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Discover ups dividend as Fed board approves capital plan; earnings rise YOY

Discover Financial Services reported second-quarter net income allocated to common shareholders of $663 million, or $1.91 per share, an increase from $532 million, or $1.40 per share, in the prior-year period.

The S&P Capital IQ consensus normalized EPS estimate for the quarter was $1.89.

Revenue, net of interest expense, was $2.60 billion, compared with $2.42 billion in the same period a year earlier. Total loans grew by 9% to $84.8 billion over the prior-year quarter.

Net interest income totaled $2.13 billion for the quarter, up from $1.94 billion in the second quarter of 2017. The net interest margin in the company's direct banking unit was 10.21%, which was up 10 basis points from the prior-year period.

Discover's direct banking unit posted pretax income of $837 million for the period, up slightly from $831 million a year earlier. The company attributed the increase to higher net interest income, largely offset by an increase in the provision for loan losses and higher operating expenses.

Expenses for the direct banking business rose year over year by $72 million in the quarter. The company cited higher employee compensation and marketing costs as the drivers for the increased expenses.

The provision for loan losses was $742 million during the quarter, compared with the $640 million allocated in the prior-year quarter. Discover's net principal charge-off rate, excluding purchased credit-impaired loans, was 3.18% for the quarter, compared with 2.79% in the year-ago period.

The company's delinquency rate for credit card loans more than 30 days past due was 2.16%, up from 2.00% in the second quarter of 2017.

The company also said that the Board of Governors of the Federal Reserve System had no objections to its planned capital actions through June 30, 2019. This includes an increase in its quarterly dividend to 40 cents per share from 35 cents per share previously and share buybacks of up to $1.85 billion during the four quarters ended June 30, 2019.