On Monday, Discover Financial Services (DFS) declared its credit card charge-offs for the month of August 2011, through a regulatory filing. The company recorded a total charge-off of only $50.8 million, or 3.6% of balances on an annualized basis, down from $54.4 million or 3.83% in July 2011. This is the lowest figure since the beginning of the economic recession a couple of years ago.
The credit card defaults of Discover have been steadily improving over the past six months, leading to a gradual decline in the charge-off rate. Credit card companies write off loans if they are six months past the due date.
In July, the company’s charge-off rate had gone below 4% for the first time since the economic recession. On the other hand, the highest charge-off rate ever experienced by Discover was 9.11% in February 2010. Currently the company has one of the lowest charge-off rates in the card industry and competes with other card companies like MasterCard Incorporated (MA) and Visa Inc. (V).
The delinquency rate, i.e. the rate of delay in payments by 30 days or more, also hit the lowest since the recession in August 2011. The figure declined to 2.49% of balances on an annualized basis in August from 2.6% in July 2011.
The declining defaults are a result of the improving financial situation of US citizens. As they are gradually recovering from the after-effects of recession, they are trying to reduce their credit card debts. As per the figures provided by the Federal Reserve, total card debt has declined by 17% since 2008. Apart from the payments made by card holders, the figure also includes the write-offs made by card companies, amounting to $75 billion.
Currently Discover carries a Zacks #2 Rank, implying a Buy rating for the short term. The company is scheduled to release its earnings before the market opens on September 22, 2011.
On Tuesday, the shares of Discover closed at $25.08, up 0.20%, on the New York Stock Exchange.
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