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July 22, 2020

Discover Q220 slips to a net loss of $368m

By Douglas Blakey

Discover Q220 net loss of $368m compares to net income of $753m in the year ago quarter. The three months to end June 2020 includes a $1.3bn addition to the allowance for credit losses.

“Given the unprecedented environment, I am pleased with our execution this quarter,” says Roger Hochschild, CEO and President of Discover.

“The increase in reserves reflects economic deterioration since the first quarter and we continue to be conservative in credit management. We are also remaining disciplined in expense management but continuing the investments in capabilities that will allow us to return to growth once the economic outlook improves.”

Discover Q220 direct banking key metrics

The Discover direct banking unit posts a pre-tax loss of $484m for the second quarter. This is down $1.4bn from the year ago quarter, driven by an increase in the provision for credit losses. At the same time, lower net interest income is partially offset by lower operating expenses.

Total loans end the quarter at $88.9bn, down 1% year-over-year. Credit card loans end the quarter at $70.2bn, down 3% y-o-y with personal loans down by 1% y-o-y.

Net interest income for the quarter falls by 6% y-o-y, primarily driven by net interest margin compression. The net interest margin of 9.81% is down 66 basis points versus the prior year period. Meantime, card yield of 12.34% represents a decline of 110 basis points from the prior year period. This is primarily driven by prime rate decreases partially offset by favourable portfolio mix.

Credit card net charge-off rate rises by 41 basis points

The credit card net charge-off rate of 3.90% is up 41 basis points from the prior year and up 25 basis points from the prior quarter. On the other hand, the 30+ day delinquency rate for credit card loans of 2.17% is down 17 basis points y-o-y and down 45 basis points from the prior quarter.

Payment Services pre-tax income of $23m in the quarter is down $23m year-over-year. Payment Services volume rises by 4% y-o-y to $64.5bn. Notably, PULSE dollar volume is up 12% year-over-year. This is driven by higher average spend per transaction related to the pandemic, the impact of stimulus funds available to consumers and growth in e-commerce transactions. Network Partners volume increases by 22% year-over-year driven by AribaPay.

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