Discover CFO: Cautious Consumers Cause Slide in Card Volume

Discover Financial Service’s third-quarter earnings results offered evidence that an acquisition by Capital One is on track.

As for the state of the consumer, caution abounds, and many households are looking for ways to consolidate debt.

Interim CEO Michael Shepherd said on an earnings call that “Capital One continues to lead merger-related activities … with applications currently under regulatory review. Integration planning is advancing well.”

Payments volumes were down 4%, reflecting a slowdown in Discover card sales, at $55.2 billion overall, according to an earnings presentation. PULSE volumes were up 14%, to $82.6 billion, driven by an increase in debit transaction volumes.

Chief Financial Officer John Greene said during the call that card receivables were up 3% year over year due to a lower payment rate. That metric was offset by the decrease in sales volume. Payment rates were down 1% from last year but remained 0.7% above pre-pandemic levels.

The slide in card sales was tied to “cautious consumer behavior” and Discover’s own credit-tightening actions, Greene said on the call.

“We expect these dynamics to persist for the remainder of the year,” said Greene, who repeated later that consumers were “stable yet cautious.”

He added that “households are contending with inflation and the impact on everyday living expenses. Spend per card member is returning to a more normal level. Slower, stable spending indicates that households have adjusted spending patterns to manage their budgets, which is beneficial from a credit standpoint.”

Greene also noted on the call that personal loans were up 9% year over year as the company continues to see “strong demand from consumers seeking debt consolidation.”

In reference to credit performance, total company-wide charge-offs were about 4.9%, 1.3% higher than a year ago. On the card side of the business, net charge-offs were down 0.3% quarter over quarter, and delinquencies were in line with seasonal trends.

The credit card net charge-off rate was 5.28%. The company noted that the 30+ day delinquency rate for credit card loans was 3.84%, up 0.43% year over year. The personal loan net charge-off rate of 4.01% was up 1.4% basis points from the prior year.

Greene added that the company is tightening its expectations for net charge-offs to 4.9% to 5%, where that assumption was previously 4.9% to 5.2%. Loan growth, which was expected to be down low-single-digit percentage points, is now expected to be down low- to mid-single-digit percentages.

The call did not feature a question-and-answer session with analysts.

Shares of Discover were up 2% in intraday trading Thursday.

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