Financial Controls: JPMorgan Financial Results Deteriorate (Charts, Video) *Credit losses spike upwards* JPM

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JPMorgan Chase reported Q3 September 2011 financial results on Thursday, October 13

* Charts and commentary have been updated for JPMorgan Q3 2011 financial results *

JPMorgan Financial Results Deteriorate: Credit losses spike upwards

JPMorgan Summary Q3 2011 JP Morgan's Q3 2011 financial results deteriorated QoQ and were flat YoY. JPMorgan has definitely rebounded from the depths of the Great Recession and USA Financial System Crisis in 2008 and 2009, has adequate capital, and is profitable. However, there was a significant increase in provision for credit losses and a marked decreased in net revenues. Annual return on assets are a respectable +0.91%, but decreasing. Whether financial performance can be accelerated anytime soon is the question. CEO Jamie Dimon is beginning to eerily sound like CEO Mark Benioff of SalesForce.com (CRM) as he addresses anything and everything at length except the deteriorating core business issues.

JPMorgan Income Statement Q3 2011 Financial performance has deteriorated QoQ and YoY, but is adequate. Q3 2011 net revenues were $23.76B, net income was $5.82B, earnings per share was $1.02. For QoQ, net revenues were down -11.26%, net income was down -21.52%, and earnings per share were down -19.69% from the prior quarter Q2 2011. For YoY, net revenues were down slightly -0.26%, net income was down -3.56%, and earnings per share were up slightly +0.99% from prior year Q3 2010. However, QoQ results were disappointing and YoY results are downshifting and have become flat. Net income has been above $4 billion and earnings per share above $1.00 for 6 quarters, maintaining an overall improvement since the dismal performance of Q3 and Q4 of 2008 at the lows of the USA Financial System Crisis. Both the operating margin of 24.48% and net margin of 17.94% have deteriorated. The operating expense ratio of 57.31% continues too high.

JPMorgan Balance Sheet Q3 2011 Overall financial position is adequate but not quite as strong QoQ. JPMorgan's "fortress balance sheet" of $2.289 trillion in total assets maintains an adequate capital ratio of 7.96% and adequate Tier 1 Capital and Tier 1 Common ratios of 12.1% and 9.9%, respectively. However, all 3 ratios are decreasing. Total assets were up QoQ +1.89%.

JPMorgan Financial Performance by the Quarters (Charts)

JPMorgan Earnings Per Share (Chart) Below is a chart of quarterly earnings per diluted share. Current Earnings per Share of $1.02 is -20% QoQ, +1% YoY, and a 4-quarter low. EPS has remained above $1.00 for 6 consecutive quarters, after being below during the USA Financial Crisis and Great Recession. The Post-Great Recession peak has been the prior Q1 2011 of $1.28 as Q2 2011. The chart EPS average is $0.76.

JPMorgan Net Revenues, Operating Income, and Net Income (Chart) Below is a chart of quarterly net revenues, operating income, and net income. Because JPMorgan is a huge, complex financial organization with several divisions, consolidated revenues are reported net of interest expense. Therefore, there is no gross profit and margin compared to companies in other industries or sectors. Current Net Revenues of $23.76B are -11% QoQ, -0.26% YoY, and a 7-quarter low. Current Operating Income of $5.82B is a 6-quarter low. Current Net Income of $4.26B is -22% QoQ, -4% YoY, and a 6-quarter low. The chart averages, beginning before the 2008 USA Financial System Crisis and Great Recession, for NR, OI, and NI are $22.33B, $4.40B, and $3.31B, respectively.

