Over the past year JPMorgan Chase has rapidly expanded its credit card business, in part by attracting new customers with spotty credit histories.
But rest assured that the company is only dipping its toe into the pool of subprime borrowers, says Gordon Smith, chief executive of JPMorgan's consumer and community bank.
Speaking Monday at an investor conference in New York, Smith said that the company's recent move down the FICO spectrum has contributed to a "modest deterioration" in credit quality.
Still, he described the move as a relatively small change in strategy and emphasized that it has been a boon to risk-adjusted returns.
"We didn't move the credit box — we just expanded a little bit more into it," Smith said during the Barclays Global Financial Services Conference.
During the second quarter the 90-day delinquencies rate on credit cards was 0.70%, compared with 0.63% a year earlier. During the same period the number of new credit accounts grew 29% to 2.7 billion, the company said in July.
Meanwhile, JPMorgan has made an aggressive play for borrowers with modestly blemished credit. Between 2013 and 2015, the average FICO score on newly issued cards fell to 747 compared with 759 in 2012, Smith said Monday.
About 15% of JPMorgan's $122 billion credit card book is tied to borrowers with credit scores of below 660, Smith said.
The move comes as JPMorgan — the nation's largest bank by assets — has increased average credit scores across other major business lines.
Since the financial crisis the company has sharply pulled back on subprime auto and mortgage loans. During the first half of the year about 16% of the company's auto loans had credit scores below 680, compared with about 31% during the first half of 2008.
JPMorgan has almost no mortgages on its books with credit scores below 680.
The push into lower-FICO credit cards also comes as losses are poised to rise across the industry. During the second quarter a number of major credit card issuers reported an uptick in loans that were at least 30 days overdue.
During his presentation Smith noted that asset quality in the company's credit card book remains strong, despite the uptick in late-stage delinquencies. He said that "normalizing" credit trends across the industry overall has also been a contributing factor.