Board of Directors Declares Semi-Annual
Dividend for Preferred Stock and Quarterly Dividend for Common
Stock
Discover Financial Services (NYSE: DFS):
Fourth Quarter 2022
Results
2022
2021
YOY Change
Total loans, end of period (in
billions)
$112.1
$93.7
20%
Total revenue net of interest expense (in
millions)
$3,732
$2,936
27%
Total net charge-off rate
2.13%
1.37%
76 bps
Net income/(loss) (in millions)
$1,033
$1,067
(3)%
Diluted EPS
$3.77
$3.64
4%
Discover Financial Services (NYSE: DFS) today reported net
income of $1.0 billion or $3.77 per diluted share for the fourth
quarter of 2022, as compared to a net income of $1.1 billion or
$3.64 per diluted share for the fourth quarter of 2021.
"Our outstanding results in 2022 were driven by record loan
growth and margin expansion, factors that should sustain strong
revenue growth into next year," said Roger Hochschild, CEO and
President of Discover. "This revenue momentum, our disciplined
approach to credit management, and our capital generative model
position us to generate shareholder value through a range of
economic environments."
Segment Results
Digital Banking
Digital Banking pretax income of $1.3 billion for the quarter
was $141 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 $112.1 billion, up 20%
year-over-year, and up 7% sequentially. Credit card loans ended the
quarter at $90.1 billion, up 21% year-over-year. Personal loans
increased $1.1 billion, or 15%, and private student loans increased
$195 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $351 million,
or 4% from the prior year period.
Net interest income for the quarter increased $584 million, or
24% driven by higher average receivables and net interest margin
expansion. Net interest margin was 11.27%, up 46 basis points
versus the prior year. Card yield was 14.50%, up 200 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 177 basis points from the prior
year period, primarily driven by higher funding costs.
Non-interest income increased $81 million, or 16%, 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 sales volumes.
The total net charge-off rate of 2.13% was 76 basis points
higher versus the prior year period reflecting credit normalization
across the portfolio. The credit card net charge-off rate was
2.37%, up 87 basis points from the prior year period and up 45
basis points from the prior quarter. The 30+ day delinquency rate
for credit card loans was 2.53%, up 87 basis points year-over year
and up 42 basis point from the prior quarter. The student loan net
charge-off rate was 1.33%, up 53 basis points from the prior year
and up 42 basis points from the prior quarter. Personal loans net
charge-off rate of 1.49% was up 28 basis points from the prior year
and up 35 basis points from the prior quarter.
Provision for credit losses of $883 million increased $620
million from the prior year driven by a $313 million reserve build
in the current quarter compared to a $39 million reserve release in
the prior year quarter and a $268 million increase in net-charge
offs.
Total operating expenses were up $186 million year-over year, or
15%, driven primarily by higher expenses for employee compensation,
marketing, professional fees, and premises and equipment. The
increase in employee compensation was driven by higher headcount.
Marketing increased primarily due to investments in consumer
banking, card brand, and acquisition. Professional Fees increased
due to investment in technology and consulting costs. Premises and
equipment was higher due to a one-time facility write-off.
Payment Services
Payment Services pretax income of $37 million was up $134
million year-over-year. Higher revenue was driven by $138 million
net losses on equity investments in the prior year quarter compared
to $6 million net losses in the current year quarter.
Payment Services volume was $86.4 billion, up 4% year-over-year.
PULSE dollar volume was up 3% primarily driven by increased debit
transaction volume. Diners Club volume was up 24% year-over-year
reflecting an improvement in global T&E and corporate spending.
Network Partners volume decreased 7% from the prior year primarily
reflecting lower transaction volume.
Share Repurchase
During the fourth quarter of 2022, the company repurchased
approximately 5.9 million shares of common stock for $602 million.
Shares of common stock outstanding declined by 2.1% from the prior
quarter.
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 May 1, 2023, to the holders
of record at the close of business on April 14, 2023.
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 March 23, 2023, to the
holders of record at the close of business on March 8, 2023.
