April 23, 2013 / 1:36 PM / 4 years ago

Discover Financial profit rises on higher interest income

(Reuters) - Credit card company Discover Financial Services’ (DFS.N) first-quarter profit rose 3.5 percent on higher net interest income, boosted by a strong performance in its direct banking business, sending its shares up 2.5 percent before the bell.

Profit rose to $673 million, or $1.33 per share, in the first quarter, from $650 million, or $1.21 per share, a year earlier. Revenue, net of interest expense rose 10 percent to $2 billion.

Expenses rose 12 percent to $753 million on higher employee compensation and marketing expenses associated with the Home Loan Center acquisition, increased card marketing initiatives and higher headcount.

Discover’s costs have been rising over the last few quarters as it builds new payment partnerships and diversifies its direct banking product offerings, such as home and personal loans and certificates of deposit.

Discover, like American Express Inc (AXP.N), lends directly to consumers but its business is a quarter of its rival’s size. The two companies compete with Visa Inc (V.N) and MasterCard Inc (MA.N) to process transactions for banks.

The credit card lender and payment processing network set aside $159 million to cover future bad debt, up 89 percent from a year earlier. Delinquency or late payment rates for loans over 30 days past due was 1.77 percent, up 33 basis points.

Credit card loans rose 5 percent to $48.7 billion in the quarter. Discover card sales volume rose 4 percent.

Discover announced a $2.4 billion share buyback program last month after the U.S. Federal Reserve approved its capital program.

Discover Financial’s shares, valued at about $21.47 billion, closed at $43.61 on Monday on the New York Stock Exchange. They have risen 12 percent in the last three months, outperforming the Thomson Reuters U.S. Consumer Financial Services Index .TRXFLDUSPCONF that has risen about 6 percent.

Reporting by Ashutosh Pandey in Bangalore; Editing by Supriya Kurane

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