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The Associated Press March 21, 2012, 5:35PM ET

Discover 1Q profit jumps 36 pct. as card use rises

Discover Financial Services on Wednesday said its profit jumped 36 percent in its fiscal first quarter, as use of its namesake credit card increased, helping driving higher sales balances, and customers' payment habits improved.

The Riverwoods, Ill., company reported that its net income after paying preferred dividends climbed to $624 million, or $1.18 a share, in the three months ended Feb. 29. That compares with net income of $459 million, or 84 cents a share, in the prior-year quarter.

Revenue net of interest expense rose to $1.84 billion, up from $1.73 billion a year earlier.

Analysts polled by FactSet were expecting a profit of 94 cents a share on total revenue of about $1.84 billion.

The results reflected a 7 percent increase in Discover card use. Credit card balances totaled $45.9 billion. Late payments and defaults slid, hitting record lows.

The declining rates of late payments and defaults enabled Discover to release some of its reserves set aside to cover unpaid balances, which also helped boost results.

"Our results this quarter represent record first-quarter earnings for Discover and are a great start for 2012," said David Nelms, chairman and chief executive.

Discover said its net interest income, or money earned from loans, grew 11 percent to $1.29 billion from $1.17 billion a year earlier.

The increase was driven primarily by higher income from the company's private student loan and direct banking businesses, and lower interest expense.

Private student loans rose $3 billion, including the acquisition of a $2.4 billion student loan portfolio in the fourth quarter of 2011. Personal loans grew $764 million from the prior year.

Discover ended the quarter with $56.3 billion in loans, up 9 percent from a year earlier.

The rate of credit card loans that were past due at least 30 days was 2.22, down 137 basis points from a year earlier and 17 basis points from the fourth quarter.

The rate at which Discover wrote off credit card balances as unpaid declined to 3.07 percent in the quarter, down 289 basis points from the prior-year quarter and down 17 points from the fourth quarter.

Discover set aside a $152 million provision for loan losses, down 64 percent from a year earlier.

Shares ended regular trading down 22 cents at $31.64. The stock slipped another 15 cents to $31.49 in extended trading after the company released its earnings results.

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