Riverwoods-based Discover's fourth-quarter net income rose 6 percent as more customers paid off credit card balances on time and it wrote off fewer unpaid balances. Consumers also used their cards more as they dealt with the tail end of the back-to-school shopping season and the ramp up to the December holidays.
But Discover's earnings missed Wall Street's view, and the company set aside more money to cover souring loans. Its stock dropped more than 2 percent before the market open Thursday.
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For the period ended Nov. 30, the credit-card issuer and payments-network operator earned $541 million, or $1.07 per share. That compares with $513 million, or 95 cents per share, a year earlier.
Analysts surveyed by FactSet expected higher earnings of $1.12 per share.
Shares of Discover Financial Services, based in Riverwoods, Ill., fell 92 cents, or 2.3 percent, to $38.85 in premarket trading.
Revenue climbed 11 percent to $2 billion from $1.81 billion, after interest expense. Wall Street forecast $1.96 billion.
Total loans, credit card loans and Discover card sales volume all increased 6 percent in the quarter.
Private student loans rose 6 percent, while personal loans climbed 24 percent.
The rate at which Discover wrote off unpaid credit card balances dropped to a historic low of 2.29 percent. Discover has traditionally had one of the lowest rates for default and delinquency in the credit card industry, the result of tighter lending standards and close monitoring of problem accounts.
The delinquency rate on credit-card loans over 30 days past due improved as well.
Discover is the sixth-largest U.S. credit-card issuer.
Provision for loan losses, or money set aside to cover souring loans, rose 6 percent to $338 million as an increase in loan loss reserves was somewhat offset by a drop in the number of unpaid credit card balances that had to be written off.
Investors monitor how much money lenders set aside to cover bad loans because the so-called loan-loss provisions can weigh down earnings.
Discover also declared a dividend of 14 cents per share. The dividend will be paid on Jan. 17, 2013 to shareholders of record on Jan. 3.