(By Balaseshan) Discover Financial Services (NYSE:DFS), a direct banking and payment services company, reported better-than-expected quarterly earnings helped by improvements in credit performance, solid organic growth and strong volume growth across its networks.
Earnings for the third quarter were $621 million or $1.21per share, compared to $642 million or $1.18 per share last year.
Revenue net of interest expense grew to $1.96 billion from $1.79 billion.
Analysts, on average, polled by Thomson Reuters had expected a profit of $1.04 per share on revenue of $1.90 billion for the third quarter.
Discover card sales volume grew 4% to $27.2 billion, primarily driven by an increase in the number of customers using their Discover card. Credit card loans increased, ending the quarter at $48.1 billion, up $1.9 billion from last year.
The delinquency rate for credit card loans over 30 days past due rose 62 basis points to 1.81%, while the credit card net charge-off rate declined 142 basis points to 2.43%.
Total loans grew 9% to $59.2 billion. Private student loans increased $2.9 billion, including the acquisition of a $2.4 billion student loan portfolio in the fourth quarter of 2011. Personal loans increased $675 million.
Net interest margin increased 18 basis points to 9.44%, reflects decreased funding costs partially offset by lower total yield. Credit card yield fell 19 basis points to 12.27%, due to a decline in higher rate balances and an increase in promotional rate balances, partially offset by lower interest charge-offs.
Revenue from payment services increased $17 million, primarily driven by an increase in higher margin point-of-sale transactions on the PULSE network.
Payment Services dollar volume was $50.3 billion for the first quarter, up 13% from the prior year, driven by higher PULSE and third-party issuer volume.
DFS is trading up 3.62% at $38.36 on Thursday. The stock has been trading between $21.44 and $39.64 for the past 52 weeks.