JP Morgan Chase (JPM) posted a second-quarter 2010 net income of $4.8bn — up from $2.7bn in the year-ago quarter — on a $1.5bn company-wide reduction in loan loss reserves. “Although we are gratified to see consumer-lending net charge-offs and delinquencies decline, they remain at extremely high levels and therefore returns in our consumer-lending businesses are still unacceptable,” said chairman and CEO Jamie Dimon, in the earnings statement. “As a result, these businesses did not meet expectations nor generate satisfactory returns on capital for our shareholders. It is too early to say how much improvement we will see from here.” JP Morgan’s retail financial services unit posted a $1bn net income compared with a $131m net Q110 loss and a $15m net income in the year-ago quarter. A $2.1bn reduction in the provision for credit losses from last year drove the positive results. The firm said it reduced provisions after setting aside substantial loan loss allowances in the previous quarter and previous-year quarter. “Although losses for the mortgage and home equity portfolios continued to be extremely high, the current-quarter provision reflected improved delinquency trends and reduced net charge-offs as compared to prior periods,” the company said in the earnings statement. JP Morgan experienced a 3.32% net charge-off rate in home equity loans — totaling $796m in the quarter — compared with 4.61% in the year-ago quarter. Subprime mortgage net charge-offs of $282m — or 8.63% — fell from $410m the same time last year. Prime mortgage net charge-offs of $264m — or 1.79% — also fell from $481m in the year-ago quarter. The firm conducted $32.2bn of mortgage originations during the quarter, 2% less than Q110 and 22% less than the year-ago quarter. JP Morgan’s mortgage production revenue of $9m fell substantially from $284m a year earlier, reflecting higher repurchase losses and the impact of write-downs in the mortgage warehouse business. Mortgage servicing revenue of $877m is up by $354m from the prior year. The firm said it offered 880,000 — and approved 245,000 — mortgage modifications since the beginning of 2009. Write to Diana Golobay. Disclosure: the author holds no relevant investments.

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