Credit Card Spending Propels Discover to Record Quarter

Discover Financial Services can thank consumers who used their credit cards, which helped them almost double their earnings from the same period last year. Losses from uncollectible card loans fell to 4.82% in May, down from 8.82% a year earlier. In addition to getting their consumers to return to using their Discover credit cards, Discover also expanded its business into other lending and credit areas, which contributed to record quarter growth.

Student Loans

Credit card companies and various financial institutions started looking for ways to make up for lost revenues during the credit crisis. Discover is one of the companies that started pursuing lending in noncredit card areas. This decision led the company to buy the student lending division of Citigroup in 2010.

It cost Discover $600 million to acquire Citigroup Inc.’s Student Loan Corp. The purchase made Discover the third largest student loan lender in the U.S. the purchase also sent the Discover loan portfolio up to $52.5 billion, which is a 5% increase.

In May of 2011, Discover got its hands into the mortgage lending business, buying the origination division ofwww.tree.com.

Outgrows its Competition

Discover is outgrowing some of the giants, such as JPMorgan Chase and Bank of America. While Discover saw a decrease of 1% in credit card loans at the beginning of 2011, the overall balance of loans increased by 5%. Discover is reporting its stock is $1.09 per share and a$600 million profit, as of May 31. At the same time last year, Discover reported its share price at 33 cents per share and a profit of $258 million.

According toChief Executive Officer David Nelms, Discover is benefiting from fewer loan defaults and expanding into other loan business because it is boosting dividends and buying back stock. The losses the company has taken on loans and credit accounts is also down. From May to June, uncollectible credit card loan debts fell from 8.82% to 4.82%.

Kristie Lorette

Kristie Lorette is an award winning credit specialist and an MBA graduate of Nova Southeastern University. Her lengthy tenure includes service at Merrill Lynch where she oversaw a $300 million dollar portfolio and 16 branches. At Merrill Lynch, Kristie specialized in consumer issues related to credit and mortgages. As a writer and researcher in personal finance, Kristie is also a contributor to Yahoo! Shine, Quizzle.com, Moneysmartlife.com and many other online and print publications.