After reporting a charge-off rate for its fiscal first quarter that was below what it expected, Discover Financial Services now expects charge-offs to start to decline this quarter, coming in at between 8% and 8.5%, Discover Chairman and CEO David Nelms told analysts during a conference call yesterday to discuss earnings. The first quarter charge-off rate was 8.51%, up from 6.68% a year earlier and up from 8.43% during the third quarter.
Additionally, the total dollars in 30 days-plus delinquency is at its lowest level in a year, Nelms noted. Because of this, Nelms believes the “dollars of delinquency may have peaked in the fourth quarter.”
As for other trends, Nelms “feels very good about” Discover Card sales volume growth of 5% year over year, to $22 billion. “This is the first full quarter since the third quarter of 2008 that the company grew Discover Card sales volume year over year,” he said.
Overall, Discover’s total loan portfolio was down about 2% year over year because of “continued modest reductions in the company’s credit card portfolio, which is driven by reductions in lower-rate balance-transfer volume, almost entirely offset by growth in student and personal loans,” Nelms added.
“The results of this quarter suggest a reversal of some of the adverse trends we had seen over the prior five quarters as the economy deteriorated,” Nelms said during the call.
Discover reported a net loss of $104 million for fiscal first quarter ended Feb. 28; it reported net income of $120 million for the same period a year ago. (
Total third-party payments segment sales volume rose 1.7%, to $35.7 billion from $35.1 billion during the same period last year. Volume for Discover’s Pulse PIN-debit network increased 0.7%, to $27.6 billion from $27.4 billion, while volume from third-party Discover issuers increased 14.7%, to $1.56 billion from $1.36 billion. Total transactions processed on the Pulse network rose 5%, to 720 million from 686 million.
Both Pulse and the company’s third-party issuing business contributed to the record profits in the payment segment, Roy Guthrie, Discover executive vice president and chief financial officer, said during the conference call.
Diners Club International volume totaled $6.5 billion, up 3.2% from $6.3 billion. Somewhat consistent with last year, Diner’s Club had higher royalty revenue during the first quarter, reflecting the structure of the contractual agreements within Discover franchise operators, Guthrie explained.
Also this week, Discover struck a deal with Global Payments Inc. to expand acceptance for its Discover and Diners Club cards in Europe and Asia. (
