JPMorgan Chase & Co. said Friday that its first-quarter profit rose 33 percent to an all-time high, beating analysts’ estimates as improving consumer credit quality allowed the bank to cut loan loss reserves by $1.2 billion.
First-quarter net income climbed to $6.53 billion, or $1.59 a share, from $4.92 billion, or $1.19, in the same period a year earlier, the New York company said in a news release. Twenty-eight analysts surveyed by financial research company Bloomberg estimated earnings per share of $1.39 adjusted for a one-time accounting item.
Chase has 340 employees in banking divisions in the Akron area.
Earnings were buoyed by a drop in late payments as the industry measure known as “net charge-offs,” or debts that are deemed uncollectible, fell 29 percent to $1.7 billion, allowing the firm to release loan-loss reserves into earnings. While mortgage volume jumped 37 percent, mortgage-banking net income dropped 31 percent to $673 million as record-low interest rates squeezed profits. Margins on lending declined to 2.37 percent from 2.61 percent a year earlier.
“We are seeing positive signs that the economy is healthy and getting stronger,” Chief Executive Officer Jamie Dimon, 57, said in the news release. “Housing prices continued to improve and new home purchases are also starting to come back.”
About $5.68 billion of JPMorgan’s record $21.3 billion in 2012 profit came from reserve releases as fewer consumers defaulted on their payments.
“We saw an increase in release of reserves of about half a billion dollars more than we expected, and that also helped make the number come in favorable,” Marty Mosby, a bank analyst at Guggenheim Securities LLC in Memphis, said.
Revenue in the quarter fell 4 percent to $25.1 billion. The revenue decline was steepest at the consumer and community bank, which includes home loans and checking accounts. Revenue at that business declined 6 percent to $11.6 billion.
Shares of the company have gained about 12 percent this year.
U.S. lenders extended $482 billion in mortgages in the first quarter, up 29 percent from a year earlier, as government refinancing incentives and record low borrowing costs propelled demand, according to estimates from the Mortgage Bankers Association. To stimulate economic growth, the Federal Reserve has kept its benchmark interest rate near zero since December 2008, and is buying $85 billion a month in bonds to push down long-term rates.
“Rates continue to be low, there are still a lot of people who haven’t” refinanced yet, Paul Miller, a former examiner for the Federal Reserve Bank of Philadelphia and analyst at FBR Capital Markets in Arlington, Va., said Thursday.
Mortgage banking is “not going to be as strong as last year, but volumes in the first quarter are much stronger than anybody anticipated,” he said.
After three straight years of posting record net income, Dimon is cutting expenses, responding to sluggish global growth and low interest rates that compress profit margins on lending and yields on investments. JPMorgan is eliminating as many as 19,000 jobs in its mortgage and community-banking divisions through 2014, the company said in February.
The bank, which employed about 259,000 people at the end of December, will cut 13,000 to 15,000 jobs in its mortgage unit and 3,000 to 4,000 in community banking excluding home lending through the end of next year. The total will shrink by about 4,000 people this year, the bank said.
Lending at U.S. banks was little changed at $7.2 trillion from the fourth to the first quarter, according to Fed data. Demand for loans was flat even as the U.S. unemployment rate fell during all three months of the period, dropping to 7.6 percent in March.
JPMorgan posted record profit last year even after its worst trading loss ever, a wrong-way bet on credit derivatives that generated at least $6.2 billion of losses in the first nine months of 2012.
Under regulatory orders to tighten internal controls following the loss, JPMorgan will face more sanctions in the coming months, Dimon told shareholders in a letter released April 10.
The bet on credit derivatives was “extremely embarrassing, opened us up to severe criticism, damaged our reputation and resulted in litigation and investigations that are still ongoing,” Dimon said in the letter. “We received regulatory orders requiring improved performance in multiple areas, including mortgage foreclosures, anti-money laundering procedures and others. Unfortunately, we expect we will have more of these.”