JPMorgan Earnings Results
 Metric Beat/Miss/Match Reported Value Analysts' Prediction
EPS Beat $4.50 $3.04 
Revenue Beat $32.3B $30.0B
Net Interest Margin Miss 1.69% 1.80%

Source: Predictions based on analysts' consensus from Visible Alpha

Key Takeaways

  • Earnings were bolstered by the release of $5.2 billion in reserves which JPM no longer thinks are necessary to cover potential loan losses.
  • JPM's net interest margin continued to contract even as the economy recovered through the first quarter.
  • CEO Jamie Dimon said that he was optimistic about the economic recovery, and a rise in loan demand.

JPMorgan (JPM) Financial Results: Analysis

JPMorgan Chase & Co. (JPM) reported Q1 FY 2021 earnings that beat analyst estimates by a wide margin. The bank's quarterly revenue also surpassed expectations. Net interest margin, which JPMorgan refers to as "net yield on interest-earning assets," came in at 1.69% for the quarter, below analysts' expectations. It measures the difference between the interest the bank earns on the assets it owns and the interest it pays out to depositors and other creditors, similar to the gross margin for businesses in general.

JPM Net Interest Margin

Net interest margins have been squeezed since the Federal Reserve lowered rates in 2020 to help deal with the economic crisis caused by the COVID-19 pandemic. Margins are squeezed by lower interest rates because this means there is less room for banks to extract margin between the rate at which banks pay depositors and the rate at which it charges on loans. The bank reported a net interest margin of 1.69%, below analyst forecasts.

This is important as it shows that despite the fact that interest rates rose in the first quarter as the economy rebounded, they did not do so enough for JPM's lending margin to avoid falling to its lowest point since the rate cuts last year.

JPM Releases Reserves

JPMorgan also released $5.2 billion in reserves that were being held as a buffer against loan losses. This suggests the bank is more confident that it is passed the point where it would see a major uptick in loan losses, and that the total amount will be less than previously expected as vaccine rollouts and government stimulus help bolster an economic recovery.

CEO Jamie Dimon said that he believes the economy has the potential for extremely robust growth over the next few years. However, JPMorgan did not provide any specific guidance for the next quarter or full year. Its shares were down about 0.7% in pre-market trading. As of market close on April 13, 2021, JPM's shares were up 63.5% in the past year versus 44.9% for the S&P 500's, having rebounded sharply from major declines last year like many financial stocks.

JPMorgan (JPM) Earnings Call Recap

Dimon indicated in the earnings press release that demand for loans was challenged despite consumer spending recovering to pre-pandemic levels. On the company's conference call, the CEO added that the consumer was in good shape, which would ultimately be good for loan demand. Consumer confidence in the economy is a key factor in determining demand for loans, as consumers don't want to increase debt in a weakening economy since it would become more difficult to service that debt. Rising loan demand helps banks generate more revenue, since loans are one of their main products.

JPMorgan's next earnings report (for Q2 FY 2021) is estimated to be released on July 13, 2021.