JPMorgan Chase (JPM) Q3 FY 2021 Earnings Report Preview: What to Look For

Focus on JPM net interest margin

Key Takeaways

  • Analysts estimate EPS of $2.98 vs. $2.92 in Q3 FY 2020.
  • Net interest margin is predicted to fall YOY, while rising modestly on a sequential basis.
  • Total revenue is expected to post minor gain YOY as the company slowly recovers from the financial impact of the COVID-19 pandemic.

JPMorgan Chase & Co.'s (JPM) has become optimistic that the worst of the pandemic is over as its earnings rebounded in recent quarters. In its Q2 2021 results announced in mid-July, the bank bolstered profits by freeing up another $3 billion in pandemic loan-loss reserves that it originally had set aside for pandemic-related defaults. In recent months, though, the pace of JPMorgan's rebound has faced new challenges: the Delta variant of COVID-19 has slowed the rebound of the economy, and JPMorgan's costs have risen as it boosted pay to attract junior employees in a competitive hiring market.

Investors will watch to see if JPMorgan can maintain its earnings and revenue momentum when it reports results on Oct. 13 for Q3 FY 2021. Analysts expect tepid year-over-year (YOY) growth for both earnings per share (EPS) and revenue for the quarter. This would mark a significant slowdown in earnings growth compared to the previous three quarters.

Investors are also likely to look to JPMorgan's net interest margin, a key metric in the banking industry that reflects the difference between the interest banks earn on their assets and the interest they pay out to depositors and other creditors. The bank's net interest margin is predicted to decline YOY while rising modestly on a sequential basis.

Shares of JPMorgan's stock have significantly outperformed the broader market in the past year. After trading roughly in line with the market in October 2020, JPMorgan shares broke away in early November and have outpaced the growth of the market since then. Still, growth has not always been steady. The share price pulled back in early January 2021 and again in June. And the stock moved sideways in a wide trading range between June and the middle of September 2021. The stock since then has posted a strong advance. In total, JPMorgan shares have provided a 1-year trailing total return of 66.8% in the last year, nearly triple the 23.4% total return of the S&P 500.

One Year Total Return for S&P 500 and JPMorgan Chase & Co.
Source: TradingView.

JPMorgan Chase Earnings History

JPMorgan's earnings were hurt early in the COVID-19 pandemic. Q1 and Q2 FY 2020 saw steep EPS declines YOY, the first time earnings had fallen YOY since Q4 2017. Earnings growth was modest in Q3 2020 and accelerated dramatically in the final quarter of the year. In Q1 and Q2 FY 2021, JPMorgan posted dramatic YOY increases in quarterly EPS, both a reflection of strong fundamental earnings strength during those quarters and unusually low earnings for the prior-year quarters. Investors now expect that this rapid growth will nearly grind to a halt in Q3 FY 2021. Analysts estimate that earnings rose 2.0% YOY in Q3, the slowest pace of growth in at least the past four years.

The company's revenue performance has been more erratic. JPMorgan posted YOY revenue declines in three of the past six quarters, after a streak of quarterly gains over several years. The sharpest YOY decline was a 7.9% drop in Q2 FY 2021. Analysts expect that JPMorgan will continue to struggle in Q3 FY 2021. They estimate that revenue will rise a scant 0.5%.

JPMorgan Chase Key Stats
  Estimate for Q3 FY 2021 Q3 FY 2020 Q3 FY 2019
Earnings Per Share ($) 2.98 2.92 2.68
Revenue ($B) 29.4 29.3 29.3
Net Interest Margin (%) 1.64 1.82 2.41

Source: Visible Alpha

The Key Metric

As mentioned above, investors will also be focusing on JPMorgan's net interest margin. This key metric measures the difference between the income banks generate from credit products like loans and mortgages and the interest they pay to depositors and other creditors. It is analogous to gross margin reported by non-financial companies, which is the difference between sales and cost of goods sold. In extremely low interest rate environments, net interest margins get squeezed as banks lower rates charged to borrowers in order to remain competitive but they are reluctant to push rates they pay to creditors below the lower zero bound. Note that JPMorgan Chase refers to net interest margin as "net yield on interest-earning assets" in their financial materials.

The company's net interest margin fluctuated between 2.37% and 2.57% from Q3 FY 2017 through Q1 FY 2020. That was before the pandemic began to have a major effect on the economy. Since the pandemic started to disrupt the economy in Q2 2020, JPMorgan's net interest margin has declined significantly over five consecutive quarters. Net interest margin dropped to 1.99% in Q2 FY 2020 and has continued to fall sharply YOY since then, reaching a low point of 1.62% in Q2 FY 2021. Analysts expect that trend to continue in Q3. They estimate JPMorgan Chase will report a net interest margin of 1.64%, down from 1.82% in Q3 FY 2020. One piece of good news may be that the net interest margin may have bottomed. The 1.64% Q3 number would be a modest improvement from the metric's recent low point n Q2.

Article Sources
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  1. Wall Street Journal. "JPMorgan’s Jamie Dimon Says the U.S. Consumer Is Raring To Go." Accessed Oct. 11, 2021.

  2. Wall Street Journal. "U.S. Economic Growth Slowed Over the Summer Due to Delta Variant, Fed’s Beige Book Says." Accessed Oct. 12, 2021.

  3. Bloomberg. "JPMorgan Boosts Pay for More Staff as Talent Battle Deepens." Accessed Oct. 11, 2021.

  4. JPMorgan Chase & Co. "JPMorgan Chase to Host Third-Quarter 2021 Earnings Call." Accessed Oct. 11, 2021.

  5. Visible Alpha. "Financial Data." Accessed Oct. 11, 2021.

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