Discover Financial Services reported higher loan growth in its flagship credit card business during the first quarter, reversing a trend that the company's leaders had vowed to address.
The Riverwoods, Ill., company reported 4% growth in its $55.6 billion card portfolio, on its way to $575 million in net income. Overall, quarterly net income fell 1.5% from the same period a year ago, due partly to increased expenses related to its rewards programs and a higher loan-loss provision. However, earnings per share rose 5.4% year over year, to $1.35.
Though Discover's credit card portfolio has been increasing, the rate of growth had declined for five consecutive quarters. Near the start of this year, the company said that it was taking steps to accelerate card loan growth while remaining disciplined with respect to credit quality.
-
Discover Financial Services reported a slowdown in growth in its credit card business but vowed to take steps to reverse the trend.
January 27 -
The Secured It Card requires a security deposit but also offers cash-back rewards and other perks normally associated with Discover's traditional cards.
January 24 -
Following a new blueprint, card issuers are seeing returns on assets above 4% for the first time since before the financial crisis. How long the good times last will depend partly on how well the U.S. economy weathers turmoil in China and other markets.
January 11
Chief Executive David Nelms said in a press release Tuesday, "We made progress on our priorities this quarter, most notably accelerating loan growth into our target range."
Total loans grew by 3.9% in the first quarter to $70.3 billion, the company reported. That improvement was led by a 9% increase in personal loans.
Discover's net interest income rose by 7% to $1.75 billion. Its net interest margin increased 24 basis points to 9.94%.
Other income — a category that includes both swipe-fee revenue and reward payments to card holders — fell by 14% to $474 million.
Discover's net principal chargeoff rate fell by 3 basis points to 2.14%. The company built its loan-loss reserve by $52 million, a move that it attributed primarily to loan growth.
Expenses in Discover's direct banking segment rose by 3% as a result of higher regulatory and compliance costs, the company said.