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Discover Financial Services yesterday reported its managed net charge-off rate on credit card receivables rose to 8.39% for its fiscal third quarter ended Aug. 31, up 319 basis points from 5.2% during the same period a year earlier.
Discover attributes the increase to higher consumer bankruptcies and unemployment rates, and it anticipates the rate to range between 8.5% and 9% during the fourth quarter. The delinquency rates on loans at least 30 days past due was 5.1%, up 125 basis points from 3.85% a year ago. The company's provision for loan losses rose 277%, to $924.4 million from $245.2 million.
"We are seeing the best response rates [to new credit card solicitations] than what we have seen in years, but given the economic environment, we are being very careful to pick through them and only approve customers we are sure will stay current [on their payments] with us," Discover CEO David Nelms said during a conference call with analysts.
Nelms expects charge-offs and delinquencies to continue to rise. "I don't think we've seen the peak yet," he said.
Discover reported Q3 net income of $577.5 million, up 221% from $180.1 million during the same quarter last year. The company received $472 million during the quarter as part of $2.75 billion in a combined settlement it reached last year with Visa Inc. and MasterCard Worldwide. Discover claimed in a 2004 lawsuit that the card networks' exclusionary rules hampered its growth. Revenue net of interest expense was $1.8 billion, up 38.5% from $1.3 billion.
Discover's U.S. card unit posted a 16.1% decline in sales volume during the quarter, to $24 billion from $28.6 billion, caused by lower gasoline prices and a general decline in consumer spending, Discover said. Citing lower cardholder payments and reduced balance-transfer activity and sales volume, Discover says managed loans were $51 billion, up 0.1% from $50.5 billion.
