Discover Financial's quarterly results blow past analysts' estimates as profits rise 2 pct

RIVERWOODS, Ill. – More loans and higher interest income helped lift Discover Financial Services’ first-quarter profit by 2 per cent. The credit-card company got another boost from more customers paying their loans on time: delinquent loans sank to an all-time low.

Discover said Tuesday that its profit after paying preferred dividends rose to $659 million, or $1.33 per share, for the three months ended March 31. That was up from $644 million, or $1.21 per share, in the same quarter last year.

Analysts, on average, expected $1.14 per share, according to FactSet.

The company’s shares touched an all-time high of $45.61 in early trading. The stock closed at $44.33 Tuesday, up 72 cents, or 1.7 per cent.

Revenue net of interest expense increased 10 per cent to $1.99 billion. The company credited growth of 10 per cent in its student and personal loans, as well as revenue from the mortgage business it acquired from Inc. last summer, along with falling funding costs.

Total loans increased 7 per cent to $60.4 billion. Credit card loans increased 5 per cent to $48.7 billion, while card sales volume increased 4 per cent to $24.9 billion.

The rate of card and loan payments that were past due by 30 days or more fell to 1.77 per cent. That’s down from 2.1 per cent in the first quarter of last year, and among the best in the industry. The company wrote off $287 million in uncollected card balances, down from $338 million last year.

Pre-tax income from the company’s direct banking business rose 3 per cent to $1 billion, while pre-tax income at its payment services business fell 2 per cent to $47 million, as higher professional fees and marketing expenses offset higher revenue.

Sales at U.S. retailers, which account for the bulk of Discover’s business, declined a seasonally adjusted 0.4 per cent in March. That followed a 1 per cent gain in February and a 0.1 per cent decline in January.

Still, that didn’t slow spending by holders of rival credit card issuers American Express and Capital One Financial.

Earlier this week, American Express said cardholder spending rose 6 per cent in the first three months of the year, while Capital One noted annual increases in revenue in its domestic card business.

Riverwoods, Ill.-based Discover, best known for its namesake credit card, is the sixth-largest U.S. credit-card issuer.