RIVERWOODS, Ill. (TheStreet) -- Discover Financial Services (DFS) surged more than 5% in early trading after the credit card company posted third-quarter earnings that blew past Wall Street estimates.
The Riverwoods, Ill., company, which still goes by a November-ending fiscal calendar (dating back to the days when it was owned by Morgan Stanley (MS)), recorded a quarterly profit of $261 million, or 47 cents a share.
The average analyst estimate was for the credit card company to earn a profit of 37 cents a share in the August-ending quarter, according to Thomson Reuters.
Still, Discover's earnings were far below that of the third quarter of 2009, when it made a profit of $577 million. The year-earlier results included a gain of $287 million after taxes related to the Visa (V) and MasterCard (MA) antitrust litigation settlement, Discover said.Discover card sales volume rose 5% year over year to $24 billion from an increase in average card member spending and an increase in merchant acceptance of Discover cards, the company said. Credit card loans totaled $45.2 billion, essentially unchanged from the prior quarter and down $2.9 billion from the prior year's quarter, driven by a reduction in promotional rate balances and an increase in the payment rate, it said. Net interest margin in its banking division of 9.16% was flat sequentially, the company said, "as the impact of legislative changes was offset by lower interest charge-offs." Discover's credit performance continued to improve. Net charge-offs fell 122 basis points from the prior year and 79 basis points from the prior quarter, to 7.18%. The company released $187 million in loan loss reserves as early delinquencies declined $180 million in the quarter, it said. Discover's payment services arm processed "record" transaction volume in the quarter of $39 billion, it said. "The very positive credit trends that began to manifest themselves earlier this year continued to benefit our results this quarter," said David Nelms, Discover's chairman and chief executive officer. "The ongoing improvement in the outlook for credit performance of our card members has enabled us to accelerate investments for long-term profitable growth. In addition, Discover card spending continued to grow nicely this quarter and our third-party credit and debit network businesses achieved record transaction volumes." Discover said on Friday that it would acquire The Student Loan Corp. (STU) from Citigroup (C) on Friday for $600 million, or $30 a share.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV