Discover Financial Services (DFS) earned $621 million for its third quarter ended August 31, 2012, up 3% from the same period year earlier, the company said Thursday.
The Riverwoods, Ill.-based credit card issuer said expenses related to a recent settlement with regulators over its credit card practices offset improved performance in its business.
Discover said losses from problem loans continued to decline. Net principal chargeoffs fell 33%, to $308 million, from a year earlier and chargeoff rate for the quarter was 2.12%, down from the 3.43% the company reported a year ago.
As a result of loan growth, the company increased its loan-loss reserve by 26% to $126 million, from $100 million in the third quarter of 2011.
Revenue during the quarter rose roughly 11%, to $2 billion, from a year earlier, but expenses rose 29%, to $826, primarily as a result of legal fees.
“Our business segments demonstrated solid performance during the quarter,” David Nelms, Discover’s chief executive, said in a news release. “Card sales and receivables grew in a challenging environment while credit quality continued to improve.”
The issuer said Friday its Discover Bank subsidiary will return $200 million to cardholders who purchased credit card protection products from the company via telephone unknowingly over a roughly three-and-a-half-year period beginning in December 2007. The settlement was part of an agreement with the Consumer Financial Protection Bureau and the Federal Deposit Insurance Corp.