Discover Financial Services (DFS) reported a fiscal fourth quarter earnings of $346.5 million or 64 cents per share, well ahead of the Zacks Consensus Estimate of 42 cents.
The prior-year quarter posted a net loss of $77.9 million or 14 cents per share, excluding an after-tax gain of approximately $285 million related to the settlement of an antitrust litigation with Visa Inc. (V) and MasterCard Inc. (MA).
Discover also posted net income of $765 million in the fiscal 2010, as against the $1.3 billion in the prior year, which included an after-tax gain of $1.2 billion related to the Visa/MasterCard antitrust litigation settlement.
The surge in profits was due to significant improvements in the credit quality, as well as gains from the payments business driven by strong volumes. However, these were partially offset by higher-than-expected expenses.
Discover’s deposit balances originating from direct-to-consumer and affinity relationships increased $1.5 billion from the year-ago quarter to $20.6 billion.
Direct Banking Segment
The Direct Banking segment reported a pre-tax gain of $554 million, reflecting a $681 million improvement from the year-ago quarter on an adjusted basis.
Total loans plummeted 4% year over year to $48.8 billion, due to a decline in credit card loan to $45.2 million from the prior-year quarter as well as the previously disclosed $1.5 billion sale of federal student loans.
Discover has classified the remaining $800 million in federal student loan balances as held for sale in the fourth quarter of 2010 in anticipation of selling them in 2011
The decrease in credit card loans reflects reduced promotional rate offers for balance transfer against an increase in payment rate. However, it was partially offset by a 6% year over year increase in Discover card sales volume, which improved due to higher consumer spending and merchant acceptance.
Other income also declined
