Discover’s revenue jumps, but so do charge-offs and delinquencies

Delinquencies, which are on the rise across financial services, clouded an otherwise solid quarter for Discover Financial Services.

Discover said fourth-quarter profit rose 78 percent from a year earlier to $687 million, or $2.03 per share. That year-over-year comparison was affected by an $189 million charge from tax expenses in the fourth quarter of 2017.

Still, the latest earnings per share fell 3 cents short of the mean estimate of analysts tracked by FactSet Research Systems.

Andrew Harrer/Bloomberg

Revenue was $2.8 billion, up from $2.6 billion in 2017 and consistent with analysts’ expectations.

Discover reported 30-day delinquencies for credit cards were 2.43 percent, up 15 basis points from the prior year and 11 basis points from the prior quarter.

The credit card charge-off rate was 3.23 percent, up 20 basis points from 2017 and 9 basis points from the prior quarter. The net charge-off rate for personal loans increased to 4.49 percent, up 87 basis points from the prior year.

Excluding purchased credit-impaired loans, student loan net charge-offs were 1.05 percent, down 29 basis points from the prior year.

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It was the second consecutive quarter Discover reported a softening in credit quality, amid a general increase in household delinquencies, including credit cards. However, the American Bankers Association says delinquencies remain low by historical norms.

Discover, of Riverwoods, Ill., attributed the uptick in charge-off rates to supply-driven credit normalization and the “seasoning” of loans made in recent years, which saw strong growth.

“For the full year, our results were characterized by robust returns even as credit normalization continued, and our ongoing investments in technology and global merchant acceptance will enhance customer experience, scale and overall performance,” President and CEO Roger Hochschild said in a news release Thursday.

Hochschild recently succeeded longtime Discover CEO David Nelms. Hochschild takes charge at a time when companies such as Amazon, Walmart and Square are adding more financial services. Hochschild has taken a noncombative posture toward Amazon in particular, saying it’s more of a partner than a competitor.

Discover has also evolved from being a fast adopter of mobile technology to taking a more incremental approach that studies user trends and demand.