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Discover Financial Drops On YOY Declines

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Discover Financial Drops On YOY Declines

Shares of Discover Financial Services (NYSE:DFS) traded sharply to the downside on Tuesday after the company reported third quarter results below last year’s comps. Discover Financial’s net income dropped by 6.9% year over year to $593 million. Within these results the company reported a $42 million reserve build whereas the third quarter of 2012 included a $167 million reserve release.

Discover’s total revenue, net of interest expense, increased 2.8% year over year to $2.06 billion. The improvement came on the back of Discover card sales volume growth from its portfolio of clients. Along the same lines, the company announced its net interest income improved by 8.8% year over year to $1.51 billion. This sharp increase was driven by strong loan growth and higher net interest margins.

Total loans improved by 5% on a year over year basis to $62.7 billion, helped by a 4% increase in credit card loans. Strength was seen throughout the company’s loan portfolio. Discover saw a 5% increase in private student loans and a 26% surge in personal loans. As a result of the increase in personal loans, over-30-days delinquency rate plummeted by 9 bps over the prior quarter to 1.67%.

Overall, the quarter look good and largely came in line with Wall Street’s expectations. These strong results are following the results from a number of competitors within the credit space as of late. Higher revenues alongside lower expenses helped to bolster margin expansion. At the time of this writing shares of the company were down by 3 percent to $52 per share. Some traders and analysts on Wall Street feel the move is over done. Price performance over the rest of the week should give more details on the true strength of the quarter.

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