Last week Discover reported a net income of $551 million in the fourth quarter – up 6% from the same time period last year due to loans and increased credit card sales. Charge-offs were at an historic low.
Increased revenue was partially due to the company’s launch of a home loan division. In June 2012, the company launched Discover Home Loans after the acquisition of assets from Tree.com’s Home Loan Center. That purchase increased revenue by $50 million. The sale of a minority investment added another $26 million to total income.Discover card sales volume grew 6% from the prior year to $26.5 billion.
A stronger economy and an increase in sales led to higher interchange revenue, which come from the fees charged for processing credit card sales (also known as swipe fees.) The company reported that expenses were up 18% over the previous year primarily due to raises for Discover employees. Recruitment efforts and new card marketing strategies also contributed to the $114 million increase in expenses.
Defaults and charge-offs
The credit card issuer is reporting less overdue accounts. The rate for delinquent accounts, ones that are more than 30 days past due, improved 53 basis points from 2011. Charge-offs, accounts that are more than 180 days past due, were at 2.29%.
“Our strategy and business model are working as we achieved organic growth in all of our lending products. I am proud of our strong performance this year and our achievement of record net income, record volumes and a strong return on equity,” said Discover CEO David Nelms.