Discover Financial Services (DFS) Thursday reported that its second-quarter profit more than doubled from last year, reflecting lower provision for credit losses as well as improved credit performance. Quarterly results topped market projections. The Riverwoods, Illinois-based electronic payment services company said it expects to continue to achieve profitable growth in all of lending businesses.
Net income allocated to common stockholders surged to $593 million from $185 million in the previous year. On a per share basis, profit was $1.09, higher than $0.33 in the previous year.
On average, 19 analysts polled by Thomson Reuters expected the company to report a profit of $0.70 per share. Analysts' estimates typically exclude special items.
Quarterly net profit also increased from $459 million or $0.84 per share generated in the preceding first quarter.
For the second quarter, Direct Banking pretax income was $883 million, significantly higher than prior year's $386 million. Payment Services' income grew 19 percent, driven principally by higher revenues partially offset by increase in expenses.
Quarterly net revenues increased to $1.74 billion from $1.66 billion a year ago, beating Wall Street analysts' consensus estimate of $1.70 billion.
Chairman and Chief Executive Officer David Nelms stated, "Our all-time record results this quarter reflect the effectiveness of the Discover business model. Sustained improvements in credit performance have driven substantial releases of credit loss reserves, a portion of which has been reinvested for growth."
Net interest income rose to $1.19 billion from $1.15 billion in the previous year, primarily driven by an increase in loan balances related to the student loan acquisition and lower funding related costs. However, this was partly offset by a decrease in interest income on credit cards reflecting the lower yield, the company said.
Meanwhile, net interest margin was 9.15 percent, relatively unchanged from the prior year.
The increase in Payment Services revenue was driven by a 25 percent increase in transactions on the PULSE network and higher margins.
For the period, provision for loan losses plunged 76 percent to $176 million from $724 million last year, boosted by lower charge-offs and a reduction in the allowance for loan losses.
Total Discover card volume grew 11 percent to $26.93 billion, and card sales volume increased 9 percent to $24.84 billion.
Total loans were $52.5 billion, up 5 percent from the prior year, while credit card loans declined 1 percent.
Looking ahead, Nelms said, "While the U.S. economy has yet to show significant strengthening, we are confident that we can continue to achieve profitable growth in all of our lending businesses, complemented by the contribution from our payments activities."
DFS is currently trading at $23.81, up $0.22 or 0.93 percent. In the past 52 weeks, shares have traded between $13.33 and $25.76.
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