JPMorgan Chase & Company (JPM Free JPMorgan Stock Report) ended a year of record earnings on a strong note. The company, the largest bank in the United States and a member of the Dow 30, earned $2.57 a share in the final quarter of 2019, exceeding our estimate of $2.25, investor expectations, and earnings in the like period of 2018 of $1.98. Results for the 2019 full year totaled $10.72 a share compared to our estimate of $10.40 and up 19% from the $9.00 logged in 2018. Investors bid the stock up modestly in Tuesday mid-morning trading.

Revenues in the December quarter rose 9% even though net interest income slipped 2% year to year, reflecting the negative impact of lower interest rates. But the modest dip in net interest income was more than offset by a 21% increase in noninterest income, driven by trading, wealth management, mortgage, and auto lending. Operating expenses ticked up 4%, reflecting higher revenue-related compensation costs and auto lease depreciation. The loan loss provision declined as the company reduced its reserves for consumer loan losses. 

The good consolidated earnings notwithstanding, the company's four business segments differed widely in their performances. Profits in the Consumer & Community Banking segment rose 5%, with revenue up 3%, powered by growth in the card, merchant services, and auto lending businesses, which offset pressure on deposit margins and lower mortgage loan balances and mortgage servicing income. Expenses rose only 2% and the company released reserves for mortgage loans. 

On the other hand, the Corporate & Investment Bank segment's profits surged 48%, largely propelled by a 56% increase in markets-related revenues, including an 86% increase in fixed-income markets revenues compared to a weaker performance in the year-earlier period. The smaller Commercial Banking segment posted a 9% profit decline, hurt by lower deposit margins, while the Asset & Wealth Management division's profits rose 30%, reflecting strong market levels and growth in assets under management. 

Looking ahead to 2020, management expects net interest income to match the 2019 tally or slip slightly. Trading revenues are volatile, and may not remain quite as strong as in 2019, but the company has stout shares of the investment banking and credit card businesses, and it should benefit from growth in areas it entered in recent years. Meanwhile, JPMorgan expects expenses to increase less than 3%. But further growth in the credit card business may result in higher loan loss provisions. All told, we tentatively look for earnings of about $10.80 in 2020, up from our previous call of $10.55.

Note that the company will spread the impact ($2.7 billion) of the transition to a new loan loss reserve method over the next four years. The transition adjustment will reduce shareholders equity, not earnings. But going forward, the new forward-looking method may cause provisions to the loan loss reserve to be more volatile. 

From an investment perspective, JPMorgan's decent dividend yield may appeal to income-oriented investors. But the stock's continued strength discounts most of its total return potential to 2022-2024. 

About The CompanyJPMorgan Chase & Co. is a global financial services firm with assets of $2.6 trillion and operations worldwide. The company is a leader in investment banking, financial services for consumers and small businesses, commercial banking, financial
transaction processing, and asset management. 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.