Board of Directors Declares Semi-Annual
Dividend for Preferred Stock and Quarterly Dividend for Common
Stock
Discover Financial Services (NYSE: DFS):
Second Quarter 2022
Results
2022
2021
YOY Change
Total loans, end of period (in
billions)
$99.3
$87.7
13%
Total revenue net of interest expense (in
millions)
$3,224
$3,579
(10%)
Total net charge-off rate
1.80%
2.12%
(32) bps
Net income/(loss) (in millions)
$1,111
$1,698
(35)%
Diluted EPS
$3.96
$5.55
(29%)
Discover Financial Services (NYSE: DFS) today reported net
income of $1.1 billion or $3.96 per diluted share for the second
quarter of 2022, as compared to a net income of $1.7 billion or
$5.55 per diluted share for the second quarter of 2021.
“Our solid second quarter results reflected robust revenue
growth, characterized by strong sales, increased receivables growth
and margin expansion,” said Roger Hochschild, CEO and President of
Discover. “Amidst evolving macroeconomic conditions, credit
performance remains particularly strong, as delinquencies are
stable and losses are rising modestly, reflecting slower than
expected credit normalization. The health of our customers and the
strength of our integrated digital banking and payments model gives
us confidence that we remain well positioned to generate
substantial shareholder value through a range of economic
environments.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.4 billion for the quarter
was $98 million lower than the prior year period reflecting a
higher provision for credit losses and higher operating expenses,
mostly offset by increased revenue net of interest expense.
Total loans ended the quarter at $99.3 billion, up 13%
year-over-year, and up 6% sequentially. Credit card loans ended the
quarter at $79.2 billion, up 15% year-over-year. Personal loans
increased $280 million, or 4%, and private student loans increased
$210 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $391 million,
or 4% from the prior year period.
Net interest income for the quarter increased $311 million, or
14% driven by higher average receivables and net interest margin
expansion. Net interest margin was 10.94%, up 26 basis points
versus the prior year. Card yield was 12.81%, up 29 basis points
from the prior year primarily driven by higher market rates and
lower interest charge-offs partially offset by a higher mix of
receivables at a promotional rate. Interest expense as a percent of
total loans decreased 7 basis points from the prior year period,
primarily driven by the maturity of high coupon consumer CDs and a
favorable shift in the funding mix.
Non-interest income increased $99 million, or 22%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards cost
driven by elevated sales volumes.
The total net charge-off rate of 1.80% was 32 basis points lower
versus the prior year period reflecting strong credit performance
across the portfolio. The credit card net charge-off rate was
2.01%, down 44 basis points from the prior year period and up 17
basis points from the prior quarter. The 30+ day delinquency rate
for credit card loans was 1.76%, up 33 basis points year-over year
and down 1 basis point from the prior quarter. The student loan net
charge-off rate was 1.08%, up 55 basis points from the prior year
and up 39 basis points from the prior quarter. Personal loans net
charge-off rate of 1.21% was down 59 basis points from the prior
year and up 9 basis points from the prior quarter.
Provision for credit losses of $549 million increased $414
million from the prior year driven by a $110 million reserve build
in the current quarter compared to a $321 million reserve release
in the prior year quarter, partially offset by lower net
charge-offs. Net charge-offs of $429 million were $27 million lower
than the prior year period.
Total operating expenses were up $94 million year-over year, or
9%, driven by higher expenses for marketing and employee
compensation partially offset by lower information processing.
Marketing increased primarily due to investments in Card
acquisition and Consumer Banking. Employee compensation increase
was driven by higher headcount and higher average salaries and
benefits. Information processing decreased primarily due to
software write-offs in the prior year quarter.
Payment Services
Payment Services pretax income of $20 million was down $672
million year-over-year. Lower revenue was driven by a $729 million
gain on an equity investment in the prior year compared to $42
million net losses on equity investments in the current year
quarter. This was partially offset by higher PULSE and Network
Partners revenue.
Payment Services volume was $82.9 billion, up 6% year-over-year.
PULSE dollar volume was flat year-over-year primarily driven by
receding spend on debit products related to the end of federal
stimulus programs. Diners Club volume was up 37% year-over-year
reflecting an improvement in global travel and entertainment
spending. Network Partners volume increased 22% from the prior year
primarily reflecting higher AribaPay volume.
Share Repurchase
During the second quarter of 2022, the company repurchased
approximately 5.8 million shares of common stock for $601 million.
Shares of common stock outstanding declined by 2.0% from the prior
quarter. The company is suspending until further notice its
existing share repurchase program because of an internal
investigation relating to its student loan servicing practices and
related compliance matters. The investigation is ongoing and is
being conducted by a board-appointed independent special
committee.
Dividend Declaration
The Board of Directors of Discover Financial Services declared a
semi-annual cash dividend on its Fixed Rate Non-Cumulative
Perpetual Preferred Stock, Series C, in the amount of $2,750 per
share. The dividend equals $27.50 per depositary share, each
representing 1/100th interest in a share of the Series C Preferred
Stock. The dividend will be payable on October 31, 2022, to the
holders of record at the close of business on October 14, 2022.
The Board of Directors of Discover Financial Services declared a
semi-annual cash dividend on its Fixed Rate Non-Cumulative
Perpetual Preferred Stock, Series D, in the amount of $3,062.50 per
share. The dividend equals $30.625 per depositary share, each
representing 1/100th interest in a share of the Series D Preferred
Stock. The dividend will be payable on September 23, 2022, to the
holders of record at the close of business on September 8,
2022.
