Discover Hurdles Estimates On Loan Growth

Will the relief rally in the financial sector continue? With the most recent results posted by Discover Financial Services and the stock up 4 percent after hours on the news, the answer seems to be affirmative.

As reported by the company after the bell, the numbers were better than expected, with top line and bottom line coming in above consensus. The firm earned $1.35 per share in the first quarter, which was better than the $1.30 expected by The Street.

The key drivers were higher loan volumes and higher margins. The top line of $2.2 billion was better than The Street at $1.8 billion. The results also offered growth above last year at this time, when Discover made $1.28 on $2.1 billion.

The first quarter total loans on hand grew by 4 percent to $70 billion, and credit cards were up 4 percent to $55.6 billion. Within that segment, Discover card sales volume growth kept pace with the overall percentage gains, while personal loans were boosted by 9 percent to as much as $469 million. Customer spending on cards, said management on the call, was up slightly and, excluding gas prices, was up 6 percent. Other lending metrics were up, as student loans grew by 15 percent, with personal loans up 9 percent over the same period.

Within the payments business, said CEO David Nelms, total volumes for the segment declined, with some growth in network partners.

Net discount and interchange revenues were up by 2 percent in the quarter, pushed higher by growing sales.

Loan yields were 11.7 percent on average, with card yields driving growth in that yield year over year. The growth in net charge-offs came as a result of higher loan growth, said the company.

“Caution” marks the overall state of the consumer, said Nelms, with “steady but slow growth.” But that translates to credit use that has been measured, yet there was indeed a callout in the Q&A with analysts that features, such as cash back, have been well-received.