Discover Financial Services (NYSE: DFS):
Fourth Quarter 2021
Results
2021
2020
YOY Change
Total loans, end of period (in
billions)
$93.7
$90.4
4%
Total revenue net of interest expense (in
millions)
$2,936
$2,824
4%
Total net charge-off rate
1.37%
2.38%
-101 bps
Net income/(loss) (in millions)
$1,067
$799
34%
Diluted EPS
$3.64
$2.59
41%
Discover Financial Services (NYSE: DFS) today reported net
income of $1.1 billion or $3.64 per diluted share for the fourth
quarter of 2021, as compared to a net income of $799 million or
$2.59 per diluted share for the fourth quarter of 2020. For the
full year 2021, net income was $5.4 billion or $17.83 per diluted
share, compared to $1.1 billion or $3.60 per diluted share for the
full year 2020.
“Our record results in 2021 reflect the benefits of our
integrated digital banking and payments model, the strength of our
value proposition, and a supportive macroeconomic backdrop," said
Roger Hochschild, CEO and President of Discover "It's great to see
that our investments in acquisition, brand, and technology
contributed to our return to loan growth this past year, and should
drive accelerated growth in 2022.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.5 billion for the quarter
was $467 million higher than the prior year period reflecting a
lower provision for credit losses and higher revenue net of
interest expense, partially offset by higher operating
expenses.
Total loans ended the quarter at $93.7 billion, up 4%
year-over-year, and up 5% sequentially. Credit card loans ended the
quarter at $74.4 billion, up 4% year-over-year. Personal loans
decreased $241 million, or 3%, and private student loans increased
$159 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $378 million,
or 4% from the prior year period.
Net interest income for the quarter increased $106 million, or
4%, from the prior year period, driven by higher average
receivables, favorable funding costs and lower interest
charge-offs. Net interest margin was 10.81%, up 18 basis points
versus the prior year. Card yield was 12.50%, down 15 basis points
from the prior year period primarily driven by the impact of a high
payment rate on revolving loan balances and a higher mix of
receivables at a promotional rate, partially offset by decreased
interest charge-offs. Interest expense as a percent of total loans
decreased 58 basis points from the prior year period, primarily
driven by proactive management of deposit costs, a favorable shift
in the funding mix, lower market rates and the maturity of high
coupon consumer CDs.
Non-interest income increased $129 million, or 35%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards
cost, which reflected elevated sales volumes.
The total net charge-off rate of 1.37% was 101 basis points
lower versus the prior year period reflecting strong credit
performance across the portfolio. The credit card net charge-off
rate was 1.50%, down 113 basis points from the prior year period
and down 15 basis points from the prior quarter. The 30+ day
delinquency rate for credit card loans was 1.66%, down 41 basis
points year-over year and up 18 basis points from the prior
quarter. The student loan net charge-off rate was 0.80%, up 9 basis
points from the prior year and up 12 basis points from the prior
quarter. Personal loans net charge-off rate of 1.21% was down 158
basis points from the prior year and up 10 basis point from the
prior quarter.
Provision for credit losses of $263 million decreased $268
million from the prior year period driven by lower net charge-offs
and a reserve release in the quarter. The fourth quarter of 2021
included a $39 million reserve release, compared to no change in
reserves in the fourth quarter of 2020. Net charge-offs of $313
million were $218 million lower than the prior year period.
Total operating expenses were up $36 million year-over year, or
3%. The prior year quarter included $137 million of one-time
expense items; excluding these, the increase primarily reflects
higher marketing expense and increased professional fees.
For the full year, Digital Banking pretax income of $6.5 billion
was $5.3 billion higher year-over-year primarily reflecting a $4.9
billion decrease in provision expense as the current year included
$1.4 billion of reserve releases compared to $2.4 billion of
reserve builds in 2020. Additionally, net charge-offs were $1.1
billion lower than the prior year. Revenue net of interest expense
increased $609 million from the prior year. This was partially
offset by higher operating expense.
