Discover Financial’s 2Q Profit Jumps 7 Percent

Discover Financial Services’ net income grew 7 percent in the second quarter, as credit-card spending and overall loans increased from a year ago. The results beat Wall Street’s expectations.

The credit-card issuer and lender said Tuesday that card loans and sales volume for the company’s namesake card both climbed 6 percent, reflecting increased spending by its cardholders. More of those cardholders also elected to carry balances rather than pay them off, helping drive interest revenue for the company.

Personal loans jumped 26 percent, while private student loans rose 5 percent. All told, total loans jumped 7 percent in the April-June quarter.

“We are achieving increased wallet share with existing customers, and adding loans from new accounts, as well,” Discover Chairman and CEO David Nelms said during a conference call with Wall Street analysts.

Discover has been working to expand its credit-card business, adding features like free credit scores on cardholder statements. It has also taken steps to make its private student loans more attractive, including reducing interest rates and offering cash rewards to students who achieve good grades.

The Riverwoods, Illinois-based company’s latest results suggest consumers are feeling better about spending and taking on debt, something echoed by recent retail-sales and consumer-borrowing data.

Consumer spending at retail stores picked up an average of 0.5 percent in the April-June quarter, after a severe winter weighed on sales earlier this year.

Increased retail spending can help drive profits for credit-card issuers like Discover. All told, U.S. credit-card debt is up 2.5 percent over the past year, according to the Federal Reserve.

Employers are hiring at a healthy pace, which is making Americans more confident to spend. Employers added an average of 230,000 jobs a month in the first half of this year, up from 194,000 a month in 2013. That has knocked the unemployment rate down to 6.1 percent, the lowest in nearly six years.

Transaction-volume growth for Discover’s payments-services business rose 3 percent in the second quarter.

Meanwhile, the late-payment rate by its cardholders edged higher during the quarter. The rate of card loans more than 30 days past due rose to 1.63 percent, up 5 basis points from the year-ago period.

For the three months ended June 30, Discover’s profit after paying preferred dividends rose to $630 million, or $1.35 per share. That compares with net income of $588 million, or $1.20 per share, a year earlier.

Revenue, net of interest expense, rose 6 percent, to $2.17 billion from $2.04 billion.

Analysts polled by FactSet had expected earnings of $1.30 per share on $2.16 billion in revenue.

Discover shares ended regular trading up 76 cents to $64.06, then rose another 16 cents to $64.22 in extended trading.

This article appeared in print in the July 23rd, 2014 edition of Hamodia.