Big Bank Earnings Show Mixed Signals on Consumer Credit Health

Get enough data points in place, and you have a trend.

As bank earnings have started to roll in — thus far, from JPMorgan, Wells Fargo and Citigroup — management commentary and earnings supplementals reveal a bit of a mixed picture on spending and credit trends.

The headline numbers say that card spending is up several percentage points at those banks.

But if we can call the earnings reports variations on a theme, the theme may be boiled down to a single word: Volatility. Overall credit trends — and delinquency rates — remain within historical patterns, and are normalizing. But the widening divide between relatively affluent consumers and those who are struggling bears watching.

As PYMNTS noted in initial coverage last week, Citigroup and JPMorgan have both spotlighted at least some pressures in lower income brackets, and in lower-credit-score consumers.

JPMorgan

JPMorgan’s earnings showed that the net charge-off rate on card loans, per company data, stood at 3.5% in the second quarter, up from 3.3% in the first quarter and 2.4% from a year ago.

CFO Jeremy Barnum said that credit performance was “predominantly driven by card as newer vintages season and credit normalization continues,” and added that there’s “behavior that consistent with a little bit of weakness in the lower income” client base.

The company’s earnings supplementals indicate that, as far as delinquencies are concerned, the 30-day delinquency rate, at just under 2.1% in the second quarter, was higher than the 1.7% seen in the same period last year, but was better than the 2.2% seen in the first quarter.

The 90-day delinquency rate was 1.1% in the most recent period, up from 0.8% last year and down from the 1.2% in the first quarter.

Citigroup and Wells Fargo

Wells Fargo’s results and filings indicate the that 30+day delinquency rate for the card segment was 2.7% in the June period, where that rate had been 2.3% a year ago. It moved downward from the 2.9% rate logged in the first quarter.

CEO Charlie Scharf on Friday’s earnings call said that “the economy is slowing and there are continued headwinds from still elevated inflation.” The improvements in the metrics on the card performance, Scharf said, have come in tandem with credit tightening.

During Citigroup’s earnings call, management pointed to the fact that individuals with higher credit scores continue to use their cards as lower FICO consumers are falling behind.

With some discussion on where consumers are spending, CEO Jane Fraser said that Citi sees “differentiation in the credit segment, with the lower income-customers seeing pressure,” as management also mentioned of a tightening of budgets.

CFO Mark Mason said in the call that “across our card portfolios, approximately 86% of our card loans are to consumers with FICO scores of 660 or higher. And while we continue to see an overall resilient consumer … when we look across our consumer clients, only the highest income quartile has more savings than they did at the beginning of 2019. And it is the over-740 FICO score customers that are driving the spend growth and maintaining high payment rates.”

He further elaborated that “lower FICO band customers are seeing sharper drops in payment rates and borrowing more as they are more acutely impacted by high inflation and interest rates.”

To that end, said Mason, “certain pockets of customers continue to be impacted by persistent inflation and higher interest rates resulting in higher losses … [but] we are seeing signs of stabilization and delinquency performance.”

The earnings supplementals offer up added insight into delinquency trends. Citi’s supplementals reveal that 30-89 day delinquency rates on the branded cards business were 0.9%, up from 0.8% a year ago, though dipping a bit from the 1% seen in the first quarter.

The tightening and the year-on-year delinquency trends may not ring alarms yet. But as PYMNTS Intelligence has found, 65% of the U.S. population lives paycheck to paycheck, the highest share we have seen in two years. Eighty percent of consumers earning less than $50,000 annually say they live paycheck to paycheck, and as credit tightening becomes the norm, to stanch delinquencies, a key spending lifeline will grow taut.