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J P Morgan Chase & Co (JPM)

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JPMorgan Chase & Co. (JPM)

Q2 2017 Results Earnings Conference Call

July 14, 2017, 08:30 AM ET

Executives

Jamie Dimon - Chairman and CEO

Marianne Lake - CFO

Analysts

Glenn Schorr - Evercore ISI

Ken Usdin - Jefferies

Betsy Graseck - Morgan Stanley

John McDonald - Sanford Bernstein

Erika Najarian - Bank of America Merrill Lynch

Saul Martinez - UBS

Matt O'Connor - Deutsche Bank

Gerard Cassidy - RBC

Steve Chubak - Nomura Instinet

Andrew Lim - SocGen

Presentation

Operator

Good morning, ladies and gentlemen. Welcome to JPMorgan Chase’s Second Quarter 2017 Earnings Call. This call is being recorded. Your line will be muted for the duration of the call. We will now go live to the presentation. Please stand-by.

At this time, I would like to turn the call over to JPMorgan Chase’s Chairman and CEO, Jamie Dimon, and Chief Financial Officer, Marianne Lake. Ms. Lake, please go ahead.

Marianne Lake

Thanks operator and good morning everyone. I’m going to take you through the earnings presentation which is available on our website. Please refer to the disclaimer at the back of the presentation.

Starting on page one, the firm reports a record net income of $7 billion, EPS of $1.82 and a return on tangible common equity of 14% on revenue of $26.4 billion. Included in the result is a legal benefit of approximately $400 million after tax from a previously announced settlement involving the FDIC's Washington Mutual receivership.

Other notable items predominantly net result changes and legal expense were a small net negative this quarter, so underlying adjusted performance was really strong and highlights of the quarter include average core loan growth of 8% year-on-year, reflecting continued growth across products; double-digit consumer deposit growth; strong card sales, up 15%; and Merchant volume up 12%; number one, global IB fees up 10% and we delivered record net income in both Commercial Banking and in Asset & Wealth Management.

Moving on to Page 2 and some more details about the quarter, revenues of $26.4 billion was up $1.2 billion or 5% year-on-year with the increase predominantly in net interest income up approximately $900 million reflecting continued loan growth and the impact of higher rates. Fee revenue was up $300 million year-on-year, but adjusting for one-time items in both years was down modestly. With lower fixed income markets, mortgage and card revenue, all as guided being offset by strong fee revenue growth across remaining businesses.

Adjusted expense of $14.4 billion was up a little less than $400 million year-on-year with auto leases being the biggest driver, but also increasing the impact of the FDIC surcharge and broader growth being offset by lower compensation. Credit cost of $1.2 billion were down $187 million year-on-year on new reserve build. And a net reserve build in Consumer of a little over $250 million driven by card was offset by a net release in wholesale of a little under $250 million driven by Energy. Anticipating you may have questions given the recent Gas & Oil prices, I would emphasize that we guided to expect reserve releases given we started the year with $1.5 billion of energy related reserves and with oil prices having found a lower but seemingly stable level we feel appropriately reserved.

Shifting to balance sheet and capital on Page 3. You can see in the red circle on the page here that we ended the quarter with binding fully phased in CET 1 12.5% under the standardized approach with the improvement being primarily driven by capital generation offset by net loan growth. We've been hovering around the inflection point under the Collins Floor for a while now and expect standardized to remain our binding constrain from here. Given that, we've replicated this page under standardized rules in the appendix, please read.

Balance sheet, risk weighted assets and SLR, all remained relatively flat from the prior quarter and while not on the page, I would also note that we remained compliant with all liquidity requirements. We were pleased to announce growth repurchase capacity of up to $19.4 billion over the next four quarters and the Board announced its intention to increase common stock dividends 12% to $0.56 a share effective in the third quarter. In addition, we recently submitted our 2017 resolution plan which we believe fully addresses outstanding regulatory feedback.

Moving on to Page 4 and Consumer & Community Banking. CCB generated $2.2 billion of net income and an ROE of 16.5%. We continue to grow core loans up 9% year-on-year driven by strength in mortgage up 12%, card and business banking were each up 8% and auto loans and leases were also up 8% driven by strong lease performance from our manufacturing partners. Deposit rate continues to be strong up 10% year-on-year with household retention remaining at historically high levels. Before improvement in our deposit margin up 16 basis points. Sales growth in card was very strong again this quarter up 15% as new accounts mature and merchant processing volumes grew double-digits up 12%.

Revenue of $11.4 billion was flat year-on-year, but recall that last year included a net benefit of about $200 million principally driven by the Visa Europe gain. So excluding that revenue was up modestly. Consumer & Business banking revenue was up 13% on both strong deposit growth and margin expansion.

Mortgage revenue was down 26% and higher rates drove higher funding cost which together with lower MSR risk management and lower production margins the pressure on mortgage revenue year-over-year.

In addition, revenue increase and a reduction of approximately $75 million to net interest income related the capitalized interest on modified loans. And card commercialization and auto revenue was down 3%, but if you exclude the non-core items I mentioned was up 2%. With NII growth on higher loan balances and higher auto lease income predominantly offset by the continued impact of investments in card new account acquisitions. Expense of $6.5 billion was up 8% year-on-year on higher auto lease depreciation, higher marketing expense and continued underlying business growth.

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