Discover Earnings Dented by Expenses

Discover Financial Services said Wednesday its profit fell 7% in the second quarter as higher expenses hampered results and revenue was essentially flat from last year.

For the period ended June 30, Discover reported a profit of $599 million, down from $644 million in the year-earlier period. On a per-share basis, earnings were $1.33 a share, down from $1.35 a share a year ago.

Revenue net of interest expenses was relatively flat from a year ago at $2.18 billion, compared with $2.17 billion a year earlier.

Analysts polled by Thomson Reuters had projected earnings of $1.31 a share on revenue of $2.22 billion.

In June, the company said it would exit the home loans business as it faced challenges with its operating model.

Total loans grew 4.8% from the prior-year period to $69 billion from $65.9 billion. Credit-card loans grew to $54.9 billion from $52.7 billion, up 4.2% from the year-ago level.

Discover recorded a $306 million provision for loan losses, compared with $360 million a year earlier. Total other expenses, including employee-compensation benefits and other fees, rose 16% to $927 million from $797 million.

Separately on Wednesday, the Consumer Financial Protection Bureau ordered Discover to pay $18.5 million for alleged illegal practices related to repayment and collection of student loans.

The consumer regulator alleged the firm overstated the minimum payment amounts borrowers had to make, engaged in illegal debt-collection tactics and denied borrowers information about how they could receive federal income-tax benefits.

Shares of Discover, down 7% in the last 12 months, edged down 0.3% in after-hours trading.

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