JPMorgan Chase posts $5.3B 4Q profit

Mortgage originations sink 54% year-over-year

Despite a series of legal setbacks in the form of settlements and ongoing legal disputes, JPMorgan Chase & Co. (JPM) posted a fourth-quarter profit of $5.3 billion, or $1.30 per share.

While solid, that profit is down from $5.7 billion, or $1.39 a share, in the fourth quarter of 2012.  JPM missed average analyst estimates of earnings in the $1.35 per share range, but managed to stay profitable after a series of major legal settlements, including a $13 billion payout to resolve legacy mortgage securities issues

Chief Executive Officer Jamie Dimon reflected on the impact of the litigation storm sweeping the bank in 2013:

 “We reached several important resolutions – Global RMBS, Gibbs & Bruns, and Madoff. It was in the best interests of our company and shareholders for us to accept responsibility, resolve these issues and move forward," he said. "This will allow us to focus on what we are here for: serving our clients and communities around the world. We remained focused on building our four leading franchises, which all continued to deliver strong underlying performance, for the quarter and the year."

With the housing recovery still showing gains from higher home prices and fewer delinquencies, JPM’s mortgage banking segment continues to evolve as the housing finance landscape changes. 

The firm’s fourth-quarter earnings show mortgage origination activity plummeting 54% year-over-year, with mortgage originations reaching $23.3 billion in the most recent 4Q report – a number that also is down 42% from the third quarter.

Digging deeper, purchase originations activity did grow, reaching $13 billion in 4Q, up 65% from last year and 35% from the third quarter.

Overall, mortgage banking net income came in at $562 million, up 34% from last year as the company benefited from lower expenses and provisions for credit losses. 

Net revenue in the segment, however, sunk by $1.1 billion from a year ago, reaching $2.2 billion for the period. Net interest income also fell 5% to $1.1 billion year-over-year as lower loan balances from portfolio runoff impacted the segment. 

Lower mortgage fees and income also pushed noninterest revenue down by $1 billion from last year to $1.1 billion in the 4Q report. 

Fewer mortgage delinquencies and rising home prices helped save the company from steeper credit losses. Its provision for credit losses came in at a benefit of $782 million, up from $269 million a year ago. 

Overall, the 4th quarter saw a $950 million reduction in loan loss allowances as the housing market improved. 

“The prior year included a $700 million reduction in the allowance for loan losses. Net charge-offs were $168 million, compared with $431 million in the prior year,” JPMorgan wrote. 

JPM's mortgage-production related revenue hit $494 million in its most recent report, a decline of $1.1 billion, or a 69% drop from a year ago.  Requests for the banking giant to repurchase loans managed to subside with repurchase losses reaching a benefit of $221 million in 4Q, up from $53 million a year ago and $175 million in the previous quarter.  

The company’s major settlement with Fannie Mae and Freddie Mac over repurchase liability led to a $1.2 billion reduction in risk as the deal resolved most legacy mortgage issues tied to GSEs loans from the 2000 through 2008 period.

The mortgage servicing segment went on to record a pretax revenue of $2 million, compared to a pretax loss of $913 million a year ago. 

This change is attributed to lower expenses and higher revenue. 

Mortgage net servicing-related revenue hit $689 million, an increase of $71 million. 

Servicing expenses also fell by $910 million from a year earlier, reaching $663 million in 4Q as the firm benefited from its lower servicing headcount and reduced costs with the Independent Foreclosure Review closed out in a one-time settlement last year. 

The company also reported full-year income of $17.9 billion, down from $21.3 billion in 2012. Earnings per share for the year hit $4.35, compared to $5.20 for 2012. Revenue stayed mostly flat coming in at $99.8 billion.

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