By Anna Prior
Discover Financial Services said its first-quarter profit
slipped 6.2% as the credit-card company recorded higher expenses,
masking an increase in total loan growth.
Still, per-share earnings topped Wall Street's estimates for the
company, based in Riverwoods, Ill.
Like Capital One Financial Corp., Discover has broadened its
traditional credit-card business in recent years to offer other
consumer loans, including student loans, mortgages, and home-equity
loans. The company has also benefited from more rapid loan growth
than bigger competitors.
In addition to issuing credit cards, Discover operates a
card-processing network.
In a conference call with analysts, Chief Executive David Nelms
said spending on its cards has increased in recent weeks. He didn't
provide specifics, but said that part of the bump-up in spending
could be related to better weather conditions after a particularly
harsh winter.
"We're going to have to see some more data points to see if that
is sustained or not," he said.
Discover suffered a setback earlier this month when Wal-Mart
Stores Inc. said it would convert its co-branded credit cards to
the MasterCard Inc. network from Discover.
Last month, Discover proposed a 20% increase to its dividend and
as much as $1.6 billion in stock buybacks over the next year, moves
that would need approval from the Federal Reserve. The lender was
among the large banking institutions that the Fed said has enough
capital to continue lending even when faced with a hypothetical
jolt to the U.S. economy lasting into 2015.
For the latest quarter, Discover reported a profit of $618
million, or $1.31 a share, down from $659 million, or $1.33 a
share, for the year-earlier period.
Revenue net of interest expenses rose 4.3% to $2.08 billion.
Analysts polled by Thomson Reuters had forecast earnings of
$1.25 a share on revenue of $2.11 billion.
Total loans grew 6% from the prior-year period to $63.9
billion.
Discover recorded a $272 million provision for loan losses
compared with $159 million a year earlier. Total other expenses,
including employee compensation benefits and other fees, rose 4.1%
to $784 million. The company attributed the growth in expenses to
an increase in employees and rising compliance costs.
Write to Robin Sidel at robin.sidel@wsj.com and Anna Prior at
anna.prior@wsj.com
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