Amid an expected weakness in investment banking, strong trading results, higher rates and lower tax rate drove JPMorgan’s (JPM - Free Report) first-quarter 2018 earnings of $2.37 per share, which handily outpaced the Zacks Consensus Estimate of $2.28. The reported figure was up 44% from the prior-year quarter.

Results in the reported quarter included 11 cents per share of mark-to-market gains related to the adoption of new recognition and measurement accounting guidance for certain equity investments previously held at cost.

Shares of JPMorgan rose nearly 1.4% in the pre-market trading, indicating that investors have taken the results in their stride. Notably, the full-day trading session will depict a better picture.

Decent loan growth (driven mainly by improved wholesale loans) and higher interest rates aided net interest income growth. Further, higher equity trading income (up 26%) and fixed income trading (up 8%) supported the top line. Additionally, mortgage banking income witnessed a rise, driven by growth in residential mortgage loans, partially offset by fall in mortgage origination volume.

Apart from these, the reported quarter recorded a decrease in provision for credit losses, mainly attributable to reserve release in Wholesale portfolio.

As expected, investment banking performance slumped during the quarter. While advisory fees witnessed a modest rise, both equity and debt underwriting fees declined. Further, higher operating expenses was an undermining factor.

The overall performance of JPMorgan’s business segments, in terms of net income generation, was decent. All segments, except Corporate, reported a rise in net income on a year-over-year basis.

Among other positives, credit card sales volume was up 12% and merchant processing volume grew 15%. Further, Commercial Banking average core loan balances grew 6% and Asset Management average core loan balances rose 12%.

Net income was up 35% year over year to $8.7 billion.

Revenues Aided by Trading, Higher Rates & Loan Growth

Net revenues as reported were $27.9 billion in the quarter, up 12% from the year-ago quarter. Also, it topped the Zacks Consensus Estimate of $27.8 billion. Rising rates, loan growth and increase in trading revenues were the main reasons for the improvement. These were partially offset by lower investment banking revenues.

Non-interest expenses (on managed basis) were $16.1 billion, up 8% from the year-ago quarter. The rise was primarily due to higher compensation expenses and auto loan depreciation.

Credit Quality Improves

Provision for credit losses declined 11% year over year to $1.2 billion, primarily due to reserve release in Wholesale loan portfolio, partially offset by higher net charge-offs in Card.

Also, as of Mar 31, 2018, non-performing assets were $6.4 billion, down 7% from the year-ago period. Also, net charge-offs were down 19% year over year to $1.3 billion.

Strong Capital Position

Tier 1 capital ratio (estimated) was 13.5% as of Mar 31, 2018 compared with 14.1% as of Mar 31, 2017. Tier 1 common equity capital ratio (estimated) was 11.8% as of Mar 31, 2018, down from 12.4% as of Mar 31, 2017. Total capital ratio came in at 15.3% (estimated) as of Mar 31, 2018 compared with 15.6% as of Mar 31, 2017.

Book value per share was $67.59 as of Mar 31, 2018 compared with $64.68 as of Mar 31, 2017. Tangible book value per common share came in at $54.05 as of Mar 31, 2018 compared with $52.04 as of Mar 31, 2017.

Bottom Line

Continued improvement in loans and higher interest rates are expected to continue supporting JPMorgan’s revenues. With the Fed expected to continue raising rates, the company’s interest income will likely increase. Also, gains from lower tax rates will aid profitability.

However, slowdown in mortgage business are likely to continue in the near term for JPMorgan. Also, rise in operating expenses makes us apprehensive.

JPMorgan Chase & Co. Price, Consensus and EPS Surprise

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JPMorgan carries a Zacks Rank #3 (Hold).

Among the other major regional banks, Bank of America (BAC - Free Report) and M&T Bank Corporation (MTB - Free Report) will announce results on Apr 16 while Comerica Incorporated (CMA - Free Report) is scheduled to report on Apr 17.