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Discover Financial Services (DFS) 4Q Earnings Rise 7.4 Pct, Yet Miss Estimates

 December 20, 2012 10:14 AM

(By Balaseshan) Discover Financial Services (NYSE: DFS), a direct banking and payment services company, reported a 7.4% increase in quarterly earnings helped by improvements in credit performance, solid organic growth and strong volume growth across its networks.

Earnings for the fourth quarter were $551 million or $1.07 per share, up from $513 million or $0.95 per share last year.

Revenue net of interest expense grew to $1.99 billion from $1.81 billion.

Analysts, on average, polled by Thomson Reuters had expected a profit of $1.13 per share on revenue of $1.97 billion for the fourth quarter.

Discover card sales volume grew 6% to $26.5 billion, primarily driven by an increase in the number of customers using their Discover card. Credit card loans ending the quarter at $49.6 billion, up 6% from last year.

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The delinquency rate for credit card loans over 30 days past due rose 53 basis points to 1.86%, while the credit card net charge-off rate declined 95 basis points to 2.29%.

Total loans grew 6% to $61.0 billion. Private student loans increased $426 million, while personal loans increased $624 million.

Net interest margin increased 34 basis points to 9.44%, reflects decreased funding costs partially offset by lower total yield. Credit card yield fell 20 basis points to 12.16%, due to an increase in promotional rate balances and a decline in higher rate balances, partially offset by lower interest charge-offs.

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Revenue from payment services increased $8 million, primarily driven by an increase in point-of-sale transactions on the PULSE network.

Payment Services dollar volume was $49.0 billion for the fourth quarter, up 13% from the prior year, driven by higher PULSE and Network Partners volume.

The company's board declared a quarterly cash dividend of $0.14 per share of common stock, payable on Jan. 17, 2013, to stockholders of record at the close of business on Jan. 3, 2013.

DFS is trading down 2.69% at $38.70 on Thursday. The stock has been trading between $23.75 and $42.08 for the past 52 weeks.

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