DFS Discover Financial Services

By Ezequiel Minaya and AnnaMaria Andriotis 

Discover Financial Services said profit rose nearly 13% in the final quarter of 2016 as total loans climbed along with the delinquency rate.

The results continued the string of recent quarters in which the Riverwoods, Ill.-based lender has logged strong loan growth. Discover, which issues credit cards and operates a card-processing network, has expanded into other loan products in recent years.

Total loans at the credit-card company increased 7%, or $4.9 billion, to $77.3 billion. Credit loans rose 6% to $61.5 billion in the fourth quarter, while Discover card sales volume gained 3%. Personal loans increased 18%.

Loan growth comes as the issuer booked a larger number of new accounts this past year than in any other year since the financial downturn, said David Nelms, Discover's chief executive, in an interview. Discover, like many card lenders, is focused on taking on more so-called revolvers, or customers who pay on time but don't pay their bills in full each month. Those borrowers pay interest charges, helping to boost Discover's bottom line. The issuer says it remains focused on courting borrowers with high credit scores.

In all for the fourth quarter, Discover earned $563 million, or $1.40 a share, up from $500 million, or $1.14 a share, a year earlier. Revenue net of interest expense increased 6.9% to $2.36 billion.

Analysts surveyed by Thomson Reuters expected earnings of $1.38 a share on revenue of $2.34 billion.

The delinquency rate for credit-card loans more than 30 days past due was 2.04%, up 32 basis points from the prior year.

Net charge-off rates on credit cards and personal-loan accounts hit the highest levels in the fourth quarter in at least the last three years. Mr. Nelms said the increase is largely due to "normalization," rather than signs of meaningful deterioration in consumers' ability to pay. He said the company expects a moderate increase in these rates in 2017 and that they remain very low compared with the financial downturn.

On the credit-card-rewards front, Discover will continue to increase the rewards rate it is paying out to cardholders at about the same clip as in recent years and warned that the market has become overheated as some issuers are paying out rewards that are unsustainable.

Shares of the company slipped 8 cents to $69.80 in after-hours trading.

Write to Ezequiel Minaya at ezequiel.minaya@wsj.com and AnnaMaria Andriotis at annamaria.andriotis@wsj.com

(END) Dow Jones Newswires

January 24, 2017 21:31 ET (02:31 GMT)

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