DFS Discover Financial Services

By Robin Sidel and Josh Beckerman 

Discover Financial Services said total loans rose 4% to $71.9 billion in the second quarter, but credit-card spending was on the low end of the lender's target range as some customers pursued aggressive card promotions offered by rivals.

Still, Discover reported a jump in the acquisition of new credit-card customers who are expected to boost spending levels in the future.

"We're getting the results which are most important, which is loan growth," said Chief Executive Officer David Nelms in a conference call with analysts. The company has a target to increase loans between 4% and 6% this year.

The Riverwoods, Ill.-based lender said quarterly profits rose 3% to $616 million, a figure that included a nonrecurring tax benefit of $44 million.

Earnings per share rose to $1.47, including a tax benefit of 11 cents, from $1.33 a year earlier. Analysts polled by Thomson Reuters had projected $1.42. Such estimates typically exclude nonrecurring items.

Revenue net of interest expense increased 2% to $2.22 billion. Analysts expected $2.23 billion.

Shares fell $1.59, or 2.79% cents, to $55.39 in after-hours trading.

Chief Financial Officer Mark Graf described the credit environment as "extremely benign" as lenders open their credit spigots to more customers. Discover said its delinquency rate for credit-card loans that are more than 30 days late was 1.63%, up 0.08 percentage points from the year-earlier period.

Discover, which focuses on prime customers, recently launched a secured card for less creditworthy customers, although that remains a very small portion of its loan portfolio.

Mr. Nelms said that other issuers are offering cash-back promotions that are "incredibly aggressive."

"We are taking some steps, but frankly we're not willing to match unprofitable offers," Mr. Nelms said.

Shares of Discover and other card companies fell when store-card issuer Synchrony Financial increased its credit-loss forecast on June 14. On Friday, Discover said its delinquency rate in June was 1.6%, flat with a year before.

On June 29, Discover said the Federal Reserve had no objections to its capital plan, which includes a dividend increase to 30 cents from 28 cents and up to $1.95 billion of stock buybacks through June 2017.

Write to Robin Sidel at robin.sidel@wsj.com and Josh Beckerman at josh.beckerman@wsj.com

(END) Dow Jones Newswires

July 19, 2016 19:30 ET (23:30 GMT)

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