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Discover Financial's (DFS) Q3 Earnings In Line, Improve Y/Y

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Discover Financial Services’ (DFS - Free Report) third-quarter 2018 adjusted earnings of $2.05 per share are in line with the Zacks Consensus Estimate. The bottom line also improved 29% year over year on higher revenues and solid loan growth.

Operational Update

For the reported quarter, the company’s revenues, net of interest expenses, increased 8% year over year to $2.7 billion, driven by higher net interest incomes and the company’s other total income. Moreover, the top line beat the Zacks Consensus Estimate by 1.1%.

Total loans grew 8% year over year to $86.9 billion.

Interest expenses of $558 million surged 31% year over year.

Total other expenses increased 7.1% to $1015 million due to higher employee compensation and benefits plus other expenses.

Segment Update

Direct Banking Segment

This segment’s pre-tax income increased 6.5% to $923 million owning to more net interest income. However, the same was largely offset by a rise in provision for loan losses and operating expenses.

Total loans increased 8% year over year to $86.9 billion. Credit card loans rose 9% to $69.3 billion.

Personal loans ascended 2%, private student loans rose 2% as well as climbed 10% excluding purchased student loans, all on a year-over-year basis.

Net interest income increased 8% year over year, driven by loan growth. Net interest margin was 10.28%, remaining flat with the year-ago quarter.

Payment Services Segment

Payment Services pre-tax income was $44 million in the quarter under review, up 22.2% from the year-earlier period, mainly driven by higher revenues attributable to transaction volume growth.

Payment Services transaction dollar volume was $58.7 billion, up 14% from the prior-year-quarter.

PULSE transaction dollar volume expanded 14% year over year, driven by the impact of new issuers on the network as well as strong growth from existing issuers.

Diners Club volume grew 5% from the year-ago quarter, banking on a continued strength of newer franchise relationships.

Network Partners volume expanded 34%, backed by AribaPay.

Strong Financial Position

Discover Financial had total assets worth $105.8 billion as of Sep 30, 2018, up 8.4% year over year.

Total liabilities as of Sep 30, 2018 were $94.8 billion, up 9.7% year over year.

Total equity was $10.89 billion on Sep 30, 2018, slipping 1.5% year over year.

Discover Financial’s return on equity for the third quarter was 26%.

Share Repurchase Update

During the quarter under review, the company repurchased approximately 6 million shares of common stock for $460 million.

Shares of common stock outstanding dipped 1.7% from the previously reported quarter’s tally.

Zacks Rank

Discover Financial carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Other Releases From Finance Sector

Among other players from the finance sector having reported third-quarter earnings so far, the bottom line of The Progressive Corporation (PGR - Free Report) and MGIC Investment Corporation (MTG - Free Report) outpaced the respective Zacks Consensus Estimate, while RLI Corp.’s earnings (RLI - Free Report) lagged the same.

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