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Discover Financial Services today reported net income of $180 million for the third quarter ended August 31, down 10.9% from $202 million for the same quarter a year ago. Discover's allowance for loan losses totaled $959.8 million at the end of the quarter, up 52.5% from $629.5 million in the third quarter of 2007, and the company's results beat the expectations of analysts polled by Thomson Reuters. "They're turning a profit and, in this time of very bad economic news on many fronts, that's a big positive," Red Gillen, senior analyst at Celent, a Boston-based financial research and consulting firm, tells CardLine. The company needs to maintain "fairly conservative" lending practices to weather the economy and continue turning a profit, Gillen adds. Managed loans in Discover's U.S. card segment grew to $50 billion, up 6% from a year ago, and total Discover Card volume rose 5% in the third quarter compared to the year-ago period. The charge-off rate of total receivables increased to 5.28% from 5.05% in the second quarter, and from 3.67% a year ago. The company's third-party payments business, which processes ATM and debit transactions and other banks' cards, remains lucrative, too. Volume in the segment grew 48% to $35 billion. "Discover's expansion strategy of using banks' distribution channels for their products is starting to work and it looks like they'll put up a good fight in the space MasterCard and Visa dominate," Gillen says. David Nelms, CEO at Discover Financial Services, said in a statement, "While the consumer credit environment and funding costs continue to be challenging, Discover's results demonstrate the underlying quality of our customer base and reflect our disciplined loan underwriting process and multi-channel funding strategy."
