Big bank earnings show mixed signals on health of consumer loans

Collect enough data points and you’ll see a trend.

As earnings data trickles in from banks — JPMorgan, Wells Fargo and Citigroup, so far — management commentary and earnings supplements have revealed a somewhat mixed picture of spending and credit trends.

The main data shows that in these banks spending using payment cards increased by several percentage points.

But if earnings reports are a theme change, that theme can be boiled down to one word: Volatility. Overall credit trends—and delinquency rates—are staying within historical patterns and normalizing. But the widening divide between relatively affluent consumers and those struggling is demanding attention.

As PYMNTS noted in its first report last week, Citigroup and JPMorgan have highlighted some issues among lower-income groups and consumers with lower credit scores.

JPMorgan

JPMorgan Profits showed that the net charge-off rate for card loans, according to the company, was 3.5% in the second quarter, compared with 3.3% in the first quarter and 2.4% compared with a year earlier.

CFO Jeremy Barnum said credit scores are “primarily driven by cards as the new-vintage season and credit normalization continue,” adding thatthat there is “behavior consistent with slight frailty among lower-income customers.”

The company’s profit additions indicate that when it comes to arrears, The 30-day delinquency rate was just below 2.1% in the second quarter, up from 1.7% during the same period last year but down from 2.2% in the first quarter.

The most recent 90-day late payment rate was 1.1%, up from 0.8% a year earlier and down from 1.2% in the first quarter.

Citigroup and Wells Fargo

Wells Fargo Results and Documents indicate that the 30-day delinquency rate in the cards segment was 2.7% in the June period, compared to 2.3% a year earlier. This is a decrease compared to the rate of 2.9% recorded in the first quarter.

CEO Charlie Scharf on Friday’s earnings conference call, he said the “economy is slowing, and there are still headwinds from persistently high inflation.” The improvement in card earnings metrics, Scharf said, has come in tandem with tightening credit.

During Citigroup’s earnings conference callManagement pointed to the fact that people with higher credit scores continue to use the cards, while consumers with lower FICO scores are being left behind.

During a discussion about where consumers are spending money, CEO Jane Fraser said Citi is seeing “differentiation in the credit segment, with lower-income customers feeling the squeeze,” and executives also mentioned tightening budgets.

CFO Mark Mason said on the call that “across our card portfolios, about 86% of our card loans are to consumers with FICO scores of 660 or higher. And while we continue to see a resilient consumer overall… when you look at our consumer customers, only the highest quartile of income is saving more than they were at the beginning of 2019. And it’s the customers with FICO scores above 740 that are driving spending growth and keeping payment rates high.”

He also added that “customers in lower FICO ranges see larger declines in interest rates and borrow more because they are more affected by high inflation and interest rates.”

To that end, Mason said, “some customer groups continue to feel the effects of persistent inflation and higher interest rates, resulting in larger losses … (but) we are seeing signs of stabilization and improvement in delinquency rates.”

Income supplements offer deeper insight into crime trends. Citi Extras reveals that the rate of past due payments between 30 and 89 days for corporate cards was 0.9%, up from 0.8% a year earlier, although down slightly from the 1% recorded in the first quarter.

The severity and year-over-year delinquency trends may not yet be alarming. But as PYMNTS The interview found65% of the U.S. population lives paycheck to paycheck, the highest percentage we’ve seen in two years. Eighty percent of consumers earning less than $50,000 a year say they live paycheck to paycheck, and as credit tightening becomes the norm to stave off delinquencies, a key spending lifeline will become strained.