Payment Services
Payment Services had a pretax loss of $97 million, down $121
million year-over-year. Lower revenue was driven by a $139 million
unrealized loss on equity investments. This was partially offset by
higher PULSE and Network Partners revenue.
Payment Services volume was $83.4 billion, up 19%
year-over-year. PULSE dollar volume was up 18% year-over-year with
growth across all debit products driven by increased spend related
to the economic recovery. Diners Club volume was up 17%
year-over-year reflecting a rebound from the impacts of the
pandemic. Network Partners volume increased 29% from the prior year
primarily reflecting higher AribaPay volume.
For the full year, Payment Services pretax income of $533
million was $361 million higher than the prior year reflecting an
unrealized gain on equity investments and higher revenue in PULSE
and Network Partners, partially offset by higher operating
expenses.
Share Repurchase
During the fourth quarter of 2021, the company repurchased
approximately 6.5 million shares of common stock for $773 million.
Shares of common stock outstanding declined by 2.2% from the prior
quarter.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth
quarter results on Thursday, January 20, 2022, at 7:00 a.m. Central
Time. Interested parties can listen to the conference call via a
live audio webcast at https://investorrelations.discover.com.
About Discover
Discover Financial Services (NYSE: DFS) is a digital banking and
payment services company with one of the most recognized brands in
U.S. financial services. Since its inception in 1986, the company
has become one of the largest card issuers in the United States.
The company issues the Discover card, America's cash rewards
pioneer, and offers private student loans, personal loans, home
loans, checking and savings accounts and certificates of deposit
through its banking business. It operates the Discover Global
Network comprised of Discover Network, with millions of merchant
and cash access locations; PULSE, one of the nation's leading
ATM/debit networks; and Diners Club International, a global
payments network with acceptance around the world. For more
information, visit www.discover.com/company.
A financial summary follows. Financial, statistical, and
business related information, as well as information regarding
business and segment trends, is included in the financial
supplement filed as Exhibit 99.2 to the company's Current Report on
Form 8-K filed today with the Securities and Exchange Commission
(“SEC”). Both the earnings release and the financial supplement are
available online at the SEC's website (http://www.sec.gov) and the
company's website (https://investorrelations.discover.com).
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements, which speak to our expected business and
financial performance, among other matters, contain words such as
“believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,”
“may,” “should,” “could,” “would,” “likely,” and similar
expressions. Such statements are based upon the current beliefs and
expectations of the company's management and are subject to
significant risks and uncertainties. Actual results may differ
materially from those set forth in the forward-looking statements.
These forward-looking statements speak only as of the date of this
press release, and there is no undertaking to update or revise them
as more information becomes available.
