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Discover Financial's profit falls 8 percent in 3Q


October 21. 2013 5:37PM
Associated Press



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(AP) Discover Financial Services' net income fell 8 percent in the third quarter, as the lender set aside more funds to cover potential loan losses.


The credit card issuer also said Monday that sales volume for its namesake credit card rose 3 percent to about $28 billion in the July-September period versus a year earlier, while card loans rose 4 percent to $50.4 billion. Overall loans increased 5 percent to $62.7 billion in the quarter, which coincides with the annual back-to-school spending season.


Even so, the Riverwoods, Ill.-based company's latest earnings just missed Wall Street expectations, and shares dropped about 2 percent in after-market trading Monday.


Credit card issuers such as Discover typically benefit from an improving economy and increasing consumer spending. When cardholders charge more on their Discover cards, the company earns even more in interest income and a variety of fees.


Between January and August, the most recent figures available, the economy added an average of 180,250 jobs a month. Unemployment, meanwhile, was 7.3 percent in August, down from 7.9 percent in January.


Last week, American Express and Capital One Financial each reported increased spending by cardholders.


For the three months ended Sept. 30, Discover said that it posted a profit after paying preferred dividends of $579 million, or $1.20 per share, in the three months ended Sept. 30.


That compares with net income of $631 million, or $1.24 per share, in the same months a year earlier.


Revenue net of interest expense rose 3 percent to $2.06 billion.


Analysts polled by FactSet expected earnings of $1.21 per share on $2.06 billion in revenue.


The latest quarter included a provision for potential loan losses of $333 million, up from $136 million a year earlier.


Income from interest grew to $1.79 billion from $1.71 billion.


In the company's payments services business, which competes with Visa and MasterCard, revenue dropped 11 percent.


Shares in Discover ended regular trading down 21 cents at $53.74. The stock fell 2.3 percent to $52.50 in extended trading.


Associated Press


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