The Board of Directors declared a quarterly cash dividend of
$0.60 per share of common stock payable on March 9, 2023, to
holders of record at the close of business on February 23,
2023.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth
quarter results on Thursday, January 19, 2023, 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 September 30, 2022, 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 December
31, 2022 September 30, 2022 December 31, 2021
EARNINGS SUMMARY Interest
Income
$3,856
$3,357
$2,742
Interest Expense
789
514
259
Net Interest Income
3,067
2,843
2,483
Discount/Interchange Revenue
1,165
1,157
1,042
Rewards Cost
797
811
697
Discount and Interchange Revenue, net
368
346
345
Protection Products Revenue
44
42
36
Loan Fee Income
182
168
131
Transaction Processing Revenue
66
65
60
Gains/Losses on Equity Investments
(6)
(4)
(138)
Other Income
11
19
19
Total Non-Interest Income
665
636
453
Revenue Net of Interest Expense
3,732
3,479
2,936
Provision for Credit Losses
883
773
263
Employee Compensation and Benefits
573
551
499
Marketing and Business Development
313
276
271
Information Processing & Communications
143
124
125
Professional Fees
264
241
230
Premises and Equipment
48
22
23
Other Expense
154
174
164
Total Operating Expense
1,495
1,388
1,312
Income/(Loss) Before Income Taxes
1,354
1,318
1,361
Tax Expense
321
312
294
Net Income/(Loss)
$1,033
$1,006
$1,067
Net Income/(Loss) Allocated to Common Stockholders
$1,027
$967
$1,062
PER SHARE
STATISTICS Basic EPS
$3.77
$3.54
$3.64
Diluted EPS
$3.77
$3.54
$3.64
Common Stock Price (period end)
$97.83
$90.92
$115.56
Book Value per share
$54.57
$52.29
$46.50
BALANCE SHEET SUMMARY
Total Assets
$131,628
$121,886
$110,242
Total Liabilities
117,038
107,600
96,834
Total Equity
14,590
14,286
13,408
Total Liabilities and Stockholders' Equity
$131,628
$121,886
$110,242
TOTAL LOAN RECEIVABLES
Ending Loans 1
$112,120
$104,908
$93,684
Average Loans 1
$108,036
$102,035
$91,095
Interest Yield
13.53%
12.67%
11.75%
Gross Principal Charge-off Rate
2.87%
2.56%
2.36%
Net Principal Charge-off Rate
2.13%
1.71%
1.37%
Delinquency Rate (30 or more days)
2.30%
1.94%
1.55%
Delinquency Rate (90 or more days)
0.98%
0.80%
0.66%
Gross Principal Charge-off Dollars
$781
$659
$543
Net Principal Charge-off Dollars
$581
$439
$313
Net Interest and Fee Charge-off Dollars
$126
$98
$70
Loans Delinquent 30 or more days
$2,578
$2,034
$1,451
Loans Delinquent 90 or more days
$1,101
$837
$618
Allowance for Credit Losses (period end)
$7,374
$7,061
$6,822
Reserve Change Build/(Release) 2
$313
$304
($39)
Reserve Rate
6.58%
6.73%
7.28%
CREDIT CARD LOANS Ending
Loans
$90,113
$83,630
$74,369
Average Loans
$86,396
$81,445
$71,865
Interest Yield
14.50%
13.56%
12.50%
Gross Principal Charge-off Rate
3.20%
2.88%
2.63%
Net Principal Charge-off Rate
2.37%
1.92%
1.50%
Delinquency Rate (30 or more days)
2.53%
2.11%
1.66%
Delinquency Rate (90 or more days)
1.14%
0.92%
0.76%
Gross Principal Charge-off Dollars
$697
$592
$477
Net Principal Charge-off Dollars
$516
$395
$272
Loans Delinquent 30 or more days
$2,278
$1,761
$1,232
Loans Delinquent 90 or more days
$1,028
$770
$562
Allowance for Credit Losses (period end)
$5,883
$5,561
$5,273
Reserve Change Build/(Release) 2
$322
$254
($25)
Reserve Rate
6.53%
6.65%
7.09%
Total Discover Card Volume
$59,153
$58,561
$53,983
Discover Card Sales Volume
$55,663
$54,793
$51,308
Rewards Rate
1.42%
1.47%
1.35%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,317
$1,265
$1,458
Payment Services
37
53
(97)
Total
$1,354
$1,318
$1,361
NETWORK VOLUME PULSE
Network
$66,807
$63,437
$64,787
Network Partners
10,433
11,894
11,233
Diners Club International 3
9,155
8,793
7,367
Total Payment Services
86,395
84,124
83,387
Discover Network - Proprietary
58,138
56,633
53,197
Total
$144,533
$140,757
$136,584
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/20230117006169/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com Media: Matthew Towson,
224-405-5649 matthewtowson@discover.com
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