Discover Financial Services (DFS)

[chmcnfunds]

Their financials today are proving you correct. Maybe we'll get a bigger bump as the overall market stabilizes:

JUNE 23, 2011, 9:58 A.M. ET
UPDATE: Discover 2Q Jumps As Delinquencies Hit All-Time Low

(Updates with more results and background throughout, adds stock price in the fifth paragraph.)

By David Benoit and Mia Lamar

Of DOW JONES NEWSWIRES

NEW YORK (Dow Jones)--Discover Financial Services (DFS) said the number of customers a month who are late on their credit card payments hit an all-time low during its second quarter, helping more than double the card company's profit.

The record-low in credit-card delinquency rates, which the company said covers a 25-year period, highlights the sharp turnaround in Discover's consumers' ability to pay off credit-card debt. The rate fell to 2.79% of all credit-card loans from 4.39% a year earlier.

And as the drop also came with a 1% increase in credit-card balances and a 5% increase in total loans--which includes all types of loans and not just credit cards--Discover sounded hopeful on the health of its consumer and its own business.

"While the U.S. economy has yet to show significant strengthening, we are confident that we can continue to achieve profitable growth in all of our lending businesses," said David Nelms, chairman and chief executive.

Shares were up 1% at $23.76, one of the few stocks rising in the Standard & Poor's 500 Index Thursday, as the results beat analyst expectations. Year to date, the stock is up 29%.

Discover, both a lender to cardholders and a processor of transactions, has posted stronger results in recent quarters as improving credit trends have meant the company can set aside less for loan losses, and even pull money out of its rainy-day fund, as it has for each quarter over the past year.

For the quarter ended May 31, Discover reported a profit of $600 million, or $1.09 a share, compared with a prior-year profit of $258 million, or 33 cents a share. Analysts polled by Thomson Reuters expected earnings of 75 cents a share.

Revenue net of interest expense rose 4.6% to $1.74 billion, topping the $1.7 billion analysts expected.

The results were partially boosted by a $401 million reduction to the loan-loss reserve, as Discover said its outlook improved once again.

Net charge-offs, or loans the company doesn't expect to collect, fell to 4.42% of all loans from 7.97% a year earlier. Delinquencies of over 30 days were 2.68% of all loans, compared with 4.52%.

Provisions for loan losses were $176 million, down from $724 million a year ago.

The increase in total loans in the quarter reflected a higher holding of private student loans, after Discover bought Student Loan Corp.'s (STU) business late last year. It also saw a large jump in personal loans.

Last month, the company said it would pay $55.9 million to acquire the mortgage assets of Home Loan Center, a unit of Tree.com Inc. (TREE), calling the move a "low-risk, low-cost way" to get into the home loans business. Discover, which has been searching for new ways to boost loan revenue, plans to originate home loans that it will sell in the secondary market.

-By David Benoit and Mia Lamar, Dow Jones Newswires; 212-416-2458; [e-mail]
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http://online.wsj.com/article/BT-CO-20110623-707114.html

DFS