Rising yields, higher card use drive Discover's 3Q profits

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Discover Financial Services on Thursday reported stronger profits, as double-digit growth in the Riverwoods, Ill., company’s credit card book and lower taxes offset an uptick in problem loans.

Discover earned $720 million during the third quarter, or 20% more than in the same period last year. Earnings per share were $2.05, or a penny short of an estimate of analysts compiled by FactSet Research Systems.

In a press release, new President and CEO and Roger Hochschild said, “Consistent execution against our strategic priorities enabled us to deliver strong loan and revenue growth once again this quarter. "

Hochschild took the helm earlier this month, succeeding longtime CEO David Nelms.

Total loans increased 8%, to $85.9 billion, as the company expanded total average loans in its credit card portfolio by 10% in a competitive market. Credit cards account for about 80% of total loans.

Still, credit quality deteriorated slightly. The 30-day delinquency rate on credit cards edged up 18 basis points, to 2.32%, while the net principle charge-off rate rose 34 basis points, to 3.14%. The provision for loan losses increased 10%, to $742 million.

Net interest income rose 8%, to $2.2 billion. The interest yield in the company’s credit card business climbed 23 basis points, to 13.06%.

Noninterest revenue, meanwhile, grew 5%, to $501 million, thanks to higher net interchange revenue, as well as stronger loan fees.

Noninterest expenses climbed 7%, to just over $1 billion, mostly from an increase in compensation and marketing costs.

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