JPMorgan Chase’s credit card business is showing signs of life, persuading company executives that a resumption of loan growth is getting nearer, though perhaps not right around the corner.
While total loans in consumer and community banking fell by 2% year over year during the third quarter, credit card spending continued to increase, and outstanding balances rose slightly. The rates at which customers make payments on their cards, while still unusually high, began to return to more normal levels.
One question now is whether the growth in card spending will result in higher revolving card balances, Chief Financial Officer Jeremy Barnum said Wednesday. He sounded hopeful, but still cautious about the short-term outlook, saying that customers who would typically have revolving debt appear to be spending down their excess liquidity quickly, which could lead to growth in outstanding credit card balances.
“So that makes us relatively optimistic about both the potential for card outstandings to grow with higher spend, but also for increased revolve and lower pay rates as we go into next year,” Barnum told investors Wednesday during the bank’s earnings call.
“It’s going to take time obviously, but that is the core view.”
JPMorgan will likely have to spend more money to take advantage of growth opportunities in the credit card business.
The $3.8 trillion-asset company is doling out more in marketing costs in order to get its “fair share of the growth in spending” as the United States works its way out of the pandemic, Barnum said. He warned that card marketing expenses could “tick up a little bit sequentially” as the bank seeks to bring in more business. The company did not provide guidance on its expenses for next year.
JPMorgan kicked off the latest bank earnings
Those fees, combined with the release of $2.1 billion in reserves for potential bad loans that have not materialized, pushed net income to $11.7 billion for the third quarter, up 24% from the same period in 2020. Earnings per share totaled $3.74, up 28% from the year-ago quarter.
JPMorgan is often regarded as a bellwether for other large banks, and like much of the industry, it continues to struggle with loan growth in both consumer and commercial banking.
In addition to the decline in consumer loans, commercial banking loans fell by 5% from the year-ago period.
Commercial and industrial loans, long a
Still, there were some positives. Credit line utilization rates at mid-sized firms saw a “slight uptick,” Barnum noted.
“In CRE, we see quite a robust origination pipeline as we’ve sort of fully removed any pandemic-related credit pullbacks, and we’re leaning into that,” he said.
In consumer lending, additions to the bank’s mortgage portfolio outpaced prepayments, while auto loan originations of $11.5 billion were second only to the record set during the previous three-month period.
At the end of the third quarter, credit card loans outstanding totaled $143.2 billion, up 2% from the same period a year earlier, while auto loans outstanding were up by 9.8% and home mortgages were down by 4.8%.
Credit quality at JPMorgan Chase continued to improve during the third quarter. Net charge-offs totaled $524 million, the lowest in recent history and about half of the year-ago quarter’s number, Barnum said.
Analysts generally touted JPMorgan’s better-than-expected results, though one of them wondered what will happen to the company’s earnings when it stops releasing reserves.
“Longer term, the company’s loan growth will need to accelerate to maintain earnings growth after loan loss reserve releases fade away,” Gerard Cassidy of RBC Capital Markets wrote in a research note.
JPMorgan still has about $20.5 billion in reserves, Barnum said. That figure accounts for ongoing uncertainty about the pandemic’s trajectory as well as current labor market dynamics, including the expiration in September of expanded unemployment benefits.
