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JPMorgan (JPM) Q3 Earnings Beat Despite Trading Weakness

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Amid an expected trading slump, rising rates and loan growth drove JPMorgan Chase & Co.’s (JPM - Free Report) third-quarter 2017 earnings of $1.76 per share, which easily surpassed the Zacks Consensus Estimate of $1.67. Also, the figure reflects a 11% rise from the year-ago period. Notably, the results included a legal benefit of $107 million.

Solid loan growth (driven mainly by improved credit card loans) and higher interest rates supported net interest income. Further, rise in advisory fees supported top-line growth. A slight fall in operating expenses acted as a tailwind.

As expected, fixed income and equity trading slumped during the quarter. Likewise, underwriting fees (both equity and fixed income) witnessed a fall. Also, a decline in mortgage banking income, due to higher funding costs and fall in mortgage origination volume, was a headwind.

Apart from these, results were adversely impacted by an increase in provision for credit losses, mainly due to reserve build in Card portfolio.

The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate & Investment Bank, reported a rise in net income on a year-over-year basis.

Among other positives, both credit card sales volume and merchant processing volume grew 13%. Further, both Commercial Banking average loan balances and Asset Management average loan balances rose 10%.

Trading Slump Offset by Higher Rates & Loan Growth, Costs Down

Managed net revenues of $26.2 billion in the quarter were up 3% from the year-ago quarter. Also, it compared favorably with the Zacks Consensus Estimate of $25.7 billion. Rising rates and loan growth were the primary reasons for the top-line improvement. These were partially offset by lower trading revenues, investment banking fees and mortgage banking fees.

Non-interest expenses (on managed basis) were $14.3 billion, down 1% from the year-ago quarter. The fall was primarily driven by lower marketing costs and stable compensation expenses, partially offset by technology, communications and equipment costs.

Credit Quality Worsens

Provision for credit losses increased 14% year over year to $1.5 billion, primarily due to reserve build in Consumer loan portfolio. Also, net charge-offs were up 13% year over year to $1.3 billion.

However, as of Sep 30, 2017, non-performing assets were $6.2 billion, down 21% from the year-ago period.

Strong Capital Position

Tier 1 capital ratio (estimated) was 14.3% as of Sep 30, 2017 compared with 13.6% as of Sep 30, 2016. Tier 1 common equity capital ratio (estimated) was 12.6% as of Sep 30, 2017, up from 12.0% as of Sep 30, 2016. Total capital ratio came in at 16.1% (estimated) as of Sep 30, 2017 compared with 15.1% as of Sep 30, 2016.

Book value per share was $66.95 as of Sep 30, 2017 compared with $63.79 as of Sep 30, 2016. Tangible book value per common share came in at $54.03 as of Sep 30, 2017 compared with $51.23 as of Sep 30, 2016.

Bottom Line

Continued improvement in loans and higher interest rates are projected to support JPMorgan’s revenues, going forward. With the Fed expected to continue raising rates, the company’s interest income will likely increase.

However, slowdown in trading owing to low volatility and muted investment banking performance are likely to continue in the near term.

J P Morgan Chase & Co Price, Consensus and EPS Surprise

 

J P Morgan Chase & Co Price, Consensus and EPS Surprise | J P Morgan Chase & Co Quote

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) , The PNC Financial Services Group, Inc. (PNC - Free Report) and Wells Fargo & Company (WFC - Free Report) are scheduled to report on Oct 13.

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