Discover Financial Reports 30% Profit Increase in Q1

(Reuters) – U.S. credit card issuer Discover Financial reported a 30% rise in first-quarter profit on Wednesday, aided by a decrease in the company’s provision for credit losses and higher interest income.

Interest rates on credit card debt are significantly higher than those on mortgages and other loans, providing some insulation for consumer finance companies like Discover from a downturn in discretionary spending amid ongoing economic uncertainty.

Despite a low unemployment rate of 4.2% and a 3.8% annual wage growth reported in March, executives at large banks caution that U.S. consumer spending remains vulnerable to disruptions caused by the ongoing trade policy conflict.

Discover’s provision for credit losses declined 17% to $1.24 billion in the quarter ending March 31, compared to approximately $1.50 billion in the same period last year.

The company’s net interest income for the first quarter reached $3.56 billion, reflecting an increase of over 2% from the previous year’s first quarter. The net interest margin, a critical measure of profitability, improved by 115 basis points to 12.18%, helped by Discover’s sale of its student loan portfolio to Carlyle and KKR in July 2024.

In related news, Capital One Financial (NYSE:COF), which received U.S. banking regulators’ approval for its $35.3 billion all-stock deal to acquire Discover last week, also reported a notable increase in first-quarter profit, bolstered by higher interest income.

This acquisition, slated to close on May 18, will establish the largest U.S. credit card issuer by balance and grant Capital One control over Discover’s expansive card payment network, which ranks as the fourth significant payment network following Visa (NYSE:V), Mastercard (NYSE:MA), and American Express (NYSE:AXP).

Discover, based in Riverwoods, Illinois, reported a net income of $1.10 billion, or $4.25 per share, in the first quarter, compared to $813 million, or $3.25 per share, a year earlier.

Shares of Discover, which soared 54% in 2024, experienced a slight increase in after-hours trading.