Discover Financial profit jumps on lower loss provision and higher interest income

April 23 (Reuters) - U.S. credit card issuer Discover Financial DFS.N reported a 30% rise in first-quarter profit on Wednesday, helped by a drop in the company's provision for credit losses and higher interest income.

Interest rates on credit card debt are significantly higher than those on mortgages and other loans, shielding consumer finance companies like Discover from pullback on discretionary spending amid economic uncertainty.

While a low unemployment rate of 4.2% and a 3.8% annual wage growth in March offered some relief, executives of large banks have warned that U.S. consumer spending faces huge risks if the upheaval sparked by the tit-for-tat trade policy persists.

Discover's provision for credit losses fell 17% to $1.24 billion in the quarter ended March 31 from about $1.50 billion in the year-ago period.

The company reported net interest income of $3.56 billion for the first quarter, up over 2% from the same quarter last year. Net interest margin, a key gauge of profitability, expanded 115 basis points to 12.18% helped by Discover's sale of its student loan portfolio to Carlyle CG.O and KKR KKR.N in July 2024, the company said.

Capital One Financial COF.N, whose $35.3 billion all-stock deal to acquire Discover was approved by U.S. banking regulators last week, also recorded a jump in first-quarter profit on Tuesday, helped by higher interest income.

The deal, which is set to close on May 18, will create the biggest U.S. credit card issuer by balance. It will also give Capital One control of Discover's extensive card payment network, the fourth major payment network after Visa V.N, Mastercard MA.N and American Express AXP.N.

Riverwoods, Illinois-based Discover reported a net income of $1.10 billion, or $4.25 per share, in the first quarter, compared to $813 million, or $3.25 per share, in the year-ago period.

Shares of the company, which jumped 54% in 2024, were up marginally in trading after the bell.