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Discover Beats Estimates

Discover shares were surging after the credit card company's third-quarter earnings beat Wall Street estimates.



) --

Discover Financial Services

(DFS) - Get Discover Financial Services Report

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) - Get Morgan Stanley Report

), 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


(V) - Get Visa Inc. Class A Report

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(MA) - Get Mastercard Incorporated Class A Report

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)



(C) - Get Citigroup Inc. Report

on Friday for $600 million, or $30 a share.

Discover shares were most recently rising 3.5% in premarket trading to $16.11.

American Express

(AXP) - Get American Express Company Report


Capital One

(COF) - Get Capital One Financial Corporation Report

shares were also rising modestly before the market opened.

--Written by Laurie Kulikowski in New York.

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Laurie Kulikowski


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