One of the major players in the credit card industry in the United States, Discover Financial Services, on Thursday said that profits for the bank in the second quarter soared as the consumer began spending more using their credit cards.
The bank also went on to mention that the number of customer accounts that showed early stages of delinquency were on the decline. In the second quarter, Discover Financial Services set aside an amount of $724 million to clear off bad debt. This figure is 44% lesser than the amount set aside during the same quarter in the last fiscal year.
As a result of the increase in profits, the cost of Discover shares increased by 0.5%, that is 7 cents on Thursday, and stood at $14.08, which is slightly lower than the session high of $14.73 per share.
These results further strengthen the fact that the consumer credit spending segment is changing for better. As per the Federal Reserve Data, the charge-off rates for credit cards at the national level still stands high at 9.95%, as compared to 4% before the economy changed for worse.
A net income of 33 cents per share or $184.6 million was reported by Discover for a three month period that ended on 31st May, 2010. At the same time last year, the company reported a loss of 31 cents per share or a total of $148.9 million. Discover went on to say that due to the redemption of $1.2 billion preferred stock, the net income came down by 13 cents.
Financial analysts expected this banking major to earn an average of 11 cents per share, thus posting a $1.62 billion profit.
The sales of Discover Cards went up to $23 billion, which is a 6% increase, a sure sign of the consumer being confident about the financial segment showing improvement for good. The bank also went on to say that focusing on improving customer spending on the card will help them post profits for every quarter.
In the second quarter, Discover revealed the charge-off rate of 7.97% which was marginally higher than the 7.79% posted in the same quarter last year, but significantly lesser than 8.51% posted in the first quarter of this fiscal year.
Discover is expecting this rate to fall to 7.5% in the following quarter. David Nelms, the CEO of Discover Financial Services said that despite the unemployment rate still being high, it will not increase the charge offs.