The following factors, among others, could cause actual results
to differ materially from those set forth in the forward-looking
statements: the effect of the coronavirus disease 2019 ("COVID-19")
pandemic and measures taken to mitigate the pandemic, including
their impact on our credit quality and business operations as well
as their impact on general economic and financial markets, changes
in economic variables, such as the availability of consumer credit,
the housing market, energy costs, the number and size of personal
bankruptcy filings, the rate of unemployment, the levels of
consumer confidence and consumer debt, and investor sentiment; the
impact of current, pending and future legislation, regulation,
supervisory guidance, and regulatory and legal actions, including,
but not limited to, those related to tax reform, financial
regulatory reform, consumer financial services practices,
anti-corruption, and funding, capital and liquidity; the actions
and initiatives of current and potential competitors; the company's
ability to manage its expenses; the company's ability to
successfully achieve card acceptance across its networks and
maintain relationships with network participants; the company's
ability to sustain and grow its non-card products; difficulty
obtaining regulatory approval for, financing, closing,
transitioning, integrating or managing the expenses of acquisitions
of or investments in new businesses, products or technologies; the
company's ability to manage its credit risk, market risk, liquidity
risk, operational risk, compliance and legal risk, and strategic
risk; the availability and cost of funding and capital; access to
deposit, securitization, equity, debt and credit markets; the
impact of rating agency actions; the level and volatility of equity
prices, commodity prices and interest rates, currency values,
investments, other market fluctuations and other market indices;
losses in the company's investment portfolio; limits on the
company's ability to pay dividends and repurchase its common stock;
limits on the company's ability to receive payments from its
subsidiaries; fraudulent activities or material security breaches
of key systems; the company's ability to remain organizationally
effective; the company's ability to increase or sustain Discover
card usage or attract new customers; the company's ability to
maintain relationships with merchants; the effect of political,
economic and market conditions, geopolitical events and unforeseen
or catastrophic events; the company's ability to introduce new
products or services; the company's ability to manage its
relationships with third-party vendors; the company's ability to
maintain current technology and integrate new and acquired systems;
the company's ability to collect amounts for disputed transactions
from merchants and merchant acquirers; the company's ability to
attract and retain employees; the company's ability to protect its
reputation and its intellectual property; and new lawsuits,
investigations or similar matters or unanticipated developments
related to current matters. The company routinely evaluates and may
pursue acquisitions of or investments in businesses, products,
technologies, loan portfolios or deposits, which may involve
payment in cash or the company's debt or equity securities.
Additional factors that could cause the company's results to
differ materially from those described in the forward-looking
statements can be found under “Risk Factors,” “Business -
Competition,” “Business - Supervision and Regulation” and
“Management's Discussion and Analysis of Financial Condition and
Results of Operations” in the company's Annual Report on Form 10-K
for the year ended December 31, 2020, "Risk Factors" and
“Management's Discussion & Analysis of Financial Condition and
Results of Operations” in the company's Quarterly Report on Form
10-Q for the quarter ended September 30, 2021, June 30, 2021 and
March 31, 2021 which is filed with the SEC and available at the
SEC's internet site (http://www.sec.gov) and subsequent reports on
Forms 8-K and 10-Q, including the company's Current Report on Form
8-K filed today with the SEC.
DISCOVER FINANCIAL SERVICES (unaudited, in millions,
except per share statistics) Quarter Ended December
31,2021 September 30,2021 December 31,2020
EARNINGS SUMMARY Interest
Income
$2,742
$2,674
$2,760
