Discover Lowers Provision for Credit Losses Amid ‘Positive Credit Trends’

Positive credit trends contributed to “solid first quarter financial performance” at Discover Financial Services, Discover Interim CEO and President Michael Shepherd said in a Wednesday (April 23) earnings release.

The digital banking and payment services company saw its net income leap 30% year over year in the first quarter to reach $1.1 billion, according to the release.

Shepherd said Discover’s financial performance benefited from “strong net interest margin and positive credit trends.”

The company’s net interest margin rose by 115 basis points compared with the previous year and reached 12.18%, according to the release.

The rise in net interest margin was “primarily driven by lower funding costs,” according to a presentation released Wednesday.

Discover’s good credit performance was highlighted by a reserve release and lower net charge-offs, per the presentation.

The company’s provision for credit losses decreased $253 million from the same quarter last year, dropping to $1.2 billion, according to the earnings release. This was enabled by a $190 million favorable reserve change and a $97 million decrease in net charge-offs.

Credit card net charge-offs and delinquency rates improved year over year, according to the presentation. Personal loan net charge-offs were up year over year, but were stable quarter over quarter, as were delinquencies.

“Total loan net charge-offs were in line with expectations; delinquencies reflect a downward trend,” the presentation said.

This earnings release came days after the Friday (April 18) announcement that Capital One received the regulatory approvals necessary to complete the merger with Discover and that the merger is now expected to close around May 18, subject to customary closing conditions.

“These results reflect our good execution and the strength of our business model,” Shepherd said in the release. “We are pleased that Capital One has received all required approvals and look forward to completing our merger.”

The companies said Friday that they received approvals from the Federal Reserve Board and the Office of the Comptroller of the Currency, meaning they had received all required regulatory approvals for the proposed acquisition.

Capital One CEO Richard Fairbank said Tuesday (April 22) that the combined entity will create a “leading consumer banking and payments platform.”