(JPM) JPMorgan Chase Solidly Beats The Street

JPMorgan Chase & Company’s (JPM) second quarter earnings per share came in at $1.34, substantially ahead of the Zacks Consensus Estimate of $1.21.

The result also soared from earnings of $1.09 in the prior-year quarter.

Earnings for the reported quarter leave out certain significant nonrecurring items, such as a 15 cent per share benefit from reduced loan loss reserves in Card Services, a 12 cent benefit from securities gains in Corporate, additional mortgage related litigation reserves of 19 cents and an estimated 15 cents per share cost related to foreclosure matters.

Considering these items, JPMorgan reported net income of $5.4 billion or $1.27 per share, compared with $4.8 billion or $1.09 per share in the year-ago quarter.

The stellar numbers were primarily supported by a substantial slowdown in provision for credit losses and higher net revenue, which more than offset an increase in non-interest expense and lower net interest income.

Investment banking results witnessed a significant improvement from the prior-year quarter, owing to higher revenue and lower non-interest expense. Also, strong earnings across most of this segment’s product lines helped it maintain the #1 rank in Global Investment Banking Fees.

As expected, all other segments except Retail Financial Services and Commercial Banking witnessed earnings improvement.

The Quarter That Was

Managed net revenue for the quarter came in at $27.4 billion, up 7% from $25.6 billion in the year-ago quarter. This also compares favorably with the Zacks Consensus Estimate of $24.8 billion.

Managed non-interest revenues for the quarter increased 20% from the year-ago period to $15.5 billion. The increase was due to higher levels of principal transactions revenue, investment banking fees and asset management, administration and commissions revenue. However, net interest income decreased 6% year over year to $12.0 billion. Lower loan and securities balances were primarily responsible for this decline.

Non-interest expenses for the quarter were $16.8 billion, up 15% from the year-ago quarter. This was primarily driven by higher non-compensation expense.

Managed provision for credit losses decreased 46% from the year-ago quarter to $1.8 billion. Total consumer provision for credit losses was $1.9 billion, down 51% from $3.9 billion in the year-ago quarter. This reflects improved delinquency trends across most consumer portfolios.

Credit Quality

JPMorgan’s credit quality showed a decent improvement during the quarter. As of June 30, 2011, nonperforming assets were $13.2 billion, down from $15.0 billion in the prior quarter and down from $18.2 billion in the prior-year quarter. Consumer net charge-offs decreased to $3.0 billion from $5.5 billion in the prior-year quarter.

As a result, consumer net charge-off rate improved to 3.25% from 5.34% in the year-ago quarter. Also, wholesale net charge-offs substantially decreased to $80 million from $231 million a year ago. This led to an improvement in the wholesale net charge-off rate to 0.14% from 0.44% in the year-earlier quarter.

Capital Position

JPMorgan maintained a strong capital position with an estimated Tier 1 common ratio of 10.1% as of June 30, 2011, up from 10.0% as of March 31, 2011 and 9.6% as of June 30, 2010.

Book value per common share was $44.77 as of June 30, 2011, compared with $43.34 as of March 31, 2011 and $40.99 as of June 30, 2010.

JPMorgan: A Steady Performer

JPMorgan is definitely a trustworthy stock, given the consistency it has delivered in earnings performance. Business diversification can be easily seen as the key driver of its steady earnings irrespective of economic issues. The expansion of its portfolio may prove to be as much of a positive during the downturn as it was during the upsurge. Within traditional banking, a diversified product portfolio has better chances of sustaining than many other banks, which have exited some of these areas due to recessionary pressure.

Also, considering its enhanced dividend-yielding nature, JPMorgan is now a good stock for value investors.

After getting the green signal from the Federal Reserve for raising dividends following the release of the second round of stress test results, JPMorgan increased its quarterly cash dividend to 25 cents per share in March. Also, the company maintained the same level for the dividend announcement on May 17. The company’s dividend hike and share buyback actions were prohibited in the last few years on fears that it may not have sufficient capital to tide over another financial crisis.

Meanwhile, growth in credit cards and investment products along with steady international expansion will usher meaningful revenue opportunities in time.

In Conclusion…

If an investor has the appetite to absorb risks related to market volatility, investment in JPMorgan will not disappoint. Though the stock is not undervalued, JPMorgan’s fundamentals remain promising.

JPMorgan shares are maintaining a Zacks #3 Rank, which translates into a short-term ‘Hold’ recommendation. Furthermore, we maintain a long-term “Neutral” recommendation on the stock.

Following the announcement of second quarter results, the stock was up about 2.4% in before-market trade.

As JPMorgan is a banking giant with exposure to almost all major banking businesses and is among the first big U.S. banks to have reported, its results are a significant indicator of second quarter performance by other important banks.

Close on the heels of JPMorgan, among other major banks, Citigroup Inc. (C) is scheduled to report on July 15, Bank of America Corporation (BAC), Goldman Sachs Group Inc. (GS) and Wells Fargo & Company (WFC) on July 19, and Morgan Stanley (MS) on July 21.

BANK OF AMER CP (BAC): Free Stock Analysis Report

CITIGROUP INC (C): Free Stock Analysis Report

GOLDMAN SACHS (GS): Free Stock Analysis Report

JPMORGAN CHASE (JPM): Free Stock Analysis Report

MORGAN STANLEY (MS): Free Stock Analysis Report

WELLS FARGO-NEW (WFC): Free Stock Analysis Report

Zacks Investment Research

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