JPMorgan Operating Margin, Net Margin, and Capital to Assets Ratio (Chart) Below is a chart of quarterly operating margin, net margin, and the capital to assets ratio. The current Operating Margin of 24.48% is a 6-quarter low and well below Q1 2011 Post-Great Recession high of 31.95%. The current Net Margin of 17.94% is also a 6-quarter low and well below the Q1 2011 Post-Great Recession high of 22.03%. The Capital-to-Assets ratio (Capital Ratio) is stockholders' equity to total assets ratio and not the Tier 1 capital or common ratio. Tier 1 ratios are financial regulatory ratios and generally higher than the capital to assets ratio. The current Capital Ratio of 7.96% is adequate, but has decreased for 3 consecutive quarters and is at a 6-quarter low. The current Tier 1 Capital and Common Ratios are 12.1% and 9.9%, respectively, which are adequate but decreasing. The current Average Income Tax Rate of 26.74% is historically lower. The chart averages for OM, NM, and CR are 18.61%, 14.46%, and 7.89%, respectively.

JPMorgan Return on Assets (Chart) Below is a chart of annual return on average assets per quarter. The total net income for the most recent 4 quarters is divided into average assets for the most recent 4 quarters to obtain a rolling annualized ROA, an annualized return on average assets for the 12 months (4 quarters) ended. The ROA dipped during the Global Recession but has significantly rebounded. The current Return on Assets of +0.91% is respectable, but a 3-quarter low. The ROA decreased after increasing for 9 consecutive quarters. Although JPMorgan is a huge, complex financial organization with $2+ trillion in total assets, a 1.00% ROA is a banking benchmark that has not been reached. The chart average ROA, beginning before the 2008 USA Financial System Crisis and Great Recession, is +0.62%.

JPMorgan Income Statement Components (Chart) Below is a chart of major income statement components: NonInterest Revenue, Net Interest Income, Provision for Credit Losses, NonInterest Expense, and Net Income. Current NonInterest Revenue of $11.82B are an 4-quarter low. Current Net Interest Income of $2.41B is a multi-year low and has decreased 6 consecutive quarters. Current Provision for Credit Losses of $4.26B has skyrocketed to a 6-quarter high and is well above the Q1 2011 Post-Great Recession and multi-year low of $1.17B. The Provision is still below the damaging heights reached in prior years in excess of $7B and $8B. Current NonInterest Expense, operating expenses, at $11.95B decreased significantly from the prior Q2 2011 multi-year high of $16.84B. The chart averages for NIR, NII, PCL, and NIE, beginning before the 2008 USA Financial System Crisis and Great Recession, are $11.11B, $10.66B, $4.78B, and $13.05B, respectively.

JPMorgan Growth Rates (Chart) Below is a chart of the annual (YoY, Y/Y, annual change) growth rates for net revenues and earnings per share. Only the last few quarters are included due to the volatile swings which obscure recent chart data. Current Net Revenues Growth Rate of -0.26% is historically below average. The NRGR chart average is a meager +0.05%. Current Earnings per Share Growth Rate of +0.99% is historically below average. The EPSGR chart average is +33.00%.

JPMorgan Operating Expense Ratio (Chart) Below is a chart of the operating expense ratio for JPMorgan. This is a negative trend of an increasing operating expense ratio (NonInterest Expense divided by Total Revenues which are NonInterest Income and Interest Income). An increasing share of each dollar of revenues is being spent on operating expenses. This trend negatively affects profitability and ultimately earnings per share. The current Operating Expense Ratio of 57.31% is a multi-year high, has exceeded 55% for the 3rd consecutive quarter, and has been above 50% for 7 consecutive quarters. The chart average OER is 52.19%.

JPMORGAN CHASE REPORTS THIRD-QUARTER 2011 NET INCOME OF $4.3 BILLION, OR $1.02 PER SHARE, ON REVENUE OF $24.4 BILLION

New York, October 13, 2011 – JPMorgan Chase & Co. (NYSE: JPM) today reported third quarter 2011 net income of $4.3 billion, compared with net income of $4.4 billion in the third quarter of 2010. Earnings per share were $1.02, compared with $1.01 in the third quarter of 2010.

