Board of Directors Declares Quarterly
Dividend for Common Stock
Discover Financial Services (NYSE: DFS):
Third Quarter 2022
Results
2022
2021
YOY Change
Total loans, end of period (in
billions)
$104.9
$89.5
17%
Total revenue net of interest expense (in
millions)
$3,479
$2,777
25%
Total net charge-off rate
1.71%
1.46%
25 bps
Net income/(loss) (in millions)
$1,006
$1,091
(8)%
Diluted EPS
$3.54
$3.54
—%
Discover Financial Services (NYSE: DFS) today reported net
income of $1.0 billion or $3.54 per diluted share for the third
quarter of 2022, as compared to a net income of $1.1 billion or
$3.54 per diluted share for the third quarter of 2021.
“Our outstanding third quarter results were characterized by
robust loan growth and net interest margin, and strong credit
metrics,” said Roger Hochschild, CEO and President of Discover.
“These results reflect our continued disciplined approach to credit
management, the strength of our integrated digital bank and
payments model, and our solid execution, all of which position us
well for a range of future economic environments.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.3 billion for the quarter
was $251 million lower than the prior year period reflecting a
higher provision for credit losses and higher operating expenses,
partially offset by increased revenue net of interest expense.
Total loans ended the quarter at $104.9 billion, up 17%
year-over-year, and up 6% sequentially. Credit card loans ended the
quarter at $83.6 billion, up 19% year-over-year. Personal loans
increased $784 million, or 11%, and private student loans increased
$165 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $331 million,
or 4% from the prior year period.
Net interest income for the quarter increased $438 million, or
18% driven by higher average receivables and net interest margin
expansion. Net interest margin was 11.05%, up 25 basis points
versus the prior year. Card yield was 13.56%, up 103 basis points
from the prior year primarily driven by higher market rates
partially offset by a higher mix of receivables at a promotional
rate and slightly higher interest charge-offs. Interest expense as
a percent of total loans increased 79 basis points from the prior
year period, primarily driven by higher funding costs slightly
offset by the maturity of high coupon consumer CDs.
Non-interest income increased $94 million, or 21%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards cost
driven by higher new account sales volumes.
The total net charge-off rate of 1.71% was 25 basis points
higher versus the prior year period reflecting credit normalization
across the portfolio. The credit card net charge-off rate was
1.92%, up 27 basis points from the prior year period and down 9
basis points from the prior quarter. The 30+ day delinquency rate
for credit card loans was 2.11%, up 63 basis points year-over year
and 35 basis point from the prior quarter. The student loan net
charge-off rate was 0.91%, up 23 basis points from the prior year
and down 17 basis points from the prior quarter. Personal loans net
charge-off rate of 1.14% was up 3 basis points from the prior year
and down 7 basis points from the prior quarter.
Provision for credit losses of $773 million increased $588
million from the prior year driven by a $304 million reserve build
in the current quarter compared to a $165 million reserve release
in the prior year quarter and a $114 million increase in net-charge
offs.
Total operating expenses were up $195 million year-over year, or
17%, driven by higher expenses for employee compensation,
marketing, and professional fees. Marketing increased primarily due
to investments in card acquisition, brand, and consumer banking.
Employee compensation increase was driven by higher headcount.
Professional Fees increased due to investment in technology and
vendor support.
Payment Services
Payment Services pretax income of $53 million was up $167
million year-over-year. Higher revenue was driven by a $167 million
unrealized equity loss in the prior year quarter compared to $4
million net losses on equity investments in the current year
quarter.
Payment Services volume was $84.1 billion, up 10%
year-over-year. PULSE dollar volume was up 6% primarily driven by
increased debit transaction volume. Diners Club volume was up 34%
year-over-year reflecting an improvement in global travel and
entertainment spending . Network Partners volume increased 15% from
the prior year primarily reflecting higher AribaPay volume.
Share Repurchase
The company repurchased approximately 2.1 million shares of
common stock for $212 million through July 20th, 2022, prior to the
temporary suspension in our share repurchase program. Shares of
common stock outstanding declined by 0.7% from the prior
quarter.
The Company previously disclosed an internal investigation
relating to its student loan servicing practices and related
compliance matters that is being conducted under the oversight of a
board-appointed independent special committee. The investigation is
ongoing, and the previously announced suspension of the Company's
share repurchase program remains in place.
Dividend Declaration
The Board of Directors declared a quarterly cash dividend of
$0.60 per share of common stock payable on December 8, 2022, to
holders of record at the close of business on November 23,
2022.
