For equity analysts and banking data nerds alike, the quarterly ritual of reviewing banks' earnings announcements can’t come fast (or, often!) enough. Not only do the big banks kick-off earnings season, they also provide some of the most anticipated data, which provide indications of both the industry and the broader economy. JP Morgan provides some of the best data (though, we always want more) on trends in the business banking segment.

In reviewing the last two years of JPM data, we noticed some interesting trends. As shown in the chart below, JPM is simultaneously increasing the rate of origination volume to businesses while decreasing the size of the business banking portfolio:

To put on fine point on the dichotomy observed in the data, consider the following summary:

Digging further into JPM’s data release reveals an initial explanation for these seemingly conflicting trends: credit quality. The bank is significantly enhancing the overall risk profile of the portfolio; lower quality loans are running off while they originate a premier book of loans. This is an obvious objective of any bank, but it begs the question on how they are doing it.

It’s no secret that JPM has been investing heavily in their Business Banking segment, both through banker expansion (link) and with digital tools (link). The latter is perhaps the most significant contributor to increasing high quality originations. The connection may not be obvious, but it makes it total sense on further review. Quite simply, offering digital tools to SMB accomplishes several objectives:

1. Digital financial tools attracts better business clients

2. These tools allow businesses to be “better” clients, as they can easily understand their finances and make better financial decisions

3. Finally and most importantly, the data derived from these tools allows JPM to identify better credit opportunities and be proactive (both digitally and via their expanded banker network) in offering credit to business clients

Further, JP Morgan is committed providing data-driven advice directly to customers via its expanded network: “The bank focuses on making connections to expertise and guidance that can help businesses overcome obstacles. It has expanded its free one-on-one coaching program to 51 trained senior business consultants in 21 U.S. cities to provide mentoring and advice to business owners in Hispanic, Latino and Black communities on how to boost creditworthiness, manage cash flow and conduct marketing effectively."

If your bank wants to learn more how about financial tools for SMBs and how banks can build higher quality loan portfolios, Monit’s team of former bankers would he happy to speak with you!