Here's what drove JPMorgan Chase to two beats in the third quarter

Last Friday you could almost hear a collective sigh of relief on the stock market and among economists afterwards JPMorgan Chase (NYSE:JPM) has released its third quarter results. The company is the largest bank in this country, which is saying something given the enormous size and weight of our economy. Therefore, its performance is often viewed as a kind of benchmark, not only for the entire banking sector, but for the American economy in general.

Fortunately for those who think so, JPMorgan Chase's quarterly performance was very good. Combined with other Big Four banks' subsequent earnings increases in the third quarter Wells Fargo, Bank of AmericaAnd Citigrouponly helped boost confidence in the US financial system. Let's examine JPMorgan Chase's quarter to find out what underlies the leading lender's success.

Investment banking for the win

In the quarter, JPMorgan Chase had revenue of more than $42.6 billion, up 7% year-over-year. This resulted in net interest income (NII) of $23.5 billion, the key metric for measuring a bank's exposure to interest-bearing assets. That was 3% more than in the comparable period of 2023.

GAAP net income went in the opposite direction, although not worryingly. This fell compared to the same quarter last year by 2% to just under 13 billion US dollars or 4.37 US dollars per share.

As for other key financial metrics, both JPMorgan Chase's average loans and average deposits increased slightly year-over-year, up 1%.

Both headline figures were well above analysts' consensus estimates. On average, experts tracking JPMorgan Chase expected revenue of less than $41.5 billion and GAAP profitability of $3.99 per share.

This is a solid pair of beats. How did a bank that barely grew its deposit base or loan portfolio manage to exceed expectations to this extent?

In one word – OK, two words – investment banking. JPMorgan Chase divides its business into four entities; Today, the Commercial and Investment Bank (CIB) operations are almost on par with the core Consumer and Community Banking (CCB) business in terms of revenue contribution (both generated more than $17 billion in the quarter).

CIB's revenue rose 8% to break $17 billion, reflecting the company's leadership in a number of investment banking segments. This is a good starting point these days, as capital markets of all kinds are still overloaded and there is still a great need for emerging companies that want to go public.

The story continues

King of the Hill

Of course, every bank stock investor always keeps an eye on deposit and loan numbers. JPMorgan Chase also didn't move much during the quarter, but if I were a shareholder that wouldn't worry me too much. First, the lender also has a strong presence in other areas of banking and finance. Not only is it a top investment banker, but it is also the No. 1 credit card issuer in the U.S. based on various metrics.

Additionally, we have not yet fully felt the impact of the Federal Reserve's (Fed) recent 50 basis point interest rate cut. The Fed's rate cuts can cut both ways for banks, as cooling rates can hurt profitability but increase demand for lending products. But if any bank can improve its fundamentals in the new environment, it is this big and powerful bank.

In summary, JPMorgan Chase's third-quarter earnings continue to make the case for buying the stock. Barring a sudden economic catastrophe, the company should continue to do well, and its stock remains a top pick among major American banks.

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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Wells Fargo is an advertising partner of The Ascent, a Motley Fool company. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Bank of America is an advertising partner of The Ascent, a Motley Fool company. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends Bank of America and JPMorgan Chase. The Motley Fool has a disclosure policy.

“Here's What Drove JPMorgan Chase to a Pair of Beats in the Third Quarter” was originally published by The Motley Fool