The Board of Directors declared a quarterly cash dividend of
$0.60 per share of common stock payable on September 8, 2022, to
holders of record at the close of business on August 25, 2022.
Conference Call and Webcast Information
The company will host a conference call to discuss its second
quarter results on Thursday, July 21, 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 merchants
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 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 accounting guidance, 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 and merchants; the
company's ability to sustain its card, private student loan and
personal loan growth; the company’s ability to increase or sustain
Discover card usage or attract new customers; 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 its or others’ key systems; the company's ability to remain
organizationally effective; the effect of political, economic and
market conditions, geopolitical events, climate change 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, as well as those which
we have no direct relationship such as our employees’ internet
service providers; the company's ability to maintain current
technology and integrate new and acquired systems and technology;
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; the company’s ability to
comply with regulatory requirements; 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, 2021, "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 March 31, 2022 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 June
30,2022 March 31,2022 June 30,2021
EARNINGS SUMMARY Interest
Income
$2,915
$2,736
$2,589
Interest Expense
305
257
290
Net Interest Income
2,610
2,479
2,299
Discount/Interchange Revenue
1,133
955
937
Rewards Cost
743
635
598
Discount and Interchange Revenue, net
390
320
339
Protection Products Revenue
42
44
43
Loan Fee Income
142
140
105
Transaction Processing Revenue
61
57
58
Unrealized Gains/(Losses) on Equity Investments
(169)
(188)
729
Realized Gains/(Losses) on Equity Investments
127
26
0
Other Income
21
24
6
Total Non-Interest Income
614
423
1,280
Revenue Net of Interest Expense
3,224
2,902
3,579
Provision for Credit Losses
549
154
135
Employee Compensation and Benefits
515
500
498
Marketing and Business Development
254
192
175
Information Processing & Communications
121
125
145
Professional Fees
189
177
187
Premises and Equipment
24
24
22
Other Expense
120
112
195
Total Operating Expense
1,223
1,130
1,222
Income/(Loss) Before Income Taxes
1,452
1,618
2,222
Tax Expense
341
376
524
Net Income/(Loss)
$1,111
$1,242
$1,698
Net Income/(Loss) Allocated to Common Stockholders
$1,105
$1,205
$1,688
PER SHARE
STATISTICS Basic EPS
$3.96
$4.23
$5.56
Diluted EPS
$3.96
$4.22
$5.55
Common Stock Price (period end)
$94.58
$110.19
$118.29
Book Value per share
$50.00
$47.81
$43.72
BALANCE SHEET SUMMARY
Total Assets
$114,600
$107,412
$110,985
Total Liabilities
100,836
93,979
97,814
Total Equity
13,764
13,433
13,171
Total Liabilities and Stockholders' Equity
$114,600
$107,412
$110,985
TOTAL LOAN RECEIVABLES
Ending Loans 1
$99,301
$93,471
$87,674
Average Loans 1
$95,736
$92,691
$86,296
Interest Yield
12.00%
11.80%
11.79%
Gross Principal Charge-off Rate
2.76%
2.64%
3.20%
Net Principal Charge-off Rate
1.80%
1.61%
2.12%
Delinquency Rate (30 or more days)
1.63%
1.64%
1.34%
Delinquency Rate (90 or more days)
0.70%
0.72%
0.63%
Gross Principal Charge-off Dollars
$659
$603
$688
Net Principal Charge-off Dollars
$429
$368
$456
Net Interest and Fee Charge-off Dollars
$92
$87
$101
Loans Delinquent 30 or more days
$1,621
$1,537
$1,172
Loans Delinquent 90 or more days
$694
$678
$550
Allowance for Credit Losses (period end)
$6,757
$6,647
$7,026
Reserve Change Build/(Release) 2
$110
($175)
($321)
Reserve Rate
6.80%
7.11%
8.01%
CREDIT CARD LOANS Ending
Loans
$79,237
$73,783
$68,886
Average Loans
$75,917
$73,042
$67,420
Interest Yield
12.81%
12.59%
12.52%
Gross Principal Charge-off Rate
3.10%
3.00%
3.69%
Net Principal Charge-off Rate
2.01%
1.84%
2.45%
Delinquency Rate (30 or more days)
1.76%
1.77%
1.43%
Delinquency Rate (90 or more days)
0.80%
0.83%
0.73%
Gross Principal Charge-off Dollars
$587
$541
$620
Net Principal Charge-off Dollars
$381
$331
$412
Loans Delinquent 30 or more days
$1,392
$1,305
$983
Loans Delinquent 90 or more days
$633
$613
$504
Allowance for Credit Losses (period end)
$5,307
$5,120
$5,409
Reserve Change Build/(Release) 2
$187
($153)
($231)
Reserve Rate
6.70%
6.94%
7.85%
Total Discover Card Volume
$57,384
$49,379
$48,049
Discover Card Sales Volume
$53,860
$46,329
$45,460
Rewards Rate
1.37%
1.36%
1.31%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,432
$1,719
$1,530
Payment Services
20
(101)
692
Total
$1,452
$1,618
$2,222
NETWORK VOLUME PULSE
Network
$62,992
$59,836
$62,855
Network Partners
11,532
10,683
9,468
Diners Club International 3
8,381
7,176
6,126
Total Payment Services
82,905
77,695
78,449
Discover Network - Proprietary
55,838
48,129
47,201
Total
$138,743
$125,824
$125,650
1 Total Loans includes Home Equity and other loans.
2 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 3 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/20220719006103/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Robert Weiss, 224-405-6304
robertweiss@discover.com
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