Discover Financial Services, aided by 9% loan growth in its flagship credit card business, recorded net income of $387 million during the fourth quarter.

Net interest income rose by from the same period 12% to $2.1 billion, but the solid revenue growth was partially offset by rising expenses. Operating expenses climbed to $1.04 billion, up 15% from the same period a year earlier, as the Riverwoods, Ill.-based company spent more on employee compensation, marketing and investments in technology.

“While the new tax law impacted the current quarter, I am excited about the opportunity it provides to further invest in growth, our people and our communities,” Discover CEO David Nelms said. Bloomberg News

Overall profits declined 31% from the same period in 2016, as the company took a $189 million charge in connection to the recently enacted federal tax legislation. That charge reduced earnings per share by 52 cents, the $100 billion-asset company said Wednesday. Earnings per share came in at 99, or 41 cents short of the mean estimates of analysts polled by FactSet Research Systems.

Still, the tax law figures to be beneficial in the long run. Discover projects that it will pay an effective tax rate of 24% in 2018, which is down from 34.5% two years ago.

Like the rest of the U.S. card industry, Discover has been hurt in recent quarters by rising late payment rates among consumers. During the last three months of 2017, Discover charged off 3.03% of its card loans, up from 2.47% during the same period a year earlier.

But in an indication that Discover expects its chargeoff rates to grow at a slower rate in 2018, the company built its reserves by just $94 million in the fourth quarter, down from $144 million a year earlier.

Discover’s net chargeoff rate, which includes its personal loan and student loan businesses, in addition to credit cards, was 2.92% during the fourth quarter. The firm released guidance projecting a net chargeoff rate of 3% to 3.25% this year.

The company also said Wednesday that in the wake of the tax law’s passage, it spent $16 million on a one-time bonus for certain employees.

“While the new tax law impacted the current quarter, I am excited about the opportunity it provides to further invest in growth, our people and our communities,” Discover CEO David Nelms said in a press release.

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Kevin Wack

Kevin Wack

Kevin Wack is a California-based reporter for American Banker who covers the U.S. consumer finance industry.