Jamie Dimon, Chairman and Chief Executive Officer, commented: “The Firm reported third quarter net income of $4.3 billion, representing a 13% return on tangible common equity. It is notable that these results included several significant items, including a $542 million pretax loss in Private Equity, $1.0 billion pretax of additional litigation expense in Corporate and a $1.9 billion pretax DVA gain. The DVA gain reflects an adjustment for the widening of the Firm’s credit spreads which could reverse in future periods and does not relate to the underlying operations of the company. All things considered, we believe the Firm’s returns were reasonable given the current environment.”

Further commenting on business results, Dimon said: “The Investment Bank’s revenue, excluding the DVA gain, was down substantially; however, we are gratified that the business maintained its #1 ranking in Global Investment Banking Fees, and we believe that we have maintained a healthy share of the global sales and trading market. Retail Financial Services demonstrated good underlying performance, with solid revenue and increased deposits in Consumer & Business Banking and strong retail mortgage origination volumes in our Mortgage Banking business. In our Card business, credit card sales volume, excluding Commercial Card, was up 10% compared with the prior year. Commercial Banking reported continued loan growth, including middle-market loan balances up 18% compared with the prior year, and record deposit balances of $180.3 billion were up 31% compared with the prior year. In Treasury & Securities Services, trade finance loans increased 69% to $30.1 billion, and deposit balances increased 41% to $341.1 billion. Corporate/Private Equity results were negatively affected by market conditions, the Firm’s decision to take certain positions in its securities portfolio in anticipation of an eventual increase in interest rates, and additional litigation expense.”

Dimon continued: “Mortgage net charge-offs improved slightly but remained at extremely high levels. We expect mortgage credit losses to remain elevated. The Firm remains committed to helping homeowners and preventing foreclosures. Since the beginning of 2009, we have offered 1,224,000 trial modifications to struggling homeowners. With respect to our Chase credit card portfolio, the net charge-off rate improved to 4.34% and may continue to improve modestly over the next quarter or so. After that we currently would not expect much improvement. Wholesale credit trends remained healthy and stable.”

Regarding the balance sheet, Dimon commented: “We maintained our fortress balance sheet, ending the third quarter with a Basel I Tier 1 Common ratio of 9.9%. Our strong capital position allowed us to repurchase $4.4 billion of common stock during the third quarter. We estimate that our Basel III Tier 1 Common ratio was approximately 7.7% at the end of the third quarter. Our total firmwide credit reserves remained relatively flat compared with the prior quarter at $29.0 billion, resulting in a firmwide coverage ratio of 3.74% of total loans. The Firm’s total deposits increased to $1.1 trillion, up 21% compared with the prior year.”

Dimon also remarked: “JPMorgan Chase continues to do our part to support our clients and communities. During the first nine months of 2011, the Firm provided credit to and raised capital of over $1.3 trillion for our clients, up 22% compared with the same period last year; this included $12.6 billion lent to small businesses, up 71%. We originated more than 560,000 mortgages; we provided credit cards to approximately 6.6 million people; and we lent or provided credit of $51.0 billion to more than 1,100 not-for-profit and government entities, including states, municipalities, hospitals, and universities. In addition, the Firm has been very successful in hiring more than 2,200 U.S. military veterans so far this year and has increased its net employee headcount in the U.S. by more than 13,200.

Dimon concluded: “Our shareholders should rest assured that we are being extremely cautious while navigating through this challenging economic environment. We are working hard to meet all of the requirements of the new and complex regulatory environment, and we continue to invest in the future while remaining focused on serving our clients and communities around the world.”

About JPMorgan Chase & Co.

JPMorgan Chase & Co. (NYSE: JPM) is a leading global financial services firm with assets of $2.3 trillion and operations in more than 60 countries. The firm is a leader in investment banking, financial services for consumers, small business and commercial banking, financial transaction processing, asset management and private equity. A component of the Dow Jones Industrial Average, JPMorgan Chase & Co. serves millions of consumers in the United States and many of the world’s most prominent corporate, institutional and government clients under its J.P. Morgan and Chase brands. Information about JPMorgan Chase & Co. is available at www.jpmorganchase.com.

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