JPMorgan Chase (NYSE: JPM) reported a first-quarter profit of $3.3 billion, or $0.74 per share, this morning. By and large, it was the same story we've heard for a while: These profits would be nothing without fixed-income trading. But for the first time in recent memory, there was a noticeable improvement in loan quality. We'll get to that in a second.

When these numbers are released, I always like to dig into the earnings supplemental and find out exactly where the income came from. Broken out by segment, here's how it looked last quarter:


Q1 Net Income

Investment bank

$2.5 billion

Retail financial services

($131 million)

Card services

($303 million)

Commercial banking

$390 million

Treasury and securities services

$279 million

Asset management

$392 million

Corporate/private equity

$228 million


$3.3 billion

Investment banking is really where it's at. If you strip out investment banking and just look at the real "bank" part of the bank, it still isn't pretty. Consumers and businesses are still down, and it shows.

More important, if you break out the individual segments of investment banking, one area dominates -- fixed-income markets: 

Investment Banking Segment

Q1 Revenue


$305 million

Equity underwriting

$413 million

Debt underwriting

$728 million

Fixed-income markets

$5.5 billion

Equity markets

$1.5 billion

Credit portfolio

($53 million)

(Notice this is revenue: JPMorgan didn't provide a net income breakdown. The investment banking segment logged $8.3 billion in revenue, which led to $2.5 billion in net income shown in the first table.)

One reason fixed-income trading is off the charts is because the yield curve -- the spread between short-term and long-term interest rates -- is gigantic. Another reason is that the surviving big banks -- JPMorgan, Goldman Sachs (NYSE: GS), Morgan Stanley (NYSE: MS), Citigroup (NYSE: C), and Bank of America (NYSE: BAC) -- have taken over the market share of Lehman Brothers and Bear Stearns (now part of JPMorgan), which were major players in the fixed-income world. Another still is that retail investors have plowed headfirst into bonds in lieu of stocks over the past year in unprecedented ways. Record fixed-income trading results have been universal across big banks.

What investors need to realize, though, is that these fixed-income windfalls simply aren't sustainable. The yield curve will eventually tighten, retail investors will realize bonds yielding next to nothing won't make them rich, and banks like JPMorgan will once again have to rely on their core businesses: lending.

But as mentioned, metrics in JPMorgan's loan portfolio are showing noticeable signs of improvement.

The most important is the improvement in credit card quality, because this segment has been particularly cruel to the bottom line over the past two years:

Credit Card Metric

Q1 2010

Q4 2009

30 days+ delinquent



90 days+ delinquent



Net charged-off rate



The dramatic fall in 30-day delinquencies is telling. These so-called early stage delinquencies are one of the most reliable harbingers for future profitability. I've been saying for the better part of a year that investors shouldn't get excited about banks' loan portfolios until early stage delinquencies began falling in meaningful ways. For JPMorgan's credit card portfolio, they are. Let's see whether that holds. Keep your fingers crossed.