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.

Dividends
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. Charts & Patterns

    Understand How Square Works before the IPO

    Square is reported to have filed for an IPO. For interested investors wondering how the company makes money, Investopedia takes a look at its business.
  2. Technical Indicators

    4 Ways to Find a Penny Stock Worth Millions

    Thinking of trading in risky penny stocks? Use this checklist to find bargains, not scams.
  3. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  4. Investing Basics

    Why do Debt to Equity Ratios Vary From Industry to Industry?

    Obtain a better understanding of the debt/equity ratio, and learn why this fundamental financial metric varies significantly between industries.
  5. Savings

    How Volatile Exchange Rates Affect Your Vacation

    Those ever-changing fluctuations can make a difference in anything from your hotel room to an ATM transaction.
  6. Personal Finance

    A Day in the Life of an Equity Research Analyst

    What does an equity research analyst do on an everyday basis?
  7. Mutual Funds & ETFs

    ETF Analysis: PowerShares S&P 500 Downside Hedged

    Find out about the PowerShares S&P 500 Downside Hedged ETF, and learn detailed information about characteristics, suitability and recommendations of it.
  8. Mutual Funds & ETFs

    ETF Analysis: iShares Morningstar Small-Cap Value

    Find out about the Shares Morningstar Small-Cap Value ETF, and learn detailed information about this exchange-traded fund that focuses on small-cap equities.
  9. Mutual Funds & ETFs

    ETF Analysis: ProShares Large Cap Core Plus

    Learn information about the ProShares Large Cap Core Plus ETF, and explore detailed analysis of its characteristics, suitability and recommendations.
  10. Mutual Funds & ETFs

    ETF Analysis: iShares Core Growth Allocation

    Find out about the iShares Core Growth Allocation Fund, and learn detailed information about its characteristics, suitability and recommendations.
RELATED TERMS
  1. Equity

    The value of an asset less the value of all liabilities on that ...
  2. Profit Margin

    A category of ratios measuring profitability calculated as net ...
  3. Quarter - Q1, Q2, Q3, Q4

    A three-month period on a financial calendar that acts as a basis ...
  4. Debt Ratio

    A financial ratio that measures the extent of a company’s or ...
  5. Price-Earnings Ratio - P/E Ratio

    The Price-to-Earnings Ratio or P/E ratio is a ratio for valuing ...
  6. Net Present Value - NPV

    The difference between the present values of cash inflows and ...
RELATED FAQS
  1. What is the formula for calculating compound annual growth rate (CAGR) in Excel?

    The compound annual growth rate, or CAGR for short, measures the return on an investment over a certain period of time. Below ... Read Full Answer >>
  2. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  3. When does the fixed charge coverage ratio suggest that a company should stop borrowing ...

    Since the fixed charge coverage ratio indicates the number of times a company is capable of making its fixed charge payments ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. What is the difference between the return on total assets and an interest rate?

    Return on total assets (ROTA) represents one of the profitability metrics. It is calculated by taking a company's earnings ... Read Full Answer >>
  6. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
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!