Provision for credit losses increased 72% from a year earlier to $4.07 billion, the McLean, Virginia-based lender said Tuesday in a [statement](https://archive.ph/o/LCeYh/https://www.bloomberg.com/news/terminal/TDV14C6Z7865). That’s more than the $3.81 billion average estimate of analysts surveyed by Bloomberg. Adjusted earnings per share of $4.42 also fell short of predictions.
RIP_Soulja_Slim on
>Provision for credit losses increased 72% from a year earlier to $4.07 billion, the McLean, Virginia-based lender said Tuesday in a statement.
Interestingly, this isn’t because of current defaults, it’s due to concerns over macro forces creating future default shifts.
From the earnings call:
>Turning to slide 4, I’ll cover the allowance in greater detail. The $230 million allowance build in the quarter brought the allowance balance to $23.6 billion. Our total portfolio coverage ratio increased 12 basis points and now stands at 5.28%. I’ll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5. In our domestic card segment, the allowance balance was flat at $18.8 billion. Favorable observed credit in the quarter was offset by greater consideration to downside economic scenarios related to heightened geopolitical uncertainty. The coverage ratio increased 23 basis points to 7.4%, largely driven by the paydown of fourth quarter seasonal balances. In our consumer banking segment, we built $155 million of allowance.
>The allowance build was primarily driven by strong growth in the auto business, a slightly higher subprime mix in that growth, and a modestly lower outlook for vehicle values. The coverage ratio ended the quarter at 2.36%, 13 basis points higher than the fourth quarter. Finally, in our commercial banking segment, we built $83 million of allowance. The allowance build was primarily driven by a very small number of specific reserves in our real estate portfolio, as well as a modest increase in our criticized rate. The commercial banking coverage ratio increased 7 basis points quarter-over-quarter to 1.7%. Turning to page 6, I’ll now discuss liquidity. Total liquidity reserves ended the first quarter at about $165 billion, up about $21 billion from the prior quarter. Our cash position increased by $19 billion and ended the quarter at approximately $76 billion.
>The increase was driven by continued strong deposit growth in our retail banking business and the paydown of seasonal card balances. Our preliminary average liquidity coverage ratio was 166%. Turning to page 7, I’ll cover our net interest margin. Our first quarter net interest margin was 7.87%, 39 basis points lower than the prior quarter. The decline was driven by several factors. First, 2 fewer days in the quarter drove 18 basis points of the decline. Second, we had the normal seasonal effect of lower average card balances. Third, average cash levels were elevated due to a combination of the typical seasonal increase, strong deposit growth in the quarter, and the full quarter impact of last quarter’s sale of the Discover Home Loans portfolio. Turning to slide 8, I will end by discussing our capital position.
For what it’s worth, actual delinquencies and charge offs among a number of consumer loans is down across the last year (Q1 data not out yet)
Canary in the coal mine. COF’s bread & butter are subprime customers and Discover is not gonna help them there.
My default position is to view mergers as a winner for who is being acquired (they get the premium) vis-a-vis the buyer who now is under pressure to justify the premium.
Their car loan business is also going to see weakness in the next couple of quarters and I don’t see how they are going to get any mileage out their AI investments. If anything, AI is more of a threat than an asset for financial firms.
I don’t think their bid to unseat Amex will payout anytime soon. Amex just has too many advantages there
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Non-paywall link: [https://archive.ph/LCeYh](https://archive.ph/LCeYh)
Provision for credit losses increased 72% from a year earlier to $4.07 billion, the McLean, Virginia-based lender said Tuesday in a [statement](https://archive.ph/o/LCeYh/https://www.bloomberg.com/news/terminal/TDV14C6Z7865). That’s more than the $3.81 billion average estimate of analysts surveyed by Bloomberg. Adjusted earnings per share of $4.42 also fell short of predictions.
>Provision for credit losses increased 72% from a year earlier to $4.07 billion, the McLean, Virginia-based lender said Tuesday in a statement.
Interestingly, this isn’t because of current defaults, it’s due to concerns over macro forces creating future default shifts.
From the earnings call:
>Turning to slide 4, I’ll cover the allowance in greater detail. The $230 million allowance build in the quarter brought the allowance balance to $23.6 billion. Our total portfolio coverage ratio increased 12 basis points and now stands at 5.28%. I’ll cover the drivers of the changes in allowance and coverage ratio by segment on slide 5. In our domestic card segment, the allowance balance was flat at $18.8 billion. Favorable observed credit in the quarter was offset by greater consideration to downside economic scenarios related to heightened geopolitical uncertainty. The coverage ratio increased 23 basis points to 7.4%, largely driven by the paydown of fourth quarter seasonal balances. In our consumer banking segment, we built $155 million of allowance.
>The allowance build was primarily driven by strong growth in the auto business, a slightly higher subprime mix in that growth, and a modestly lower outlook for vehicle values. The coverage ratio ended the quarter at 2.36%, 13 basis points higher than the fourth quarter. Finally, in our commercial banking segment, we built $83 million of allowance. The allowance build was primarily driven by a very small number of specific reserves in our real estate portfolio, as well as a modest increase in our criticized rate. The commercial banking coverage ratio increased 7 basis points quarter-over-quarter to 1.7%. Turning to page 6, I’ll now discuss liquidity. Total liquidity reserves ended the first quarter at about $165 billion, up about $21 billion from the prior quarter. Our cash position increased by $19 billion and ended the quarter at approximately $76 billion.
>The increase was driven by continued strong deposit growth in our retail banking business and the paydown of seasonal card balances. Our preliminary average liquidity coverage ratio was 166%. Turning to page 7, I’ll cover our net interest margin. Our first quarter net interest margin was 7.87%, 39 basis points lower than the prior quarter. The decline was driven by several factors. First, 2 fewer days in the quarter drove 18 basis points of the decline. Second, we had the normal seasonal effect of lower average card balances. Third, average cash levels were elevated due to a combination of the typical seasonal increase, strong deposit growth in the quarter, and the full quarter impact of last quarter’s sale of the Discover Home Loans portfolio. Turning to slide 8, I will end by discussing our capital position.
For what it’s worth, actual delinquencies and charge offs among a number of consumer loans is down across the last year (Q1 data not out yet)
Credit cards: https://fred.stlouisfed.org/series/DRCCLACBS
Consumer loans: https://fred.stlouisfed.org/series/DRCLACBS
Mortgages: https://fred.stlouisfed.org/series/DRSFRMACBS
Fed Consumer credit report: https://www.newyorkfed.org/medialibrary/interactives/householdcredit/data/pdf/HHDC_2025Q4
Canary in the coal mine. COF’s bread & butter are subprime customers and Discover is not gonna help them there.
My default position is to view mergers as a winner for who is being acquired (they get the premium) vis-a-vis the buyer who now is under pressure to justify the premium.
Their car loan business is also going to see weakness in the next couple of quarters and I don’t see how they are going to get any mileage out their AI investments. If anything, AI is more of a threat than an asset for financial firms.
I don’t think their bid to unseat Amex will payout anytime soon. Amex just has too many advantages there