April 22, 2014 / 11:07 PM / 4 years ago

UPDATE 1-High-spending clients boosts Discover Financial's profit

* First quarter earnings $1.31/shr vs est $1.25

* Total loans up 6 pct, credit card loans up 5 pct

* Industry growth coming from high-spending clients-CEO (Adds executive comments and details from conference call, analyst comment)

By Neha Dimri

April 22 (Reuters) - Credit card issuer Discover Financial Services reported a first-quarter profit that beat Wall Street estimates as its high-spending customers more than made up for the slower growth in overall U.S. consumer spending.

The company said total loans rose 6 percent, while credit card loans increased 5 percent in the quarter ended March 31 - a period when U.S. consumer spending slowed.

“The majority of sales growth in the industry at the moment is coming from high spend transactors while profitability in the industry for the most part is still driven by receivables not sales”, Chief Executive David Nelms said on a conference call.

Economic growth slowed or outright contracted in some areas of the United States in the January-March quarter as the unseasonably cold weather took a toll on consumer spending, according to a Federal Reserve report.

“Affluent customers have been spending more than lower income consumers and lot of affluent customers have credit card with higher spending limit and then that has been a big driver,” said Janney Capital Markets analyst Sameer Gokhale.

American Express Co, the world’s biggest credit card issuer, had to control expenses in the quarter to make up for slower growth in consumer spending in its key U.S. market.

Discover, like American Express, issues its own cards and lends directly to consumers, but its business is a quarter of its rival’s size. They both compete with Visa Inc and MasterCard Inc to process transactions for banks.

Discover said net interest income, the difference between what it earns on loans and what its pays on deposits, rose about 11 percent to $1.56 billion in the first quarter.

Net interest margin is expected to stay above the company’s long-term target for some time, Chief Financial Officer R. Mark Graf said on the call.

Discover’s card volume rose 4 percent to $28.08 billion, and provision for loan losses rose 71 percent to $272 million.

Net income allocated to the company’s common stockholders fell to $618 million, or $1.31 per share, from $659 million, or $1.33 per share, a year earlier.

Analysts on average were expecting earnings of $1.25 per share on revenue of $2.11 billion, according to Thomson Reuters I/B/E/S.

Revenue, net of interest expense, rose 4 percent to $2.08 billion.

Shares of the company were marginally down in extended trading after closing at $56.67 on the New York Stock Exchange on Tuesday. (Editing by Savio D‘Souza)

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