JPMorgan officially launched Q3 earnings season with earnings that were generally inline including a solid beat on earnings, despite an unexpected miss in FICC sales and trading and Investment banking, coupled with weakness in home lending as a result of sliding mortgage refi activity.

JPM reported total managed revenue of $27.8BN (the sum of $14.1BN in net interest income and $13.8BN in non-interest revenue), above the $27.44BN estimate, resulting in $8.4BN in net income, a 24% increase Y/Y, translating in $2.34EPS, higher than the consensus estimate of $2.25. The number included net charge offs of $1 billion, offset by a $0.1BN reserve release, resulting in total credit costs of $0.9BN.

Commenting on the results, Jamie Dimon was his usual optimistic self: "the U.S. and the global economy continue to show strength, despite increasing economic and geopolitical uncertainties, which at some point in the future may have negative effects on the economy."

Something else: as Bloomberg's Max Abelson notes, "when I re-read Dimon's comments this morning, I'm struck by just how much he seems to be trying to flatter Donald Trump."

Not only does Dimon cite "smart regulatory policy" (a euphemism, in part, for a friendlier White House) and "a competitive corporate tax system" (lower taxes for big companies), he even touts the bank's first branch in Washington. In other words, he's still backtracking from his notorious Trump insult a few weeks ago. I'm wondering if he had a nudge from his board?

Helping the bottom line was JPM's effective tax rate of only 21.6%, down sharply from 29.6% a year ago, which may explain why Jamie Dimon gave a shout out to corporate tax changes: "We are extremely excited to be expanding again, as smart regulatory policy and a competitive corporate tax system help us to deliver on our commitment to invest in our customers and communities.

For yet another quarter, JPM relied on old-fashioned lending, reporting average loans up 2% to $479.6BN from $469.8BN, while firmwide core loans rose +6% Y/Y. Overall, core loans grew in both consumer and business while provisions for bad loans fell as home prices rose and delinquencies improved. Average deposits rose from $673.8BN to $674.2BN.

As a result, JPMorgan said net interest income jumped to a record $13.9 billion in the period, helped by rising interest rates and steady growth in what the bank considers core loans. Meanwhile, bond-trading revenue fell 10 percent (more below).

Some more top-line details via BBG:

• 3Q Basel III common equity Tier 1 ratio 12%, estimate 11.9
• 3Q return on equity +14%
• 3Q net yield on interest-earning assets 2.51%, estimate 2.50%
• Assets under management $2.1 trillion

On the cost side, compensations expenses were $8.11, in line with the $8.13 exp.

Of note, the provision for credit losses was down from the year-ago period and down from the second quarter, meaning they're setting aside less money for potential loses on bad debt and is generally indicative of JPM's optimism on the economy. Specifically, JPM reported only $948MM in provision for credit losses, sharply lower than the $1.46BN estimate and down from $1.452BN a year ago. The number included a $0.1 billion reserve release. The bank explained the drop in credit costs in its consumer banking division as follows:

• Home Lending: $250mm PCI reserve release; net recovery largely driven by a loan sale
• Card: reserve build of $150mm this quarter vs. a $300mm build in 3Q17

JPM also said that the current quarter included a reserve release of $250 million in the Home Lending purchased credit-impaired portfolio, "reflecting continued improvement in home prices and delinquencies", offset by a reserve build of $150 million in Card driven by loan growth and higher loss rates. Net charge-offs were lower, predominantly due to a net recovery in Home Lending, which was largely driven by a loan sale.

There was also an improvement in JPM's credit card charge offs, which declined for the 2nd quarter to $1.073TN after peaking in Q1, but don't expect the improving trend to continue after the recent sharp jump in interest rates.

There were some disappointing numbers too, mostly in the bank's Investment Bank, where FICC Sales and Trading revenue declined by $320MM Y/Y to $2.84BN, below the $2.96BN estimate, a 4% miss to expectations. Investment Banking also missed, rising $1.73BN, unchanged from a year ago, and below the $1.82BN estimate.

The silver lining was that Equity Markets once again outperformed, with the bank reporting $1.595BN in equity market revenue, up $232MM on the year, and better than the $1.42BN consensus estimate.

In JPM's Consumer & Community Banking (CCB), net rev. rose 18%, driven by higher net interest income due to higher deposit margins, balance growth. At the same time, home lending net revenue fell 16%, driven by lower net servicing revenue, as well as loan spread and production margin compression: this is where the rise in yields is hitting as household refi activity has crashed as loan originations tumbled from $26.9BN a year ago to just $22.5BN.

Card, Merchant Services & Auto net revenue was up 10%, driven by higher Card net interest income on margin expansion and loan growth; higher auto lease volumes, higher Card noninterest revenue, reflecting lower acquisition costs, which were offset by lower net interchange income.

Here is how Opimas CEO Octavio Marenzi summarized JPM's results:

"Going into this earnings cycle, there were some concerns that interest margins would start to deteriorate, and that revenues from trading would suffer. Neither of these fears was borne out by JPMorgan's earnings announcement. There was some weakness in home lending, but cards and consumer banking more than made up for this, as well as a decline in fixed income markets, but this was at least partially offset by gains in equities." 

And so with 3Q revenue and EPS beating, but not by the usual blockbuster amount, and with some concerns about the bank's sales and trading and i-Banking miss, investor excitement has been capped with shares paring gains, now unchanged after earlier jumping as much as 1.5%.

JPM's earnings presentation is below: