JPMorgan Chase & Company (JPM Free JPMorgan Stock Report), one of the largest banks in the United States and a component of the Dow 30, has reported mixed results for the final quarter of 2013. However, the company made progress resolving some major litigation. With some light at the end of the legal tunnel finally in sight, investors bid the stock up slightly in Tuesday late-morning trading.

The company reported December-period earnings of $1.30 a share, down from the $1.39 logged in the year-earlier period, but much better than our estimate of $0.98. For 2013 as a whole, the company earned $4.35 a share, compared with our estimate of $4.00 and 2012 results of $5.20. Legal expenses reduced earnings in the final period of 2013 by $0.27 a share, compared with $1.85 in the September period, when JPMorgan reported a loss. In the latest quarter, however, legal expenses and negative accounting valuation adjustments were mostly offset by gains on asset sales and releases of loan loss reserves, for only a net negative impact on share net of a dime.

Profits rose in all of the company's business lines, except the Corporate & Investment Bank, which fell 57%. But excluding losses related to valuation adjustments and to migrating to a new valuation framework for OTC derivatives, the segment's profits declined 11%. Lower fixed-income underwriting and markets revenues, combined with a smaller loan loss reserve reduction, hurt the segment's performance.

On the whole, however, the company's credit quality improved. Credit card and commercial loan growth picked up a bit. JPMorgan's net interest margin remained fairly stable, and the Asset Management segment turned in a fairly strong performance. But a 54% decline in mortgage originations generated a loss in mortgage production.

Looking ahead, the mortgage market is expected to remain soft in early 2014, and JPMorgan has additional legal matters that await resolution. But JPMorgan's mix of businesses is fairly diverse, so strength in some areas tends to offset the negatives.

The operating climate could also improve. Better economic activity should support somewhat stronger loan growth by the latter half of 2014, and management expects the net interest margin to expand slightly. Further reductions in loan loss reserves are also possible if credit trends remain favorable, though reserve releases probably won't be as large as in 2013. Management also plans to hold operating expenses for the full year below $60 billion, about flat with 2013 excluding unusual items. It has finished expanding the branch network, but has not completed its planned workforce reductions yet, and lower legal costs should help. 

In all, we are increasing our share-net estimate for 2014 by $0.30, to $6.00. This good-yielding stock still has decent total return potential to 2016-2018, but investors may need to remain patient as the company works through its remaining legal issues.

About The Company:JPMorgan Chase & Co. is a global financial services company offering a variety of services with operations in over 60 nations. Operational divisions include investment banking, treasury & securities services, asset management, commercial banking, retail financial services, card services, and private equity investment. The company had previously merged with Washington Mutual in September, 2008, Bank One in July, 2004, and Chase Manhattan in the final month of 2000.

At the time of this article’s writing, the author did not have positions in any of the companies mentioned.