Credit card company Discover Financial Services (DFS) on Tuesday reported a 2 percent increase in profit for the first quarter from last year, reflecting loan growth that was partly offset by an increase in provision for loan losses.
David Nelms, chairman and CEO of Discover said, "Discover delivered strong profitability and growth in the first quarter, which combined with our outlook allowed us to increase our dividend by 43%. During the quarter, we had a nationwide rollout of Discover IT, our new flagship credit card, and we made progress in growing our suite of direct banking products by introducing Cashback Checking to some of our customers."
The Direct Banking segment's pre-tax income for the first quarter rose 3 percent from the year-ago period to $1.03 billion. Discover card sales volumes grew 4 percent to $24.86 billion, while credit card loans grew 5 percent to $48.7 billion at quarter-end.
Discover Financial's smaller segment, Payment Services, reported a 2 percent decline in pre-tax income for the quarter to $47 million. Revenue for the payment services segment increased $5 million from the year-ago period. Transaction dollar volume for the segment increased 2 percent to $48.8 billion.
Discover Financial's net income for the first quarter was $659 million or $1.33 per share, up from $644 million or $1.21 per share in the same period last year.
Revenue, net of interest expense, increased 10 percent to $1.99 billion from $1.80 billion in the year-ago period.
Net interest income rose 9 percent from the prior-year quarter to $1.41 billion, benefiting from loan growth and lower interest expense that was partly offset by a decline in loan yield. Total other income grew 14 percent to $582 million, primarily due to revenue from Discover Home Loans that was launched in June 2012 and higher interchange revenue as a result of increased sales.
Provision for loan losses rose 89 percent from last year to $159 million, driven by a lower reserve release partly offset by a decline in charge-offs.
Net interest margin rose 30 basis points to 9.39 percent, reflecting decreased funding costs partly offset by lower loan yield. The credit card net charge-off rate declined 56 basis points from the year-ago period to 2.36 percent.
Total loans grew 7 percent from the prior-year period to $60.4 billion at the end of the quarter. Private student loans grew 6 percent, while personal loans rose 21 percent from last year.
Last Tuesday, Discover Financial Services declared a quarterly cash dividend of $0.20 per share of common stock, an increase of $0.06 per share of common stock or 43 percent, payable on May 23 to holders of record on May 9.
In Tuesday's regular session, DFS is trading at $44.64, up $1.03 or 2.36 percent on a volume of 2.24 million shares.
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