Discover 2Q profits drop 7 percent, due to higher expenses; beats analyst expectations

Discover Financial Services reported a 7 percent drop in second-quarter earnings Wednesday, due largely to higher expenses.

The credit card and lending company's net income allocated to common shareholders was $586 million, versus $630 million a year earlier. On a per-share basis, Discover said it had profit of $1.33, down from $1.35 a share a year earlier.

The results barely topped Wall Street expectations. The average estimate of 14 analysts surveyed by Zacks Investment Research was for earnings of $1.32 per share.

Revenue at Discover was effectively flat from the year before, at $2.18 billion in the period. Total loans were up 5 percent to $69 billion. However, the amount of money spent on Discover's payment network was down 3 percent from a year ago.

Discover said had an 18 percent jump in expenses from a year earlier, citing higher regulatory and compliance costs. Discover said earlier this year it would close its mortgage lending business, and some of the jump in expenses is tied to that.

Discover shares have dropped 9 percent since the beginning of the year, while the Standard & Poor's 500 index has increased roughly 3 percent.

In a separate development, Discover was ordered to refund $16 million to consumers and pay a $2.5 million fine related to the company's student loan servicing business.

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Elements of this story were generated by Automated Insights (http://automatedinsights.com/ap) using data from Zacks Investment Research. Access a Zacks stock report on DFS at http://www.zacks.com/ap/DFS