Discover Financial Services' (DFS) fiscal third-quarter profit dropped 74% following a year-earlier legal gain, but earnings handily topped analysts' expectations as loan problems eased notably from the spring.
Shares were up 3.5% in recent premarket trading
Discover, both a lender to cardholders and a processor of transactions, continued to benefit from falling delinquencies and lower loan-loss provisions. Card-sales volume rose for the fourth-straight quarter. Meanwhile, the industry faces increased consumer protective measures, including rules cutting late-payment fees that could cut issuers' revenue by billions annually.
Friday, the company agreed to acquire private student-loan operations of Student Loan Corp. (STU) for $600 million and $4.2 billion of the company's assets for 91.5 cents on the dollar. The company has been ramping up its business in personal and private student loans, seeking revenue growth.
For the quarter ended Aug. 31, Discover posted a profit of $260.6 million, or 47 cents a share, down from $577.5 million, or $1.07 a share, a year earlier, which included an 82-cent gain from its antitrust deal with Visa Inc. (V) and MasterCard Inc. (MA).
Analysts polled by Thomson Reuters most recently predicted earnings of 38 cents for the latest quarter.
Discover's card business saw profit jump 81% as card-sales volume rose 5%. Net charge-offs, or loans the company doesn't expect to collect, dropped to a better-than-expected 7.18% from 8.4% a year earlier and 7.97% in the prior quarter. Delinquencies of 30 days or more were 4.16%, down from 5.11% a year earlier and 4.52% in the second quarter.
Provision for loan losses dropped on an adjusted basis to $712.6 million from $1.09 billion and $724.3 million, respectively.
Last month, fellow lender-and-processor American Express Co. (AXP) said its latest-quarter earnings nearly tripled as customers increased spending by 16%.
-By Matt Jarzemsky, Dow Jones Newswires; 212-416-2240; email@example.com