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Executives at Discover Financial Services Inc. early Thursday cut short their first-quarter 2024 earnings call, saying in advance they would not take questions after the presentation. Instead, equity analysts listening to the presentation were told to direct questions to Discover’s investor-relations team. On the call, executives duly reported a significant drop in net income but bypassed any discussion of Discover’s pending merger with Capital One Financial Services.
The 20-minute call, Discover’s first since the Feb. 19 announcement of its blockbuster agreement to merge with Capital One, focused solely on the company’s quarterly financial results. Discover noted repeatedly during the call that its results were impacted by its ongoing efforts to correct a previously disclosed misclassification of certain cards into higher-rate tiers, a problem that dated back to 2007.
For the quarter ended March 31, 2024, Discover reported net income of $308 million, down from $968 million in the same period a year ago, a 66% decline. The decline was attributed in large part to Discover’s efforts to remedy the transaction-overcharge blunder, the company said.
“Our first-quarter results showed good loan growth, net interest margin expansion, and stabilizing delinquencies, while expenses were elevated due to our action to advance the resolution of our card-misclassification issue,” J. Michael Shepherd, Discover’s interim chief executive and president, said in a statement. Shepherd joined Discover’s board in August.
“These results underscore the continued strength of our underlying operating model and our focus on enhancing our risk management and compliance foundation,” added Shepherd, who took the helm from Michael Rhodes earlier this month.
Rhodes late in March announced his departure from Discover, effective April 1. Rhodes, who was appointed to the post in December by the Discover board of directors, will take the helm of Ally Financial later this month. Rhodes succeeded interim CEO John Owen, who took the helm in August following the departure of long-time CEO Roger Hochschild.
Discover’s total net chargeoff rate for the quarter was 4.92%, up 220 basis points from the same period a year earlier. Discover attributed the increase to the “continued seasoning of recent vintages with higher delinquency trends.”
Credit card net chargeoff rates were 5.66%, up 256 basis points from the prior year and up 98 basis points from the prior quarter. The 30-day-plus delinquency rate for credit card loans was 3.83%, up 107 basis points year-over-year and down 4 basis points from the prior quarter.
Discover’s Payment Services division, which includes the Pulse debit network, posted pretax income of $82 million, up $35 million from the same period a year ago. The rise was driven in part by Pulse’s increased revenue for the quarter, the company said.
Payment Services posted volume of $100.3 billion, up 18% from a year earlier. Pulse’s dollar volume increased 21%, primarily driven by increased debit-transaction volume, Discover said. Volume for Diners Club, Discover’s travel-and-entertainment card brand, increased 11% for the quarter from a year ago. Network Partners volume increased 4% from the prior year, primarily reflecting higher AribaPay volume, the company added.
With Discover executives opting not to field questions, little was said about the pending $35.3-billion merger with Capital One, which is undergoing regulatory scrutiny.
“We look forward to our merger with Capital One, which will create a leading banking and payments organization, grounded on commitment to an outstanding customer experience and the communities we serve,” Shepherd said in a statement.
