What to Look For From JPM


Key Takeaways

  • Analysts estimate EPS of $2.89 vs. $3.78 in Q2 FY 2021.
  • Net interest margin is expected to rise YOY.
  • Total revenue is expected to increase modestly YOY after two straight quarters of declines.

JPMorgan Chase & Co. (JPM) has reported falling profits in recent quarters amid the highest inflation in decades and growing concerns about an economic recession. The worst may be yet to come. Chief Executive Officer (CEO) Jamie Dimon warned his shareholders in early June to prepare for an economic “hurricane” fueled by rising interest rates and the economic fallout of Russia’s invasion of Ukraine.

Investors will look closely at how these forces are affecting JPMorgan’s financial performance when it reports earnings on July 14, 2022 for Q2 FY 2022. Analysts expect a mixed performance. The bank’s earnings per share (EPS) is expected to decline year-over-year (YOY) for the third straight quarter despite an increase in revenue.

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 to depositors and other creditors. JPMorgan’s net interest margin is expected to rise to its highest level since Q4 FY 2020.

JPMorgan stock has underperformed the broader market in the past year. The bank’s shares outperformed the S&P 500 on a few occasions, most notably for an extended period from September through November of last year. However, the stock began to decline sharply this year after the bank lowered guidance in its Q4 FY 2021 earnings report on January 14, 2022. The stock has failed to recover and declined further in June. Now, JPMorgan shares have provided a 1-year trailing total return of -26.5%, well behind the S&P 500’s -12.9% return.

Source: TradingView.

JPMorgan Chase Earnings History

JPMorgan’s EPS performance has been erratic in recent quarters. The company posted five straight quarters of profit growth from Q3 FY 2020 through Q3 FY 2021. But four of the last nine quarters have seen YOY EPS declines, including the most recent two reported quarters. Analysts expect EPS to decline again, by 23.4%, in Q2 FY 2022.

The company’s revenue performance has been similarly varied. The most significant decline in the past two years was in Q2 FY 2021, at the onset of the COVID-19 pandemic in the U.S.: revenue dropped by 7.9% YOY. JPMorgan has reported revenue declines YOY in five of the past nine quarters, including the most two most recent reported quarters. For Q2, analysts estimate that revenue will rise 3.7%.

JPMorgan Chase Key Stats
  Estimate for Q2 FY 2022 Q2 FY 2021 Q2 FY 2020
Earnings Per Share ($) 2.89 3.78 1.38
Revenue ($B) 31.6 30.5 33.1
Net Interest Margin (%) 1.77 1.62 1.99

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 its financial materials.

Net interest margin is an especially important metric to watch at this juncture. JPMorgan’s net interest margin gradually fell in 2020 and 2021 after the Fed lowered interest rates to mitigate the economic shock of the COVID-19 pandemic, making it easier for households and businesses to borrow. But now, the U.S. Federal Reserve has begun to boost rates to combat inflation, with more rate increases to come. This may benefit JPMorgan as higher interest rates generally allow for a higher overall net interest margin.

Prior to the pandemic, in FY 2019, JPMorgan’s quarterly net interest margin ranged from 2.38% to 2.57%. It dropped to 1.99% in Q2 FY 2020 and to a low of 1.62% in Q2 FY 2021. Since that time, it has struggled to improve, rising at most to 1.67% in Q1 FY 2022. Analysts expect a modest improvement in Q2 FY 2022, estimating that JPMorgan’s net interest margin will rise to 1.77%. However, that level would be dramatically lower than JPMorgan’s margins in 2018 and 2019.


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