Interest Expense
259
269
383
Net Interest Income
2,483
2,405
2,377
Discount/Interchange Revenue
1,042
988
811
Rewards Cost
697
689
569
Discount and Interchange Revenue, net
345
299
242
Protection Products Revenue
36
43
45
Loan Fee Income
131
121
110
Transaction Processing Revenue
60
58
52
Unrealized Gains/ (Losses) on Equity Investments
(139
)
(167
)
0
Realized Gains/ (Losses) on Equity Investments
1
0
0
Other Income
19
18
(2
)
Total Non-Interest Income
453
372
447
Revenue Net of Interest Expense
2,936
2,777
2,824
Provision for Credit Losses
263
185
531
Employee Compensation and Benefits
499
483
504
Marketing and Business Development
271
210
159
Information Processing & Communications
125
121
198
Professional Fees
230
198
192
Premises and Equipment
23
23
30
Other Expense
164
155
195
Total Operating Expense
1,312
1,190
1,278
Income/(Loss) Before Income Taxes
1,361
1,402
1,015
Tax Expense
294
311
216
Net Income/(Loss)
$1,067
$1,091
$799
Net Income/(Loss) Allocated to Common Stockholders
$1,062
$1,055
$794
PER SHARE
STATISTICS Basic EPS
$3.64
$3.54
$2.59
Diluted EPS
$3.64
$3.54
$2.59
Common Stock Price (period end)
$115.56
$122.85
$90.53
Book Value per share
$46.50
$45.00
$35.50
BALANCE SHEET SUMMARY
Total Assets
$110,242
$108,544
$112,889
Total Liabilities
96,834
95,281
102,005
Total Equity
13,408
13,263
10,884
Total Liabilities and Stockholders' Equity
$110,242
$108,544
$112,889
TOTAL LOAN RECEIVABLES
Ending Loans 1
$93,684
$89,542
$90,449
Average Loans 1
$91,095
$88,356
$88,960
Interest Yield
11.75
%
11.79
%
11.96
%
Gross Principal Charge-off Rate
2.36
%
2.50
%
3.17
%
Net Principal Charge-off Rate
1.37
%
1.46
%
2.38
%
Delinquency Rate (30 or more days)
1.55
%
1.40
%
1.89
%
Delinquency Rate (90 or more days)
0.66
%
0.58
%
0.88
%
Gross Principal Charge-off Dollars
$543
$556
$709
Net Principal Charge-off Dollars
$313
$325
$531
Net Interest and Fee Charge-off Dollars
$70
$72
$113
Loans Delinquent 30 or more days
$1,451
$1,258
$1,705
Loans Delinquent 90 or more days
$618
$522
$795
Allowance for Credit Losses (period end)
$6,822
$6,861
$8,226
Reserve Change Build/(Release) 2, 3
($39
)
($165
)
$0
Reserve Rate
7.28
%
7.66
%
9.09
%
CREDIT CARD LOANS Ending
Loans
$74,369
$70,320
$71,472
Average Loans
$71,865
$69,416
$69,997
Interest Yield
12.50
%
12.53
%
12.65
%
Gross Principal Charge-off Rate
2.63
%
2.83
%
3.53
%
Net Principal Charge-off Rate
1.50
%
1.65
%
2.63
%
Delinquency Rate (30 or more days)
1.66
%
1.48
%
2.07
%
Delinquency Rate (90 or more days)
0.76
%
0.66
%
1.03
%
Gross Principal Charge-off Dollars
$477
$495
$621
Net Principal Charge-off Dollars
$272
$289
$463
Loans Delinquent 30 or more days
$1,232
$1,040
$1,478
Loans Delinquent 90 or more days
$562
$467
$739
Allowance for Credit Losses (period end)
$5,273
$5,298
$6,491
Reserve Change Build/(Release) 2
($25
)
($111
)
$0
Reserve Rate
7.09
%
7.54
%
9.08
%
Total Discover Card Volume
$53,983
$50,389
$43,581
Discover Card Sales Volume
$51,308
$47,613
$40,957
Rewards Rate
1.35
%
1.44
%
1.38
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,458
$1,516
$991
Payment Services
(97
)
(114
)
24
Total
$1,361
$1,402
$1,015
NETWORK VOLUME PULSE
Network
$64,787
$59,872
$55,055
Network Partners
11,233
10,377
8,740
Diners Club International 4
7,367
6,547
6,321
Total Payment Services
83,387
76,796
70,116
Discover Network - Proprietary
53,197
49,360
42,526
Total
$136,584
$126,156
$112,642
1 Total Loans includes Home Equity and other loans.
2 Excludes January 1, 2020 CECL day one impact 3
Excludes any build/release of the liability for expected credit
losses on unfunded commitments as the offset is recorded in accrued
expenses and other liabilities in the Company's condensed
consolidated statements of financial condition 4 Volume is
derived from data provided by licencees for Diners Club branded
cards issued outside of North America and is subject to subsequent
revision or amendment Note: See Glossary for definitions of
financial terms in the financial supplement which is available
online at the SEC's website (http://www.sec.gov) and the Company's
website (http://investorrelations.discoverfinancial.com).
View source
version on businesswire.com: https://www.businesswire.com/news/home/20220118006057/en/
Investors: Eric Wasserstrom, 224-405-5923
ericwasserstrom@discover.com Media: Jon Drummond,
224-405-1888 jondrummond@discover.com
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