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JPMorgan Chase (JPM) Beats

JPMorgan Chase & Co. (NYSE: JPM) reported its second-quarter net income soared 77 percent to $4.8 billion as a slowdown in losses from failed loans helped offset a difficult spring in trading and investment banking.

JPMorgan Chase surpassed analysts’ expectations as it earned $1.09 a share, up from $2.7 billion, or 28 cents a share, a year earlier. Analysts had forecast a profit of 67 cents per share in the just-ended quarter, according to Reuters.

Jamie Dimon, Chairman and Chief Executive Officer, commented on the quarter: “Our net income increased to $4.8 billion, including the benefit from a $1.5 billion reduction of loan loss reserves – which we do not believe represents normal ongoing earnings – partially offset by a charge of $550 million for the U.K. bonus tax.”

Continuing on the businesses, Dimon added: “Although we are gratified to see consumer-lending net charge-offs and delinquencies decline, they remain at extremely high levels and therefore returns in our consumer-lending businesses are still unacceptable. As a result, these businesses did not meet expectations nor generate satisfactory returns on capital for our shareholders. It is too early to say how much improvement we will see from here.

“We saw solid performance in our other businesses. In particular, our wholesale businesses experienced reduced net charge-offs that led to reductions in loan loss reserves, and are currently seeing credit costs which reflect the increasingly healthy condition of our wholesale clients.”

