JP Morgan Chase (NYSE:JPM) reported a solidly profitable quarter as the bank continues to benefit from the improving trends in many of its business lines. The bank also used the spotlight to highlight several shareholder friendly actions that were announced last month, including a dividend increase and a larger stock repurchase program.

TUTORIAL: Forex Guide

Muted Response
Some of the typical investor enthusiasm over an upside earnings surprise was muted because JP Morgan reduced some of its reserves that been previously set aside to cover losses. Although this does artificially boost earnings, it is also an indication that credit trends are getting better.

Q1 2011 Results
JP Morgan Chase reported net income of $5.55 billion or $1.28 per share in the first quarter of 2011. This was far above the consensus estimate of $1.16 per share, and represented solid growth over the same period in 2010.

Retail Business
One area that panicked some investors came in the retail financial services segment, where JP Morgan Chase reported a $208 million loss. The bank said that mortgage originations declined 29% on a sequential basis from last quarter. Investors are anxious for JP Morgan and other banks to get loan growth going again, so this did not make them happy.

JP Morgan was one of 14 banks that entered into a settlement with the government related to its handling of foreclosures. The bank agreed to review all loans that entered foreclosure in 2009 and 2010. The management of JP Morgan said during its conference call that complying with this review would require adding 2,000 employees to help in the review.

JP Morgan Chase also discussed the recent increase in its quarterly dividend, which moved up from $0.20 to $0.25. This gives the stock a yield of 2.22%, among the highest in the banking sector. PNC Financial Services Group (NYSE:PNC) also has a similar yield, after the bank announced a 250% dividend increase to $0.35 per quarter.

Last month, JP Morgan Chase also authorized a new stock repurchase program for $15 billion, and has been approved to spend up to $8 billion of that in 2011.

In March 2011, Bank of America (NYSE:BAC) announced a planned dividend increase to go into effect later this year, but was turned down by the Federal Reserve. Citigroup (NYSE:C) recently initiated a quarterly dividend.

Capital Levels
JP Morgan Chase saw a continued improvement in capital ratios in the first quarter of 2011, with the bank's Tier 1 common capital ratio improving to 10% compared to 9.1% in the first quarter of 2010. Other capital ratios moved up as well. (Learn how to determine if your assets are safe or if your bank has spread itself too thin. Check out Assessing Bank Assets: Are Your Savings Safe?)

Bottom Line
JP Morgan Chase reported a profitable quarter but disappointed some investors that were expecting stronger performance in loan growth and other areas. These issues will probably be with the bank for the rest of 2011.

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    8 Solid Utility Stocks for a Bear Market

    If you're seeking modest appreciation, generous dividend payments and resiliency, consider these eight utility stocks.
  2. Stock Analysis

    Why Phillips 66 (PSX) is a Solid Long-Term Bet

    Here's why Phillips 66 will likely remain one of the world’s largest and most profitable companies for a long time to come.
  3. Stock Analysis

    3 Resilient Oil Stocks for a Down Market

    Stuck on oil? Take a look at these six stocks—three that present risk vs. three that offer some resiliency.
  4. Economics

    Keep an Eye on These Emerging Economies

    Emerging markets have been hammered lately, but these three countries (and their large and young populations) are worth monitoring.
  5. Stock Analysis

    Is Pepsi (PEP) Still a Safe Bet?

    PepsiCo has long been known as one of the most resilient stocks throughout the broader market. Is this still the case today?
  6. Investing

    The ABCs of Bond ETF Distributions

    How do bond exchange traded fund (ETF) distributions work? It’s a question I get a lot. First, let’s explain what we mean by distributions.
  7. Stock Analysis

    3 Stocks that Are Top Bets for Retirement

    These three stocks are resilient, fundamentally sound and also pay generous dividends.
  8. Investing News

    Are Stocks Cheap Now? Nope. And Here's Why

    Are stocks cheap right now? Be wary of those who are telling you what you want to hear. Here's why.
  9. Investing News

    4 Value Stocks Worth Your Immediate Attention

    Here are four stocks that offer good value and will likely outperform the majority of stocks throughout the broader market over the next several years.
  10. Investing News

    These 3 High-Quality Stocks Are Dividend Royalty

    Here are three resilient, dividend-paying companies that may mitigate some worry in an uncertain investing environment.
  1. Can a company's working capital turnover ratio be negative?

    A company's working capital turnover ratio can be negative when a company's current liabilities exceed its current assets. ... Read Full Answer >>
  2. Does working capital measure liquidity?

    Working capital is a commonly used metric, not only for a company’s liquidity but also for its operational efficiency and ... Read Full Answer >>
  3. How do I read and analyze an income statement?

    The income statement, also known as the profit and loss (P&L) statement, is the financial statement that depicts the ... Read Full Answer >>
  4. Can working capital be too high?

    A company's working capital ratio can be too high in the sense that an excessively high ratio is generally considered an ... Read Full Answer >>
  5. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  6. How do I use discounted cash flow (DCF) to value stock?

    Discounted cash flow (DCF) analysis can be a very helpful tool for analysts and investors in equity valuation. It provides ... Read Full Answer >>

You May Also Like

Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!