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J.P. Morgan Posts Unimpressive Commercial Banking Results

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Revenues lower despite loan and deposit growth

Despite an 8% year-over-year growth in loan balances and 3% growth in deposits, the J.P. Morgan (JPM) Commercial Banking segment saw net revenues fall by 3%. Lower net interest income caused the decline.

Net interest income decreased 5%, reflecting yield compression, the absence of proceeds received in the previous year from a lending-related workout, and lower purchase discounts recognized on loan repayments. The decrease was partially offset by higher loan balances.

Non-interest revenue increased by 2%, reflecting higher investment banking revenue that was largely offset by business simplification and lower lending fees.

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Net income remains flat

Net income was flat compared with the previous year’s results, reflecting lower net revenue and higher non-interest expenses, predominantly offset by a lower provision for credit losses. In fact, the provision for credit losses was -$189 million, meaning the bank reduced expenses by that amount, increasing its net income. Credit losses totaled $85 million the previous year.

There seems to be no valid reason to reduce the allowances. And, it looks like an effort to slightly inflate the net income that would have otherwise shown a decline compared to the previous year.

Commercial and industrial loans grow steadily

The competition for quality assets in industry remains strong. The segment’s commercial and industrial loan portfolio grew at a CAGR (compound annual growth rate) of 11% over the last five years. This matches the industry loan growth rate. Loan growth is diversified, with limited exposure to private equity, in line with the firm’s strategy.

You may invest in the big four banks—J.P. Morgan, Wells Fargo (WFC), Bank of America (BAC), and Citigroup (C)—through ETFs like the Financial Select Sector SPDR ETF (XLF). Together, these banks form ~27% of XLF. Next you’ll learn about J.P. Morgan’s Asset Management segment.

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