Conference Call and Webcast Information
The company will host a conference call to discuss its third
quarter results on Tuesday, October 25, 2022, at 8:00 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 June 30, 2022 and 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 September
30, 2022 June 30, 2022 September 30, 2021
EARNINGS SUMMARY Interest
Income
$3,357
$2,915
$2,674
Interest Expense
514
305
269
Net Interest Income
2,843
2,610
2,405
Discount/Interchange Revenue
1,157
1,133
988
Rewards Cost
811
743
689
Discount and Interchange Revenue, net
346
390
299
Protection Products Revenue
42
42
43
Loan Fee Income
168
142
121
Transaction Processing Revenue
65
61
58
Unrealized Gains/(Losses) on Equity Investments
(37)
(169)
(167)
Realized Gains/(Losses) on Equity Investments
33
127
0
Other Income
19
21
18
Total Non-Interest Income
636
614
372
Revenue Net of Interest Expense
3,479
3,224
2,777
Provision for Credit Losses
773
549
185
Employee Compensation and Benefits
551
515
483
Marketing and Business Development
276
254
210
Information Processing & Communications
124
121
121
Professional Fees
241
189
198
Premises and Equipment
22
24
23
Other Expense
174
120
155
Total Operating Expense
1,388
1,223
1,190
Income/(Loss) Before Income Taxes
1,318
1,452
1,402
Tax Expense
312
341
311
Net Income/(Loss)
$1,006
$1,111
$1,091
Net Income/(Loss) Allocated to Common Stockholders
$967
$1,105
$1,055
PER SHARE
STATISTICS Basic EPS
$3.54
$3.96
$3.54
Diluted EPS
$3.54
$3.96
$3.54
Common Stock Price (period end)
$90.92
$94.58
$122.85
Book Value per share
$52.29
$50.00
$45.00
BALANCE SHEET SUMMARY
Total Assets
$121,886
$114,600
$108,544
Total Liabilities
107,600
100,836
95,281
Total Equity
14,286
13,764
13,263
Total Liabilities and Stockholders' Equity
$121,886
$114,600
$108,544
TOTAL LOAN RECEIVABLES
Ending Loans 1
$104,908
$99,301
$89,542
Average Loans 1
$102,035
$95,736
$88,356
Interest Yield
12.67%
12.00%
11.79%
Gross Principal Charge-off Rate
2.56%
2.76%
2.50%
Net Principal Charge-off Rate
1.71%
1.80%
1.46%
Delinquency Rate (30 or more days)
1.94%
1.63%
1.40%
Delinquency Rate (90 or more days)
0.80%
0.70%
0.58%
Gross Principal Charge-off Dollars
$659
$659
$556
Net Principal Charge-off Dollars
$439
$429
$325
Net Interest and Fee Charge-off Dollars
$98
$92
$72
Loans Delinquent 30 or more days
$2,034
$1,621
$1,258
Loans Delinquent 90 or more days
$837
$694
$522
Allowance for Credit Losses (period end)
$7,061
$6,757
$6,861
Reserve Change Build/(Release) 2
$304
$110
($165)
Reserve Rate
6.73%
6.80%
7.66%
CREDIT CARD LOANS Ending
Loans
$83,630
$79,237
$70,320
Average Loans
$81,445
$75,917
$69,416
Interest Yield
13.56%
12.81%
12.53%
Gross Principal Charge-off Rate
2.88%
3.10%
2.83%
Net Principal Charge-off Rate
1.92%
2.01%
1.65%
Delinquency Rate (30 or more days)
2.11%
1.76%
1.48%
Delinquency Rate (90 or more days)
0.92%
0.80%
0.66%
Gross Principal Charge-off Dollars
$592
$587
$495
Net Principal Charge-off Dollars
$395
$381
$289
Loans Delinquent 30 or more days
$1,761
$1,392
$1,040
Loans Delinquent 90 or more days
$770
$633
$467
Allowance for Credit Losses (period end)
$5,561
$5,307
$5,298
Reserve Change Build/(Release) 2
$254
$187
($111)
Reserve Rate
6.65%
6.70%
7.54%
Total Discover Card Volume
$58,561
$57,384
$50,389
Discover Card Sales Volume
$54,793
$53,860
$47,613
Rewards Rate
1.47%
1.37%
1.44%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,265
$1,432
$1,516
Payment Services
53
20
(114)
Total
$1,318
$1,452
$1,402
NETWORK VOLUME PULSE
Network
$63,437
$62,992
$59,872
Network Partners
11,894
11,532
10,377
Diners Club International 3
8,793
8,381
6,547
Total Payment Services
84,124
82,905
76,796
Discover Network - Proprietary
56,633
55,838
49,360
Total
$140,757
$138,743
$126,156
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/20221021005463/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Matthew Towson, 224-405-5649
matthewtowson@discover.com
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