By Tess Stynes
Discover Financial Services' (DFS) third-quarter earnings fell
6.9% as the company set aside more money to cover potential loan
losses, though the company's credit-card business continued to see
growth in loans and a drop in deliquencies.
Shares were down 6.2% at $50.40 in recent after-hours trading
Monday. Through the close, the stock is up 39% this year.
In the latest quarter, Discover recorded a loan-loss provision
of $333 million, up from $136 million a year earlier and from $240
million in the previous quarter. The latest period included a $42
million increase in loan-loss reserves, while the year-earlier
period included a reserve release of $167 million.
Discover, the sixth-largest U.S. credit-card lender, has
outpaced larger competitors such as American Express Co. (AXP) and
J.P. Morgan Chase & Co. (JPM) in terms of loan growth.
To augment its credit-card business, Discover has ventured into
other areas of consumer lending, including student loans and
mortgages, which the company said helped aid revenue growth in the
most recent quarter. In the latest quarter the company also began
offering home-equity loans.
Discover reported a profit of $593 million, or $1.20 a share,
down from $637 million, or $1.24 a share, a year earlier. The
year-earlier period included a $26 million gain on sale of a
minority investment. Revenue net of interest expenses increased
2.8% to $2.06 billion thanks to loan growth and lower funding
costs.
Analysts polled by Thomson Reuters recently expected earnings of
$1.21 a share and revenue of $2.07 billion.
The company ended the quarter with $50.4 billion in credit-card
loans, an increase of 4% from a year earlier as sales volume on its
proprietary Discover Card increased 3%. Credit-card delinquencies
of more than 30 days were 1.67% compared with 1.81% a year earlier
and a record low of 1.58% during the second quarter.
Total loans rose 5.2% to $62.7 billion from a year earlier.
Private student loans increased 5%, while personal loans were up
26%.
Write to Tess Stynes at tess.stynes@wsj.com
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