While not exploding, Discover’s (DFS) credit card portfolio continues to stay in positive territory. Year-on-year (YOY) growth in the first quarter (1Q/16) was limited to single digits, but charge-offs (CO) headed higher due to the historical seasonal impact of a first quarter.
Discover’s total revenue rose 2.4% YOY to $2224 million, compared to $2205 million in the prior quarter and $2171 million for the year ago quarter. For 2015, DFS averaged $2185 million per quarter.
Discover’s net income slipped 1.9% YOY to $575 million, compared to $500 million in the prior quarter and $586 million for the year ago quarter. For 2015, DFS averaged $459 million per quarter.
DFS credit card gross dollar volume (GDV) for 1Q/16, increased 4.5% YOY to $30.0 billion, compared to $33.8 billion for 4Q/15 and $28.7 billion for 1Q/15.
DFS credit card purchase dollar volume (PDV) for 1Q/16, also increased 4.5% YOY to $27.6 billion, compared to $31.7 billion for 4Q/15 and $26.4 billion for 1Q/15.
End-of-Period (EOP) U.S. credit card outstandings (OUT) slipped upward by 3.9% YOY, compared to 3.2% YOY gain for 4Q/15. At the end of 1Q/16 DFS had $55.6 billion in U.S. EOP credit card outstandings, compared to $57.9 billion at the end of the prior quarter and $53.5 billion at the end of the year ago quarter.
Average U.S. credit card outstandings increased 3.9% YOY. During the first quarter DFS had $56.1 billion in U.S. average credit card OUT, compared to $56.1 billion for 4Q/15 and $54.0 billion for 1Q/15.
DFS credit card 30+ day delinquency (DEL) increased 4 basis points (bps) YOY, but down 4 bps Quarter-To-Quarter (QTQ) for 1Q/16. The issuer reported a 30+ day DEL ratio of 1.68% for 1Q/16%, compared to 1.72% for 4Q/15 and 1.64% for 1Q/15.
DFS credit card 90+ day delinquency was flat YOY, but up 1 bps QTQ for 1Q/16. The issuer reported a 90+ day DEL ratio of 0.86% for 1Q/16, compared to 0.85% for 4Q/15 and 0.86% for 1Q/15.
The DFS gross principal credit card charge-off (CO) ratio for 1Q/16 was down 6 bps YOY, but up 21 bps QTQ.
The issuer reported a gross principal charge-off ratio of 3.15% for 1Q/16, compared to 2.94% for 4Q/15 and 3.21% for 1Q/15.
The DFS net principal credit card charge-off (CO) ratio for 1Q/16 was down 6 bps YOY and up 16 bps QTQ.
The issuer reported a net principal charge-off ratio of 2.34% for 1Q/16, compared to 2.18% for 4Q/15 and 2.40% for 1Q/15.
The DFS credit card net interest yield (YLD) was up 22 bps QTQ, and up 37 bps YOY. For 1Q/16 the yield was 12.42%, compared to 12.20% for 4Q/15 and 12.05% for 1Q/15.
Discover also reported its credit card rewards rate. The data show the rewards rate edged up by 4 bps YOY, but down 12 bps QTQ. DFS reported a rewards rate of 1.06% for 1Q/16, 1.18% for 4Q/15, and 1.02% for 1Q/15.
1Q/15: $2171 million
2Q/15: $2175 million
3Q/15: $2188 million
4Q/15: $2205 million
1Q/16: $2224 million
1Q/15: $586 million
2Q/15: $599 million
3Q/15: $612 million
4Q/15: $500 million
1Q/16: $575 million
1Q/15: $28.7 billion
2Q/15: $32.3 billion
3Q/15: $33.0 billion
4Q/15: $33.8 billion
1Q/16: $30.0 billion
1Q/15: $26.4 billion
2Q/15: $30.0 billion
3Q/15: $30.4 billion
4Q/15: $31.7 billion
1Q/16: $27.6 billion
1Q/15: $53.5 billion
2Q/15: $54.9 billion
3Q/15: $55.7 billion
4Q/15: $57.9 billion
1Q/16: $55.6 billion
1Q/15: $54.0 billion
2Q/15: $54.0 billion
3Q/15: $55.3 billion
4Q/15: $56.1 billion
1Q/16: $56.1 billion
DEL 30+ DAY
DEL 90+ DAY
CO Gross Principal
CO Net Principal
Net Interest Yield
Discover comments on the 1Q/16:
Direct Banking pretax income of $882 million in the quarter increased $1 million from the prior year as higher net interest income was offset by lower other income, higher provision for loan losses and higher expenses.
Total loans ended the quarter at $70.3 billion, up 4% compared to the prior year. Credit card loans ended the quarter at $55.6 billion, up 4% from the prior year. Personal loans increased $469 million, or 9%, from the prior year. Relative to the prior year, private student loans increased $218 million, or 3%, and grew $772 million, or 15%, excluding purchased student loans.
Net interest income increased $121 million, or 7%, from the prior year, driven by loan growth and higher net interest margin. Net interest margin was 9.94%, up 24 basis points from the prior year. Card yield was 12.42%, an increase of 37 basis points from the prior year due to portfolio mix and the prime rate increase. Interest expense as a percent of total loans increased 11 basis points from the prior year primarily due to funding mix.
Other income decreased $62 million, or 13%, from the prior year driven primarily by the lack of mortgage origination revenue, as the prior year included $42 million in income related to the now discontinued mortgage operation. In addition, protection products revenue was lower by $10 million.
The personal loans net charge-off rate of 2.45% increased by 23 basis points from the prior year. The student loan net charge-off rate excluding purchased credit-impaired loans was 0.85%, down 18 basis points from the prior year.
Provision for loan losses of $423 million increased $35 million from the prior year primarily due to a larger reserve build. The reserve build for the first quarter of 2016 was $51 million, $23 million higher than the prior year reserve build primarily due to loan growth.
Expenses increased $23 million, or 3%, from the prior year mostly driven by higher regulatory and compliance costs. The prior year included $37 million in expenses related to the mortgage origination business that was subsequently closed. Professional fees increased primarily due to $30 million in look back related anti-money laundering remediation expenses. Employee compensation increased mostly due to higher staffing levels driven in part by regulatory and compliance activities.
Payment Services pretax income was $32 million in the quarter, up $5 million from the prior year as lower revenues were more than offset by expense reductions.
Payment Services transaction dollar volume was $45.0 billion, down 10% from the prior year.
PULSE transaction dollar volume was down 15% year-over-year due to the loss of volume from a large debit issuer. Network Partners volume was up $0.6 billion, or 21%, from the prior year driven by AribaPay volume.
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