By Kristin Jones
Discover Financial Services' (DFS) fiscal second-quarter profit
rose 13% as the credit-card company was helped by on-time payments
and strong loan growth.
Discover has benefited in recent quarters from fewer late
credit-card payments, allowing it to boost its earnings and set
aside more for future losses.
In the latest quarter, the delinquency rate for credit card
loans over 30 days past due reached a record low of 1.58%, from
1.85% a year ago and from 1.77% in the prior quarter.
Discover, the sixth-largest U.S. credit-card issuer, has also
been expanding to other areas of consumer finance, including
student lending, personal loans and mortgage finance.
Chief Executive David Nelms on Tuesday noted that growth in
direct banking and improving credit trends helped offset a loss in
the payment services business. The company had expected a
second-quarter charge related to its Diners Club International
Business, a payments network. The charge is tied to the Slovenian
government's revoking the license for the franchise there, and
Discover's acquiring the operator of the Italian franchise.
Overall, Discover reported a profit of $588 million, or $1.20 a
share, up from $520 million, or 99 cents a share, a year ago.
Revenue including interest expenses rose 9.4% to $2.04 billion.
Net principal charge-offs, or loans the company doesn't expect
to collect, were $17 million lower than a year ago due to the
decline in delinquencies and bankruptcies.
Provisions for loan losses reached $240 million, down from $262
million a year ago, but up from $159 million in the prior
quarter.
Total loans grew about 6% from the prior year to $61.7
billion.
The net interest margin widened to 9.44%, from 9.28% in the
prior year, reflecting lower funding costs, partially offset by
lower loan yield. Credit card yield was 11.97%, down from 12.21% a
year ago.
Shares rose 11 cents to $50.82 in after-hours trading. Through
the close, the stock was up 32% since the start of the year.
Write to Kristin Jones at kristin.jones@dowjones.com
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