Most banks might be happy to forget 2023, but for JPMorgan Chase (JPM), it was likely the best ever. This year the largest lender in the US might not be able to live up to that same mark.

JPMorgan is expected to report Friday that it raked in a record $49 billion in annual profits, according to analyst estimates, which would be the most ever in the history of the industry.

That result — buoyed by better loan margins and the acquisition of failed regional lender First Republic — would be 30% better than its bottom line in 2022.

It likely blew away all rivals. JPMorgan’s annual net income is expected to surpass Bank of America (BAC) by more than $20 billion. It will also likely be more than double the annual tally of Wells Fargo (WFC) and quadruple the net profits of Citigroup (C), according to analyst estimates compiled by Bloomberg.

"Goliath is winning, and they are the Goliath of Goliaths," Wells Fargo analyst Mike Mayo told Yahoo Finance.

The divergence between JPMorgan and the rest of the pack will be on full display this Friday when the four biggest banks in the US report their final results from 2023. JPMorgan’s stock recently soared to an all-time record.

But what will also be evident Friday is that even JPMorgan is not immune from one of the most challenging periods for the banking industry since the aftermath of the 2008 financial crisis.

First, its fourth quarter profits will likely be down from the year before. And analysts don’t expect the bank to earn as much in 2024 as it did in 2023, dropping estimated profits to $45 billion.

That’s because JPMorgan faces many of the same potential challenges as the rest of the industry, from pressure on loan margins and rising loan delinquencies to a continued slowdown in dealmaking and intensifying regulatory demands.

It also won’t have the same boost it received in 2023 when it snapped up failed lender First Republic from regulators.

Another looming development in 2024 is that JPMorgan won’t be able to charge as much for its loans if the Federal Reserve brings down interest rates, and that could eat into its sky-high margins. Higher rates helped turbocharge its lending income for much of the last year.

Read more: How to manage a personal loan: 5 tips for paying off your loan faster

Paying for the turmoil of 2023

Even though JPMorgan sidestepped the turmoil of 2023, it is still paying a price for the panic that plagued smaller lenders.

Its fourth quarter 2023 profits are expected to drop 7% largely because of a one-time hit of roughly $3 billion to pay for a special assessment charged by the Federal Deposit Insurance Corporation.

Other big banks will also be weighed down by similar FDIC assessments, which were used to cover the $18 billion in losses to the FDIC’s insurance fund from the failures of Silicon Valley Bank and Signature Bank last March. JPMorgan’s assessment was larger than its rivals because it is the biggest bank in the US.

At Citigroup, a bank in the middle of a massive reorganization and cost-cutting push, earnings are estimated to fall 39% from the same year-ago period.

Wells Fargo’s quarterly profits are expected to be up 21%, but that’s largely because the year-ago period had billions in operating losses from legal and regulatory costs.

Both Citigroup and Wells have been cutting back parts of their workforces. Wells CEO Charles Scharf has said the bank will take additional severance charges of between "$750 million to a little less than $1 billion" in the fourth quarter due to job cuts.

At Bank of America, fourth quarter profits are expected to fall roughly 18% from a year ago due to its FDIC assessment and other charges related to year-end ESG financing and the reconfiguration of one of its benchmark lending rates.

Another challenge for JPMorgan and some of its rivals is a prolonged slump in investment banking, which just had its worst year in a decade.

This is a particularly acute issue for Wall Street specialists like Goldman Sachs (GS) and Morgan Stanley (MS), which report their results next Tuesday. Both are expecting to show a drop in investment banking revenue.

Goldman’s fourth quarter earnings are expected to be up from a poor performance a year ago, while Morgan Stanley’s profits are expected to be down.

Goldman Sachs is trying to shed a costly experiment with consumer banking that cost it billions, while Morgan Stanley is in the middle of a transition to new CEO Ted Pick, who succeeded James Gorman on Jan. 1.

The 'slog' of 2024

Bank stocks rebounded in the last two months of 2023 on a wider market rally fueled by hopes of Fed rate cuts in 2024, which will eventually help regional banks that had to hike their deposit rates last year to keep a critical source of funding.

"There's plenty of upside for the banks if the Fed does cut relatively quickly and that the economy continues to grow positively, but not too fast," Eric Rosengren, a former president of the Boston Federal Reserve, told Yahoo Finance.

Until then, many smaller banks will continue to pay higher costs for deposits without substantially growing their loan portfolios as credit losses mount.

Read more: What the Fed rate-hike pause means for bank accounts, CDs, loans, and credit cards

The banking industry’s loan losses — or net charge-offs — have risen for eight consecutive quarters. JPMorgan and the other three largest banks are projected to pay close to $19 billion in these write-offs of bad loans for all of 2023.

Collectively, the group is expected to disclose it set aside $7.2 billion in the fourth quarter, 11% more than the previous quarter, to protect against future loan losses.

Some key credit worries for the year ahead are whether loan repayments from US consumers decline, particularly for those who are lower income, and how the declining values of office buildings across the US will impact commercial real estate loans.

"2025 should be a very good year," Mayo, the banking analyst, told Yahoo Finance. "2024 is going to be more of a slog when it comes to earnings growth."

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