Discover 2Q Earnings Fall, But Loan Activity Ramps Up

Discover Financial Services (NYSE:DFS) reported a weaker second-quarter profit on Tuesday on lower reserve releases and a decline in direct banking that more than offset strong year-over-year revenue growth.

The Riverwoods, Ill.-based credit-card company reported net income of $537 million, or a dollar a share, down 11% from a year-earlier $600 million, or $1.09, matching average analyst estimates in a Thomson Reuters poll.

However, total loan growth of 9% to $4.5 billion helped give a boost to Discover’s quarterly sales, sending net interest income up to $1.31 billion from $1.29 billion a year ago.

Credit card loans grew $1.6 billion to $46.6 billion and Discover card sales volume increased 5%. Meanwhile, credit-card loan delinquencies and net charge-offs reached historic lows with a delinquency rate for loans over 30 days past due of 1.91% and a charge-off rate of 2.79%.

“Our results this quarter reflect outstanding fundamental performance in both of our business segments and continued improvement in credit performance," Discover chief executive, David Nelms, said in a statement.

Shares of Discover edged 1.65% higher Tuesday morning to $33.32.

However, Discover said it plans to set aside more money to cover future loan losses, known as a provision, as its customers’ credit-card bills continue to grow and the plastic cards operator grows wary users will continue paying balances on time.

Provision for loan losses was $242 million last year, up from $176 million a year ago and climbing a whopping 37% from $152 million last quarter.