JPMorgan Chase & Company (JPM – Free JPMorgan Chase Stock Report) kicked off the latest earnings season for banks with a good operating performance, but reported results reflected the upfront impact of the recently passed Tax Cuts and Jobs Act. Nonetheless, the stock rose roughly 1% following the financial release.
The company recorded earnings of $1.07 a share in the December quarter, compared to $1.65 in the year-earlier period and our estimate of $1.72. The new tax law had an initial negative impact on earnings, partly reflecting the deemed repatriation of overseas remittances, reducing share net by $0.69. Absent this, JPMorgan would have earned $1.76 a share in the period, slightly ahead of our estimate.
For all of 2017, reported results came in at $6.31 a share, compared to 2016 results of $6.19, but falling short of our estimate of $6.95. Excluding the new tax law and other one-time items, JPMorgan figures it would have earned $6.87 a share last year.
Firmwide, revenues rose 5% in the December quarter, with an 11% increase in net interest income more than offsetting a 1% decline in fee-based revenues. Average core loans rose 6% year to year and net interest income benefited from rising interest rates. The decline in noninterest revenue reflected lower markets revenues, largely offset by growth in auto lease revenue and asset & wealth management income. Operating expenses increased 5%, driven by higher compensation costs, a larger contribution to the company's charitable foundation and other items, partially offset by lower legal expense. Credit-quality trends remain positive, but the company made a greater loan loss provision, in part, to build up its reserve for credit card loans, reflecting portfolio seasoning.
By business group, JPMorgan's Consumer & Community Banking division logged an 11% profit advance in the December term, driven by strong deposit growth and margins, and higher auto lease and credit card loan balances. The Corporate & Investment Bank segment was the weak link. That division's profits fell 32% year to year, mostly reflecting low volatility in the fixed-income markets and a $143 million loss on a margin loan to a single client. But Commercial Banking and Asset & Wealth Management profits jumped 39% and 12%, respectively. The steep $2.3 billion loss in the Corporate segment was attributable to the initial impact of the new tax law.
Looking ahead, we expect the healthy loan growth to continue, and the company is poised to benefit from additional interest-rate hikes, but net interest income in the March quarter may be muted, reflecting some negative effect of the new tax law and a lower day count. Management indicated the pipeline of investment banking business looks decent. The credit-quality climate looks benign, but card losses may continue to creep up. Overall, the company's investments to build up its businesses should continue to pay off in higher revenues. Note, though, that earnings in 2018 should get a large assist from the new tax law, which management expects will lower the company's effective tax rate to 19%, from over 27% during much of the past decade. As a result, we have increased our 2018 share-net estimate, from $7.40 to $8.00.
Although we like the company's short- and long-term prospects, JPMorgan shares have staged a strong run-up over the past two years and are trading close to an all-time high. At this juncture, patient investors may want to wait for a better entry point. The dividend yield is slightly above average, however, based on a payout that we expect to track earnings growth.
About The Company:JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.