Earnings

Discover Books Q1 Profit Gain, Touts Checking Product

Discover Financial Services posted a double-digit growth in payment services transactions in the first quarter of 2018, as its leadership reported early success from a new checking-and-rewards product.

On Thursday (April 26), Discover reported an 18 percent year-over-year net income increase for the first quarter of 2018, to $666 million. The company also posted a per-share profit of $1.82, which beat the Zacks Investment Research consensus of $1.77.

Revenue in the first quarter hit $2.58 billion, up 10 percent from the same period last year — also beating the Zacks estimate of $2.56 billion.

During the post-earnings conference call, Discover CEO and chairman David Nelms said the company has had success in attracting customers to its checking account rewards program that launched earlier this year, which offers 1 percent cash back on up to $3,000 in qualifying debit card purchases each month.

Discover leadership offered no figures about that product during the call, but Nelms said it “has received a positive response from the market, especially from millennials” and consumers who had never before had a relationship with Discover. The company has promoted the product only minimally since its launch, but plans to boost marketing in the second half of 2018, though Nelms said that would likely not include television. He said that Discover hopes to turn the product into a “franchise.”

Higher marketing costs, in fact, helped to fuel an $83 million year-over-year increase in expenses, to $968 million, up 9.4 percent from the same period last year. “Higher average salaries and higher account acquisition costs” also contributed to the growth in expenses, said chief financial officer R. Mark Graf.

Other metrics showed that Discover loans at the end of the first quarter were 9 percent higher year over year, standing at $82.7 billion. Credit card loans were at $65.6 billion, a 10 percent year-over-year increase. Net interest income increased by 11 percent year over year.

The credit card net charge-off rate increased 48 basis points year over year, to 3.3 percent. The delinquency rate for credit card loans more than 30 days past due, meanwhile, grew by 27 basis points, to 2.3 percent.

Payment Services transaction dollar volume was $56.1 billion, up 19% from the prior year.

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