Discover Financial's Unenviable, Undeniable, and Unbelievable Problem

Discover Financial Services (NYSE: DFS) recently reported its third-quarter earnings, and investors heard a familiar story: The company is seeing higher revenue, solid loan portfolio growth -- and higher loan losses. Revenue net of interest expense rose to $2.53 billion, a 10% increase year over year. Discover achieved 9% year over year total loan portfolio growth driven by growth across all of its primary loan platforms: credit cards, personal loans, and private student loans.

Unfortunately, net principal charge-offs and loan loss provisions rose much faster. Net principal charge-offs, loans that Discover categorizes as those it is unlikely to ever collect, grew to $527 million, a whopping 42% increase year over year. Provisions for loan losses, money set aside for loan payments not yet collected, grew at an even greater rate to $674 million, a 51% increase year over year. These line items noticeably impacted the bottom line, as net income declined to $602 million, a 6% decrease year over year.

Let's take a closer look at some of the company's numbers and determine what drove them this past quarter.

Source: Fool.com