93 million compared to $419 million in the prior year. The bank added around $100 million in the quarter to reserves relating to its oil and gas exposure.
Net interest margin compresses further
Higher average cash balances on deposit growth as well as some asset reductions compressed the net interest margin (or NIM) by 7 basis points.
NIMs for all major banks, including JPM, Citigroup (C), and Bank of America (BAC), have been declining for some time due to the sustained low rate environment. Together, these three banks form ~18.2% of the Financial Select Sector SPDR ETF (XLF).