JPMORGAN CHASE & CO.
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in millions, except per share, ratio and headcount data)
QUARTERLY TRENDS YEAR-TO-DATE
2Q10 Change 2010 Change
2Q10 1Q10 2Q09 1Q10 2Q09 2010 2009 2009
SELECTED INCOME STATEMENT DATA:
Reported Basis
Total net revenue $ 25,101 $ 27,671 $ 25,623 (9 ) % (2 ) % $ 52,772 $ 50,648 4 %
Total noninterest expense 14,631 16,124 13,520 (9 ) 8 30,755 26,893 14
Pre-provision profit 10,470 11,547 12,103 (9 ) (13 ) 22,017 23,755 (7 )
Provision for credit losses 3,363 7,010 8,031 (52 ) (58 ) 10,373 16,627 (38 )
NET INCOME 4,795 3,326 2,721 44 76 8,121 4,862 67
Managed Basis (a)
Total net revenue $ 25,613 $ 28,172 $ 27,709 (9 ) (8 ) $ 53,785 $ 54,631 (2 )
Total noninterest expense 14,631 16,124 13,520 (9 ) 8 30,755 26,893 14
Pre-provision profit 10,982 12,048 14,189 (9 ) (23 ) 23,030 27,738 (17 )
Provision for credit losses 3,363 7,010 9,695 (52 ) (65 ) 10,373 19,755 (47 )
NET INCOME 4,795 3,326 2,721 44 76 8,121 4,862 67
PER COMMON SHARE DATA:
Basic Earnings
Net income 1.10 0.75 0.28 47 293 1.84 0.68 171
Diluted Earnings (b)
Net income 1.09 0.74 0.28 47 289 1.83 0.68 169
Cash dividends declared 0.05 0.05 0.05 0.10 0.10
Book value 40.99 39.38 37.36 4 10 40.99 37.36 10
Closing share price 36.61 44.75 34.11 (18 ) 7 36.61 34.11 7
Market capitalization 145,554 177,897 133,852 (18 ) 9 145,554 133,852 9
COMMON SHARES OUTSTANDING:
Weighted-average diluted shares 4,005.6 3,994.7 3,824.1 5 4,000.2 3,791.4 6
Common shares at period-end 3,975.8 3,975.4 3,924.1 1 3,975.8 3,924.1 1
FINANCIAL RATIOS: (c)
Net income:
Return on equity (“ROE”) (b) 12 % 8 % 3 % 10 % 4
%
Return on tangible common equity (“ROTCE”) (b)(d) 17 12 5 15 6
Return on assets (“ROA”) 0.94 0.66 0.54 0.80 0.48
CAPITAL RATIOS:
Tier 1 capital ratio 12.1 (g) 11.5 9.7
Total capital ratio 15.8 (g) 15.1 13.3
Tier 1 common capital ratio (e) 9.6 (g) 9.1 7.7
SELECTED BALANCE SHEET DATA (Period-end) (f)
Total assets $ 2,014,019 $ 2,135,796 $ 2,026,642 (6 ) (1 ) $ 2,014,019 $ 2,026,642 (1 )
Wholesale loans 216,826 214,290 231,625 1 (6 ) 216,826 231,625 (6 )
Consumer loans 482,657 499,509 448,976 (3 ) 8 482,657 448,976 8
Deposits 887,805 925,303 866,477 (4 ) 2 887,805 866,477 2
Common stockholders’ equity 162,968 156,569 146,614 4 11 162,968 146,614 11
Total stockholders’ equity 171,120 164,721 154,766 4 11 171,120 154,766 11
Headcount 232,939 226,623 220,255 3 6 232,939 220,255 6
LINE OF BUSINESS NET INCOME/(LOSS)
Investment Bank $ 1,381 $ 2,471 $ 1,471 (44 ) (6 ) $ 3,852 $ 3,077 25
Retail Financial Services 1,042 (131 ) 15 NM NM 911 489 86
Card Services 343 (303 ) (672 ) NM NM 40 (1,219 ) NM
Commercial Banking 693 390 368 78 88 1,083 706 53
Treasury & Securities Services 292 279 379 5 (23 ) 571 687 (17 )
Asset Management 391 392 352 11 783 576 36
Corporate/Private Equity 653 228 808 186 (19 ) 881 546 61
NET INCOME $ 4,795 $ 3,326 $ 2,721 44 76 $ 8,121 $ 4,862 67
(a) For further discussion of managed basis, see Note a. on page 13.
(b) The calculation of the second quarter 2009 earnings per share and net income applicable to common equity includes a one-time, noncash reduction of $1.1 billion, or $0.27 per share, resulting from repayment of Troubled Asset Relief Program (“TARP”) preferred capital. Excluding this reduction, the adjusted ROE and ROTCE for the second quarter 2009 would have been 6% and 10%, respectively. The Firm views the adjusted ROE and ROTCE, both non-GAAP financial measures, as meaningful because they enable the comparability to prior periods.
(c) Ratios are based upon annualized amounts.
(d) The Firm uses return on tangible common equity, a non-GAAP financial measure, to evaluate the Firm’s use of equity and to facilitate comparisons with competitors. For further discussion of ROTCE, see page 42 of the Earnings Release Financial Supplement.
(e) Tier 1 common capital ratio is Tier 1 common capital divided by risk-weighted assets. The Firm uses Tier 1 common capital along with the other capital measures to assess and monitor its capital position. For further discussion of Tier 1 common capital ratio, see page 42 of the Earnings Release Financial Supplement.
(f) Effective January 1, 2010, the Firm adopted new guidance that amended the accounting for the transfer of financial assets and the consolidation of variable interest entities (“VIEs”). Upon adoption of the new guidance, the Firm consolidated its Firm-sponsored credit card securitization trusts, Firm-administered multi-seller conduits and certain other consumer loan securitization entities, primarily mortgage-related, adding $87.7 billion and $92.2 billion of assets and liabilities, respectively, and decreasing stockholders’ equity and the Tier I capital ratio by $4.5 billion and 34 basis points, respectively. The reduction to stockholders’ equity was driven by the establishment of an allowance for loan losses of $7.5 billion (pretax) primarily related to receivables held in credit card securitization trusts that were consolidated at the adoption date. For further details regarding the Firm’s application and impact of the new accounting guidance, see Note 14 on pages 130-131, Note 15 on pages 131-142 and Note 22 on pages 149-152 of JPMorgan Chase’s March 31, 2010, Form 10-Q.
(g) Estimated.

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