Key Takeaways

  • Analysts estimate EPS of $3.04 vs. $0.79 in Q1 FY 2020.
  • Net interest margin is expected to fall YOY.
  • Revenue is expected to rise as economy recovers from COVID-19 pandemic.

JPMorgan Chase & Co. (JPM), coming off record profits in the latest quarter, is increasingly optimistic about the outlook for the U.S. economy. Jamie Dimon, chief executive officer (CEO) of the nation's largest bank, sees the vaccine rollout and more rounds of fiscal stimulus fueling an economic boom into 2023. It's a dramatic shift in outlook from his warnings last year of an impending severe recession triggered by the COVID-19 pandemic.

Investors will be watching for signs that JPMorgan's financial results are continuing to strengthen when it reports earnings on April 14, 2021 for Q1 FY 2021. Analysts expect earnings per share (EPS) to significantly bounce back from the year-ago quarter's low, and for revenue to grow at a modest pace.

Investors will also be focused 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. Analysts are expecting the bank's net interest margin to decline on a year-over-year (YOY) basis and remain steady compared to the final quarter of FY 2020. Just like Q4, JPMorgan's net interest margin in Q1 is expected to be the lowest in more than four years.

Shares of JPMorgan were lagging the rest of the market for most of the past year. But the stock started to outperform around the beginning of 2021 as optimism about the economy began to increase. JPMorgan shares have provided a total return of 64.0% over the past year, above the S&P 500's total return of 49.5%.

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

JPMorgan Earnings History

Despite reporting record quarterly profits for Q4 FY 2020 in mid-January, JPMorgan's shares retreated after beginning to outperform just weeks earlier. EPS rose 46.8% compared to the year-ago quarter, its fastest pace since Q4 FY 2018. Quarterly revenue grew 3.3%, only the second quarter of growth for all of FY 2020. A big boost to earnings came in the form of a $2.9 billion drawdown as the bank released reserves for bad loans. The bank had built up its reserves throughout last year to protect itself against loan defaults.

It was a significant improvement from the third quarter of fiscal 2020 when revenue fell 0.5% compared to the same three-month period a year ago. It was just the second revenue decline since at least Q4 FY 2017. The other decline came in the first quarter of 2020, when revenue fell 3.2%. EPS rose 9.0% in Q3 FY 2020 compared to the year-ago quarter. JPMorgan put aside just $611 million as provision for credit losses compared to $10.5 billion in Q2 FY 2020, a sign that it was feeling relatively secure that it had built enough of a buffer against soured loans.

Analysts forecast a massive 285.7% boost in EPS in Q1 FY 2021, but the large increase is partly due to earnings bouncing back from their depressed levels in the year-ago quarter. Revenue is expected to rise a modest 6.4%, more in line with YOY growth rates JPMorgan was posting before the pandemic. For full-year FY 2021, analysts expect EPS to rise 27.7%, a significant turnaround from last year's 17.2% decline. Annual revenue is forecast to fall 2.8%, the first decline in at least five years.

JPMorgan Key Stats
  Estimate for Q1 2021 (FY) Q1 2020 (FY) Q1 2019 (FY)
Earnings Per Share ($) 3.04 0.79 2.65
Revenue ($B) 30.0 28.2 29.1
Net Interest Margin (%)  1.80 2.37 2.57

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.

JPMorgan's quarterly net interest margin ranged between 2.3% and 2.6% from Q1 FY 2017 to Q1 FY 2020. It slipped to 1.99% in Q2 FY 2020 and reached a low point of 1.80% in Q4 FY 2020 as the Federal Reserve lowered interest rates to ease credit conditions amid the difficult economic conditions created by the pandemic. Analysts expect the bank's net interest margin to decline in Q1 FY 2021 compared to the year-ago quarter. Other than Q4, the net interest margin in Q1 is expected to be the lowest in at least 16 quarters, illustrating the severe pressure the bank has been under. For full-year FY 2021, analysts forecast a net interest margin of 1.84%, its lowest level in at least five years on an annual basis.