Credit Commentary

Discover Financial Services Earnings release

By Administrator on Tuesday, April 28 2009

Discover Financial Services (NYSE: DFS) reported results for the quarter ended Feb. 28, 2009, Net income for the first quarter of 2009 was $120 million, up from $81 million in the first quarter of 2008. Net income for the first quarter of 2009 includes approximately $297 million (after-tax) related to the Visa/MasterCard antitrust litigation settlement. Discontinued operations relates to the sale of the Goldfish business in March 2008

Managed loans ended the quarter at $51 billion, essentially unchanged from the prior quarter and up 7% from the prior year, reflecting lower card member payments and growth in both personal and student loans, partially offset by decreased consumer spending and a 17% reduction in balance transfer activity. Sales volume decreased 8% versus the first quarter of 2008 reflecting lower gas prices and a decrease in overall consumer spending.

Net yield on loan receivables rose to 9.11%, an increase of 56 basis points from the prior quarter, and 102 basis points from the prior year benefiting from lower cost of funds, accretion of balance transfer fees and a reduction in promotional rate balances, partially offset by higher interest charge-offs and lower yields on variable rate assets.

Delinquencies and charge-offs rose as the deteriorating economic environment and higher unemployment rate continued to put pressure on card members. The over 30 days delinquency rate on managed loans was 5.25%, up 69 basis points from the fourth quarter of 2008 and 135 basis points from the prior year. The managed net charge-off rate increased to 6.48% for the first quarter of 2009, up 100 basis points and 215 basis points from the prior quarter and the prior year, respectively.