- Analysts estimate EPS of $2.97 vs. $3.79 in Q4 FY 2020.
- Net interest margin is predicted to fall YOY, while rising modestly on a sequential basis.
- Total revenue is expected to rise marginally YOY amid anemic loan growth over the past year.
JPMorgan Chase & Co. (JPM), the largest U.S. bank by assets, has reported soaring profits over the past year. But much of the boost is due to the release of loan loss reserves the bank built up in 2020 in response to the economic fallout from the COVID-19 pandemic. By contrast, the bank's revenue growth, a key driver of long-term profits, has been weak. That may be about to change. Loan growth has picked up again at the biggest U.S. banks, data show. And interest rate hikes planned by the Federal Reserve this year also are likely to bolster revenue growth.
Investors will be watching to see if JPMorgan can revive its revenue growth when it reports earnings on Jan. 14, 2022 for Q4 FY 2021. Analysts expect the bank's earnings per share (EPS) to decline for the first time since the second quarter of FY 2020 as revenue barely increases.
Investors will also focus on 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 year over year (YOY) while rising modestly on a sequential basis.
JPMorgan's shares have slightly underperformed the broader market over the past year. The stock has been somewhat volatile over the last 12 months, oscillating between outperformance and underperformance with the market. Shares of JPMorgan have provided investors with a total return of 23.0% over the past year, slightly below the S&P 500's total return of 24.3%.
JPMorgan Chase Earnings History
JPMorgan's Q3 FY 2021 earnings beat analysts' expectations. EPS rose 27.7% compared to the year-ago quarter, but the pace was considerably slower compared to Q2. Revenue expanded a meager 1.3% YOY, but it was an improvement from the previous quarter's decline. The company noted that the economy was strengthening despite the adverse impacts of the Delta variant of the coronavirus and supply chain disruptions during the quarter.
In Q2 FY 2021, JPMorgan's EPS and revenue came in above analysts' consensus estimates. EPS rose a rapid 173.0% YOY, though it was significantly slower than the 473.8% growth reported in the first quarter. However, revenue declined 7.9% compared to the year-ago quarter, the first decline since the third quarter of FY 2020. The bank said that the increase in its net income for the quarter was primarily driven by the release of loan loss reserves compared to reserve builds in the year-ago quarter as the economy continued to improve.
Analysts expect EPS in Q4 FY 2021 to decline 21.6% YOY, which would end the bank's streak of five consecutive quarters of EPS growth. Revenue is forecast to be essentially flat, growing only 0.5% YOY. For full-year FY 2021, analysts expect EPS to rise 69.2%, a significant improvement from the 17.2% decline in the previous year. Annual revenue is estimated to grow 1.7%, which would be the slowest pace in at least the past five years.
|JPMorgan Chase Key Stats|
|Estimate for Q4 FY 2021||Q4 FY 2020||Q4 FY 2019|
|Earnings Per Share ($)||2.97||3.79||2.57|
|Net Interest Margin (%)||1.65||1.79||2.38|
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 refers to net interest margin as "net yield on interest-earning assets" in their financial materials.
The company's net interest margin in FY 2019, before the start of the pandemic, was 2.46%. In the first quarter of FY 2020, the bank posted a net interest margin of 2.37%. But JPMorgan's net interest margin progressively fell throughout the rest of the year as the Fed lowered interest rates to mitigate the economic shock of the pandemic, making it easier for households and businesses to borrow. The bank's net interest margin continued to slide during the first half of FY 2021, reaching as low as 1.62% in the second quarter. It remained steady at 1.62% in Q3. Analysts expect a modest uptick in JPMorgan's net interest margin to 1.65% in Q4 FY 2021. For full-year FY 2021, analysts are forecasting a net interest margin of 1.65%, which would be dramatically lower than FY 2020 and the lowest annual level in at least five years.
BNN Bloomberg. "Big Banks Poised to Show Return of Long-Elusive Loan Growth." Accessed Jan. 12, 2022.
The Wall Street Journal. "Bank Stocks Set for Big Gains Ahead of Potential Fed Rate Increases." Accessed Jan. 12, 2022.
JPMorgan Chase & Co. "JPMorgan Chase to Host Fourth-Quarter and Full-Year 2021 Earnings Call." Accessed Jan. 12, 2022.
Visible Alpha. "Financial Data." Accessed Jan. 12, 2022.
JPMorgan Chase & Co. "JPMORGAN CHASE REPORTS THIRD-QUARTER 2021 NET INCOME OF $11.7 BILLION ($3.74 PER SHARE)," Page 1. Accessed Jan. 12, 2022.
JPMorgan Chase & Co. "JPMORGAN CHASE REPORTS SECOND-QUARTER 2021 NET INCOME OF $11.9 BILLION ($3.78 PER SHARE)," Pages 1 & 2. Accessed Jan. 12, 2022.