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Summary

  • The company missed earnings and revenue estimates, and both were less than the prior year.
  • I would wait to step into the stock until it yields 3% at least.
  • The two smaller segments of the bank were the only segments to increase revenues.

The last time I wrote about JPMorgan Chase & Co. (NYSE:JPM), I stated:

"Due to the low dividend yield, bearish technicals, and high valuation based on earnings growth potential I will not be pulling the trigger on this name right now."

During that timeframe the stock has dropped a whopping 8.85% while the S&P 500 (NYSEARCA:SPY) has dropped 3.7%. JPMorgan is a financial holding company and is engaged in investment banking, financial services for consumers and small business, commercial banking, financial transaction processing, asset management and private equity.

The company reported earnings before the market opened on 11Apr14 and on the surface all the results were sub-par with the company reporting earnings of $1.28 per share (missing estimates by $0.11) on revenue of $23.86 billion (missing estimates by $69 million). What I'd like to do at this time is delve into the weeds and pick out some highlights from different portions of the report to see if the stock is worth buying at the present time.

Consumer & Community Banking

Consumer & Community Banking

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 10,460

$ 11,314

$ 11,615

-8%

-10%

Provision for credit losses

$ 816

$ 72

$ 549

1033%

49%

Non-interest expense

$ 6,437

$ 7,321

$ 6,790

-12%

-5%

Net income

$ 1,936

$ 2,372

$ 2,586

-18%

-25%

The biggest thing I noticed in this segment of the bank was that provisions for credit losses increased 49% from the prior year and 1033% from the prior quarter. The current provision includes a $450 million reduction in the allowance for loan losses. Net income decreased by 25% from the prior year while decreasing 18% from the prior quarter. The decrease in net income was due in large part to decreased net revenue and increased provision for credit losses.

Corporate & Investment Bank

Corporate & Investment Bank

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 8,606

$ 6,020

$ 10,140

43%

-15%

Provision for credit losses

$ 49

$ (19)

$ 11

-358%

345%

Non-interest expense

$ 5,604

$ 4,892

$ 6,111

15%

-8%

Net income

$ 1,979

$ 858

$ 2,610

131%

-24%

The first eye popping thing I see is net revenue dropped -15% from the prior year but increased 43% from the prior quarter. Provision for credit losses increased 345% from the previous year and increased by $68 million from last quarter. Last but not least, net income decreased 24% from last year but increased 131% from the prior quarter. The lower year over year net income is attributed to the lower revenue number.

Commercial Banking

Commercial Banking

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 1,651

$ 1,847

$ 1,673

-11%

-1%

Provision for credit losses

$ 5

$ 43

$ 39

-88%

-87%

Non-interest expense

$ 686

$ 653

$ 644

5%

7%

Net income

$ 578

$ 693

$ 596

-17%

-3%

The main thing I see in this segment is provision for credit losses dropped 87% from the prior year and 88% from the prior quarter.

Asset Management

Asset Management

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 2,778

$ 3,179

$ 2,653

-13%

5%

Provision for credit losses

$ (9)

$ 21

$ 21

-143%

-143%

Non-interest expense

$ 2,075

$ 2,245

$ 1,876

-8%

11%

Net income

$ 441

$ 568

$ 487

-22%

-9%

Looking at Asset Management, what strikes me as compelling is that provision for credit losses decreased 143% from the prior year and from the prior quarter. Non-interest expenses increased 11% from last year while decreasing 8% from the prior quarter. The non-interest expense was due to higher headcount expenses and other costs.

Corporate/Private Equity

Corporate/Private Equity

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 368

$ 1,752

$ (233)

-79%

258%

Provision for credit losses

$ (11)

$ (13)

$ (3)

-15%

267%

Non-interest expense

$ (166)

$ 441

$ 2

-138%

-8400%

Net income

$ 340

$ 787

$ 250

-57%

36%

On this side of the business net revenue increased 258% but decreased 79% from the prior quarter. The main driver for the increase in net revenue was due to valuation gains on public and private investments and gains from sales. Provision for loan losses increased 267% from last year and decreased 15% from last quarter. Non-interest expenses decreased 8400% from last year and 138% from fourth quarter of last year. The bottom line for this segment is that net income increased 36% from last year but decreased 57% from last quarter.

Overall

JPMorgan Chase

1Q14

4Q13

1Q13

Q/Q

Y/Y

Net revenue

$ 23,863

$ 24,112

$ 25,848

-1%

-8%

Provision for credit losses

$ 850

$ 104

$ 617

717%

38%

Non-interest expense

$ 14,636

$ 15,552

$ 15,423

-6%

-5%

Net income

$ 5,274

$ 5,278

$ 6,529

0%

-19%

EPS

$ 1.28

$ 1.40

$ 1.59

-9%

-19%

Overall the provision for credit losses rose an alarming 38% from last year and 717% from the fourth quarter of last year. The bottom line was affected by a dramatic 19% drop from the same quarter last year and was flat from last quarter. The mass reduction in net income resulted in a 19% decrease in earnings from last year and a 9% drop from last quarter.

Conclusion

Last quarter may have been the inflection point for the company as it reported revenue and earnings which were relatively unchanged from the prior year. As with any inflection point the movement is either going to be upwards, or downwards, and in this quarter's case it was downward. The share price was down 5.45% from the prior earnings release excluding dividends. The share count was flat from the prior year and actually increased from the prior quarter by a percent. Another important measurable metric for bank stocks is tangible book value and that value has increased from $39.54 to $41.73 in one year while total assets on the balance sheet increased from $2.389 trillion to $2.476 trillion.

In my Dividend Portfolio Super Bowl series the bank made it to the final match but lost out to KLA-Tencor Corporation (NASDAQ:KLAC). Since that fatal loss, the stock is only up 0.38% while KLA is up 6.16%. I totally thought JPMorgan keep up after the loss, but apparently it's stuck in neutral. I don't like to see decreased earnings like anyone else, but most of all I loathe decreased revenues. This was an unimpressive quarter for the company and I'm not going to commit any new capital at this time.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Source: JPMorgan Deserves To Be Down After Reporting Decreased Revenues