The new tax law ate into Discover Financial’s quarterly profit but the company’s revenue beat estimates amid growth in all its loan businesses.
Net income for the fourth quarter fell to $387 million, or $0.99 per share, from $563 million, or $1.40 per share in the year-ago period, reflecting in part one-time charges of $189 million related to the Tax Cuts and Jobs Act.
Revenue net of interest expense rose 3.5% to $2.61 billion. Analysts had expected earnings of $1.55 per share on revenue of $2.59 billion.
“Our earnings in the fourth quarter and full year were driven by strong loan and revenue growth across our businesses, the result of continued execution of our strategy,” Discover CEO David Nelms said in a news release.
“As we move forward in 2018, this strong momentum, enhanced by the favorable economic environment, should position us well for sustained growth, strong ROE and continued return of excess capital to shareholders,” he added.
According to Zacks Equity Research, Discover has been experiencing consistent growth in credit card revenue while its payments services segment has been underperfoming.
In the fourth quarter, Discover reported a 9% increase in total loans to $84.2 billion, with credit card loans ending the quarter at $67.3 billion, also up 9%, on Discover card sales volume of $35.3 billion. Personal loans increased $893 million (14%) from the prior year and private student loans increased $183 million (2%).
Payment services transaction dollar volume from PULSE and Diners Club was $54.0 billion, up 17% versus the prior year.
The company reported a total net charge-off rate, which reflects losses on credit cards, personal and student loans, of 2.85% in the latest period, compared with 2.63% in the previous quarter and 2.31% a year earlier. Net charge-offs for credit cards rose to 3.03% in the latest period, compared with 2.80% in the previous quarter.
“Consumer debt service burdens while rising are still near historic lows,” Nelms said in an earnings call.