Discover Beats The Street On The Strength Of Strong Loan Growth

Some strong news out of Discover Financial yesterday as it reported its Q4 2016 earnings — the Riverwoods, Ill.-based financial services firm managed to beat analyst expectations on both earnings and revenue.

"We are proud of all we accomplished in 2016, including record originations in personal and student loans as well as strong new card account growth, all of which helped us to achieve nearly 7% loan growth. In 2017, we will continue to invest for long-term growth and remain focused on capital return," said David Nelms, chairman and CEO of Discover.

The solid earnings news comes at a fortuitous time for Discover, which has seen its share down 3 percent since the beginning of 2017 — while the S&P 500 is on average up 2 percent.

Still, Discover's climbing delinquency rate clearly caught some investors attention — as stocks sipped slightly by 8 cents a share to $69.80 in after-hours trading after peaking at $69.88 in the last few minutes of the trading day on Wall Street.  Overall, however, that stock price represents 47 percent growth in share price, year-over-year.

What else do you need to know?

By The Numbers 

All in all, Discover posted earnings of $1.40 per share, edging out the analyst consensus figure of $1.38 per share. In hard figures, that is earnings of $563 million — up from $500 million year-over-year.  Revenue was also a win, clocking in at $2.36 billion and a significant improvement on the $1.802 billion forecast.

Also up was loan volume — total loans picked up 7 percent, or $4.9 billion, to $77.3 billion. Credit loans rose 6 percent to $61.5 billion in the fourth quarter, while Discover card sales volume gained 3 percent. Personal loans were also on the increase, and notably so — with 18 percent growth in Q4. Student loans were also an area where Discover notched some big growth, with a year-over-year increase of 9 percent to $1.4 billion.

"We delivered robust revenue growth in the fourth quarter with a solid operating efficiency ratio. While the seasoning of loans from the past several years of growth continued to drive provisions, overall credit performance remained healthy," Nelms noted.

Delinquencies Rising 

Though the news out of Discover was largely strong, there were some notable increases in delinquencies and charge-offs that payment peeps might want to keep an eye on.  The delinquency rate for credit card loans over 30 days past due was 2.04 percent, up 32 basis points from the prior year and 17 basis points from the prior quarter.

The credit card net charge-off rate for the fourth quarter was 2.47 percent, up 29 basis points from the prior year and 30 basis points from the prior quarter. The personal loans net charge-off rate of 2.70 percent increased by 42 basis points from the prior year. The student loan net charge-off rate excluding purchased credit-impaired ("PCI") loans was 1.42 percent, up 12 basis points from the prior year.



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