JPMorgan Chase (NYSE: JPM) Earnings: The Best of the Big Banks?

JPMorgan Chase & Co. (NYSE: JPM) delivered on expectations it would set the bar high for financial companies' earnings when it reported numbers today (Friday).

The nation's largest bank earned $1.31 a share in the first quarter of the year, compared with $1.28 a share in the same period a year earlier. Revenue rose 6% to $26.7 billion from $25.2 billion.

First-quarter net income slipped slightly from a year ago, dipping to $5.4 billion from $5.6 billion. The difference was attributed to stock buybacks, which reduced the number of outstanding shares by 4% compared to a year ago.

Analysts were looking for $1.16 a share for the quarter on revenue of $24.7 billion. The company was buoyed by improved capital market activity, in addition to a solid recovery in consumer credit and business lending.

In recent weeks, several firms raised their ratings on JPMorgan, and the stock has enjoyed a strong rally to date in 2012, rising from $33 in December to its current $44 share price.

One of the biggest advantages for JPM was a low interest-rate environment that encouraged homeowners to refinance, boosting JPMorgan's mortgage-related revenue.

"This is going to be a strong quarter for anyone who has a big mortgage lending or trading business," Paul Miller, an analyst at FBR Capital Markets, told Bloomberg News before results were released. "It might be the best quarter in a long time."

JPMorgan Earnings Breakdown

The first-quarter results reflected several one-time items, including a $1.8 billion gain from reduced loan loss reserves, adding 28 cents a share to earnings. Also included in the results was a $1.1 billion gain from a bankruptcy settlement associated to the acquisition of Washington Mutual, which increase profits by 17 cents.

Chris Kotowski, an Oppenheimer analyst, said in a note to clients that JPMorgan's earnings showed the bank's fundamental strength. Kotowski said without special items, JPMorgan would have actually earned $1.39 a share.

"In other words," Kotowski noted, "the "beat' came on core earnings power strength rather than just lower credit costs."

The jump in mortgage applications boosted mortgage fees and related revenue that totaled $2 billion, compared with negative revenue of $489 million a year earlier.

With consumers gradually becoming more comfortable about spending more, JPMorgan benefited in several of its businesses as patrons opened their wallets and stoked the overall economy.

Wholesale loans rose 23% over the same period a year ago, credit card sales jumped 12% and mortgage applications soared 33%. Bank branch deposits were better by 8% over the quarter.

"We are pleased that our results for the quarter reflected positive credit trends for our consumer real estate and credit card portfolios," CEO Jamie Dimon said in the earnings release.

Dimon followed with a note of caution: "We expect to see elevated levels of costs and losses associated with mortgage-related issues for a while longer."

Despite mortgage-related losses during the financial crisis, JPMorgan weathered 2008 and its aftermath better than many of its counterparts. The Fed gave JPM the go ahead last month to let it buy back billions in stock and hike its dividend.

Considering that U.S. banks are in the middle of the industry's worst two years of revenue growth since the Great Depression, according to research firm CLSA analyst Mike Mayo, the gains shown by JPMorgan in the first quarter are impressive.

NYSE: JPM Up 30% This Year

Bank stocks have outperformed the broader Standard & Poor's 500 Index over the past three months, and the momentum shows little signs of slowing down.

"This rally can and will continue," Paul Miller, an analyst at FBR Capital Markets said in a recent research report, and added the sector still has "room to run."

The majority of analysts rate JPMorgan a "Buy", and have grown increasingly optimistic about the stock in the last three months. JPMorgan's nearest 10 competitors didn't fare as well among analysts rating, averaged just 47.6% buys among the bunch.

JPMorgan, up more than 30% since January, slipped 2.6% to $43.68 by 2 p.m. EDT.

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