By Denny Jacob
Discover Financial Services reported second-quarter net profit above analysts’ expectations despite a year-over-year decline.
The banking and payment services provider reported net income of $1.11 billion, or $3.96 per share, for the quarter ended June 30, compared with net income of $1.7 billion, or 5 $.55 per share, a year earlier. Analysts polled by FactSet had expected $3.77 per share.
Total income net of interest expense decreased from $3.58 billion to $3.22 billion.
Total loans ended the quarter up 13% year-over-year to $99.3 billion. Net interest income increased 14%, or $311 million, due to higher average accounts receivable and net interest margin expansion. Non-interest revenue increased 22%, or $99 million, due to higher discount/interchange revenue and loan fee revenue, although partially offset by rewards costs higher due to high sales volume.
The company said the provision for credit losses rose $414 million to $549 million from a year earlier. This was due to a reserve build-up of $110 million in the current quarter, compared to a reserve release of $321 million in the year-ago quarter, Discover said.
Discover said it was suspending its existing stock purchase program until further notice due to an internal investigation related to its student loan management practices and related compliance issues. The company said the investigation is continuing and is being conducted by an independent special committee appointed by the board.
Chief Executive Roger Hochschild said the company’s credit performance remained strong despite uncertain macroeconomic conditions due to stable defaults and a modest increase in losses, which reflect slower-than-expected credit normalization.
Write to Denny Jacob at [email protected]
This article was corrected at 1:25 p.m. ET as it incorrectly stated that net interest increased 14% to $311 million and non-interest revenue increased 22% to $99 million. dollars. Net interest income increased 14%, or $311 million, while non-interest income increased 22%, or $99 million.