Discover Financial Services (DFS) delivered a strong performance in the third quarter, exceeding analyst expectations on both earnings and revenue. The company reported earnings per share of $3.69, surpassing the consensus estimate of $3.44. Revenue for the quarter reached $4.453 billion, surpassing the analyst consensus of $4.346 billion and representing a 10.11% increase year-over-year. This growth was driven by a combination of factors, including robust net interest margin expansion and solid loan growth.
Discover’s net interest margin expanded to 11.38%, a significant increase of 43 basis points compared to the previous year. This expansion was attributed to higher average receivables and a favorable shift in the balance mix, leading to higher card yields. Total loans at the end of the quarter reached $127.0 billion, representing a 4% increase year-over-year. Notably, credit card loans saw a 3% year-over-year increase, while personal loans grew by 9%.
While the company’s financial performance remained strong, Discover did report slight increases in delinquency rates. The 30 or more days delinquency rate rose to 3.84% from 3.41% in the same period last year, while the 90 or more days delinquency rate climbed to 1.87% from 1.57%. These increases are likely influenced by the current economic environment and rising inflation.
Despite these increases, Discover’s Digital Banking pretax income for the quarter reached $1.2 billion, a $401 million improvement over the prior year. This growth reflects the increasing revenue from interest income, offset by higher operating expenses.
In a strategic move, Discover completed the first closing of its private student loan portfolio sale, simplifying its business operations. This sale is expected to reduce the complexity of its business and improve its overall efficiency.
Michael Shepherd, Discover’s Interim CEO and President, expressed satisfaction with the company’s financial performance. He highlighted the positive impact of net interest margin expansion, modest loan growth, and some credit improvement. Shepherd also emphasized the company’s progress in risk management and compliance capabilities.
Discover Financial shares dipped slightly in after-hours trading, falling by 0.64% to $146.58 at the time of publication. Despite this minor decline, the company’s strong financial performance and strategic initiatives suggest a positive outlook for the future.