Impressive investment banking and trading revenues drove JPMorgan Chase & Co.’s (JPM - Free Report) first-quarter 2017 earnings of $1.65 per share, which handily outpaced the Zacks Consensus Estimate of $1.51. Also, the figure reflects a 22% rise from the year-ago period. Notably, the results included a legal charge of $218 million and a tax benefit of $373 million.
Improved fixed income and equity trading as well as a solid performance in investment banking drove the results. Also, strong loan growth and higher interest rates supported the top line.
Apart from these, results were supported by a fall in provision for credit losses mainly driven by reserve releases in the Oil & Gas loan portfolio. However, operating expenses reported a rise during the quarter. Also, lower mortgage banking income owing to fall in servicing revenues was a headwind.
Notably, shares of JPMorgan gained nearly 1.5% in the pre-market trading. Perhaps, the earnings beat and solid loan growth led to positive investor sentiments. Nonetheless, the actual picture will emerge after the full day’s trading session, once investors and analysts go through the core results.
The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Consumer & Community Banking and Asset & Wealth Management, reported a rise in net income on a year-over-year basis.
Net income for Consumer & Community Banking fell 20% year over year while Asset Management declined 34%. However, net income for Corporate & Investment Bank and Commercial Banking surged 64% and 61%, respectively while the Corporate segment pleasantly surprised with net income.
Among other positives, credit card sales volume improved 15% and merchant processing volume grew 11%. Commercial Banking average loan balances increased 12% and Asset Management average loan balances rose 7%.
Higher Investment Banking & Trading Revenues, Costs Rise
Managed net revenue of $25.6 billion in the quarter was up 6% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $24.6 billion. A 37% jump in investment banking fees and 17% rise in fixed income market revenues were the primary reasons for the top-line improvement.
Non-interest expenses (on managed basis) were $15 billion, a rise of 9% from the year-ago quarter. The increase was primarily due to higher compensation and legal expenses, auto lease depreciation and FDIC-related costs. Notably, excluding legal charges, adjusted operating expenses were $14.8 billion.
Credit Quality: A Mixed Bag
As of Mar 31, 2017, non-performing assets were $6.8 billion, down 15% from the year-ago period. Provision for credit losses fell 28% year over year to $1.3 billion, primarily due to reserve releases in Wholesale loan portfolio.
However, net charge-offs were up 49% year over year to $1.7 billion.
Strong Capital Position
Tier 1 capital ratio (estimated) was 14.2% as of Mar 31, 2017 compared with 13.5% as of Mar 31, 2016. Tier 1 common equity capital ratio (estimated) was 12.5% as of Mar 31, 2017, up from 11.9% as of Mar 31, 2016. Total capital ratio came in at 15.6% (estimated) as of Mar 31, 2017 compared with 15.1% as of Mar 31, 2016.
Book value per share was $64.68 as of Mar 31, 2017 compared with $61.28 as of Mar 31, 2016. Tangible book value per common share came in at $52.04 as of Mar 31, 2017 compared with $48.96 as of Mar 31, 2016.
Impressive trading revenues as well as a surge in investment banking fees during the quarter are expected to continue in the near term. Moreover, growth in loans and deposits reflects an improving economy. This is expected to lead to rise in interest income, which will further benefit from the Fed rate hikes.
Currently, JPMorgan carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Among the other major regional banks, Bank of America Corporation (BAC - Free Report) and Comerica Incorporated (CMA - Free Report) are scheduled to report on Apr 18 while U.S. Bancorp (USB - Free Report) will release its results on Apr 19.
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