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Last Update: 27-Sep-12 09:18 ET
Discover Financial Services shares spike 3% following better than expected earnings
Discover Financial Services (DFS $38.25 +1.23) reported third quarter earnings of $1.21 per share, $0.18 better than the Capital IQ consensus of $1.03, while revenues rose 6.3% year/year to $1.96 billion versus the $1.88 billion consensus. The company's return on equity was 28%. Total loans grew $5.1 billion, or 9%, from the prior year to $59.2 billion. Credit card loans grew $1.9 billion, or 4%, to $48.1 billion and Discover card sales volume increased 4% from the prior year. Credit card loans ended the quarter at $48.1 billion, up 4%, or $1.9 billion, from the prior year. Total loans ended the quarter at $59.2 billion, up $5.1 billion, or 9%, compared to the prior year. 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 from the prior year. Credit card loan delinquencies and net charge-offs reached historic lows with a delinquency rate for loans over 30 days past due of 1.81% and a net charge-off rate of 2.43%. Transaction volume for the segment was $50.3 billion in the quarter, an increase of 13% from the prior year. Net interest margin was 9.44%, up 18 basis points from the prior year. The increase in net interest margin from the prior year reflects decreased funding costs partially offset by lower total yield. Net interest income increased $133 million, or 11%, from the prior year, benefiting from loan growth and lower interest expense. This was partially offset by a decline in credit card and student loan yields. The reserve release for the third quarter of 2012 was $182 million reflecting the impact of a 43 basis point decline in the reserve rate from the prior quarter partially offset by additional reserves due to loan growth. The third quarter of 2011 included a reserve release of $359 million.
