Discover Financial Services’ (DFS - Free Report) fourth-quarter 2017 adjusted earnings of $1.55 per share surpassed the Zacks Consensus Estimate by 1.3%. The bottom line also rose 10.7% year over year driven by strong loan and revenue growth across segments.

Including non-recurring charges and pre-tax expenses, net income per share came at 99 cents in the fourth quarter, down 29% year over year.

For 2017, the company reported net income of $5.42 per share, down 6% from the prior-year quarter.

Operational Update

For the reported quarter, the company’s revenue net of interest expenses increased 11% year over year to $2.6 billion. The top line also surpassed the Zacks Consensus Estimate by 41%.

For 2017, revenue net of interest expenses increased 9% year over year to $9.9 billion.

Consumer deposits grew 9% from the year-ago quarter to $84.2 billion.

Interest expenses of $436 million jumped 19% year over year.

Total other expenses increased 15% to $1 billion due to higher employee compensation and benefits, marketing and business Development expenses and professional fees.

Segment Update
 
Direct Banking Segment

This segment’s pre-tax income rose 0.2% to $870 million. This was because higher revenues were partially offset by increased provision for loan losses and operating expenses.

Total loans increased 9% year over year to $84.2 billion.

Credit card loans rose 9% to $67.3 billion.

Personal loans increased 14%, private student loans increased 2% and jumped 11% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 12% to $2.1 billion from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.28%, up 21 basis points from the prior-year quarter.

Total other income rose 6% to $494 million from the prior-year quarter, driven by higher discount and interchange revenues.

Provision for loan losses of $678 million increased 17% year over year due to higher net charge-offs, partially offset by a smaller reserve build.

Payment Services Segment

Payment Services pretax income was $29 million in the quarter, up 93% from $15 million in the year-ago quarter. The rise was primarily driven by higher transaction processing revenues and interchange revenues as well as lower operating expenses.

Payment Services transaction dollar volume was $54 billion, up 17% from the prior-year-quarter.

PULSE transaction dollar volume went up 19% year over year.

Diners Club International volume rose 14% from the last-year quarter, driven by continued strength of newer franchise relationships.

Network Partners volume increased 1.4%.

Discover Financial Services Price, Consensus and EPS Surprise

Discover Financial Services Price, Consensus and EPS Surprise | Discover Financial Services Quote

Financial Position

Discover Financial had total assets worth $100.1 billion as of Dec 31, 2017, up 8.4% year over year.

Total liabilities as of Dec 31, 2017 were $89.2 billion, up 10% year over year.

Total equity was $10.9 billion on Dec 31, 2017, down 3.8% year over year.

Discover Financial’s return on equity for the fourth quarter was 14%.

Share Repurchase Update

During the fourth quarter, the company repurchased approximately 8.1 million shares of common stock for $555 million.

Shares of common stock outstanding declined 2.2% from the prior quarter.

Zacks Rank and Performance of Other Peers

Discover Financial sports a Zacks Rank #1 (Strong Buy).

Among other players in the Finance sector that have reported their fourth-quarter earnings so far, American Express Company (AXP - Free Report) , Total System Services, Inc. (TSS - Free Report) and Navient Corporation (NAVI - Free Report) beat their respective Zacks Consensus Estimate.