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Tough competition for loans and ever-stronger credit quality has Discover CEO David Nelms considering a move down the credit spectrum toward more subprime consumers.
July 23 -
Discover Financial Services in Riverwoods, Ill., continued its run of quarterly profit declines in the second quarter, due primarily to higher costs for compliance, marketing and customer rewards.
July 22 -
Discover Financial Services has entered into a written agreement with the Federal Reserve to improve its anti-money laundering procedures.
May 28
Profits at Discover Financial Services fell for the fourth consecutive quarter amid higher compliance expenses and rising funding costs.
The Riverwoods, Ill., lender reported net income of $612 million in the third quarter, which was down 5% from the same period a year earlier. Earnings per share were $1.38, or five cents higher than the consensus estimate of analysts.
Discover's expenses rose by $62 million from the third quarter of 2014. The company said in a press release Tuesday that the increase was mostly driven by higher costs related to regulatory compliance.
Discover spent $28 million on what it described as remediation expenses related to its anti-money-laundering procedures. The Federal Reserve Board in May ordered Discover to
While the firm saw its net interest income rise by 3% from a year earlier, its net interest margin fell by 16 basis points to 9.63%. Discover said that an increase in funding costs — interest expenses as a percentage of total loans rose by 13 basis points — was primarily to blame.
The company's total loans grew by 4.1% to $70.1 billion in the third quarter. Helping to fuel the loan growth was a 12.3% increase in the size of Discover's personal loan portfolio. The firm's flagship credit card business also grew, but at a slower rate, rising by 3.6% compared with the third quarter of 2014. "While total loan growth slowed slightly due to consumer spending levels, it remained solid," Discover Chief Executive David Nelms said in the press release.
Discover also pointed out that the sales volume on its credit cards, which rose 2.6% from the same period a year earlier, rose by 7% excluding gasoline sales. Gas sales have been hurt by slumping oil prices.
Discover's provision for loan losses was down by $24 million in the third quarter, compared with a year earlier. The company said that net chargeoffs were flat year over year.
