Board of Directors Declares Quarterly
Dividend for Common Stock
Discover Financial Services (NYSE: DFS):
Third Quarter 2023
Results
2023
2022(1)
YOY Change
Total loans, end of period (in
billions)
$122.7
$104.9
17%
Total revenue net of interest expense (in
millions)
$4,044
$3,468
17%
Total net charge-off rate
3.52%
1.71%
181 bps
Net income/(loss) (in millions)
$683
$1,013
(33%)
Diluted EPS
$2.59
$3.56
(27%)
Note(s)
1. The comparative prior quarter ended
September 30, 2022 has been restated to reflect immaterial
corrections to the financial statements. See Reconciliation of
Prior Periods in the Financial Supplement for reconciliation to
previously reported results
Discover Financial Services (NYSE: DFS) today reported net
income of $683 million or $2.59 per diluted share for the third
quarter of 2023, as compared to a net income of $1.0 billion or
$3.56 per diluted share for the third quarter of 2022.
“The quarter was characterized by strong growth in revenues,
receivables and deposits, while credit continued to season with
charge-offs within expected ranges,” said John Owen, Discover’s
interim CEO and President. “These results underscore the strength
of our business model, the power of our brand, and our commitment
to providing best-in-class customer service while enhancing our
compliance and risk management capabilities, which remains our top
priority.”
Segment Results
Digital Banking
Digital Banking pretax income of $803 million for the quarter
was $471 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 $122.7 billion, up 17%
year-over-year, and up 4% sequentially. Credit card loans ended the
quarter at $97.4 billion, up 16% year-over-year. Personal loans
increased $1.9 billion, or 25%, and private student loans increased
$99 million, or 1%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $241 million,
or 2% from the prior year period.
Net interest income for the quarter increased $479 million, or
17% driven by higher average receivables partially offset by net
interest margin compression. Net interest margin was 10.95%, down
10 basis points versus the prior year. Card yield was 15.43%, up
187 basis points from the prior year primarily driven by higher
prime rate and lower payment rates, partially offset by higher
interest charge-offs. Interest expense as a percent of total loans
increased 225 basis points from the prior year period, primarily
driven by higher funding costs.
Non-interest income increased $62 million, or 12%, from the
prior year period, mainly driven by higher loan fee income and
discount/interchange revenue as well as lower rewards cost driven
by a change in the 5% category from restaurants to gas.
The total net charge-off rate of 3.52% was 181 basis points
higher versus the prior year period reflecting seasoning of recent
vintages with higher delinquency trends. The credit card net
charge-off rate was 4.03%, up 211 basis points from the prior year
period and up 35 basis points from the prior quarter. The 30+ day
delinquency rate for credit card loans was 3.41%, up 130 basis
points year-over year and up 55 basis points from the prior
quarter. The student loan net charge-off rate was 1.32%, up 41
basis points from the prior year and up 7 basis points from the
prior quarter. Personal loans net charge-off rate of 2.63% was up
149 basis points from the prior year and up 35 basis points from
the prior quarter.
Provision for credit losses of $1.7 billion increased $929
million from the prior year driven by a $297 million higher reserve
build in the current quarter and a $631 million increase in
net-charge offs.
Total operating expenses were up $83 million year-over year, or
6%, primarily driven by expenses for professional fees, information
processing, employee compensation and marketing. The increase in
professional fees was driven by continued investment in compliance
and risk management initiatives. Employee compensation increased
due to higher headcount. Information processing was up due to
investments in technology. Marketing increased to support deposit
acquisition.
Payment Services
Payment Services pretax income of $85 million was up $32 million
year-over-year primarily driven by increased PULSE revenue.
Payment Services volume was $91.8 billion, up 9% year-over-year.
PULSE dollar volume was up 14% primarily driven by increased debit
transaction volume. Diners Club volume was up 11% year-over-year
reflecting continued strength across all regions. Network Partners
volume decreased 17% from the prior year primarily reflecting lower
AribaPay volume.
Dividend Declaration
The Board of Directors declared a quarterly cash dividend of
$0.70 per share of common stock payable on December 7, 2023, to
holders of record at the close of business on November 22,
2023.
Conference Call and Webcast Information
The company will host a conference call to discuss its third
quarter results on Thursday, October 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," "forecast," and
similar expressions. Such statements are based on the current
beliefs and expectations of our 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: 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; our ability to manage our expenses; our ability to
successfully achieve card acceptance across our networks and
maintain relationships with network participants and merchants; our
ability to sustain and grow our private student loan, personal loan
and home loan 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; our ability to manage our credit risk,
market risk, liquidity risk, operational risk, legal and compliance
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 our investment portfolio; limits on our
ability to pay dividends and repurchase our common stock; limits on
our ability to receive payments from our subsidiaries; fraudulent
activities or material security breaches of our or others' key
systems; our ability to remain organizationally effective; our
ability to increase or sustain Discover card usage or attract new
customers; our ability to maintain relationships with merchants;
the effect of political, economic and market conditions,
geopolitical events, climate change, pandemics and unforeseen or
catastrophic events; our ability to introduce new products and
services; our ability to manage our relationships with third-party
vendors, as well as those with which we have no direct relationship
such as our employees' internet service providers; our ability to
maintain current technology and integrate new and acquired systems
and technology; our ability to collect amounts for disputed
transactions from merchants and merchant acquirers; our ability to
attract and retain employees; our ability to protect our reputation
and our intellectual property; our ability to comply with
regulatory requirements; and new lawsuits, investigations or
similar matters or unanticipated developments related to current
matters. We routinely evaluate and may pursue acquisitions of or
investments in businesses, products, technologies, loan portfolios
or deposits, which may involve payment in cash or our 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, 2022, "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 quarters ended June 30, 2023 and March 31, 2023 which
are 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 Sep
30,2023 Jun 30,2023 Sep 30,20221 EARNINGS SUMMARY Interest Income
$4,610
$4,290
$3,357
Interest Expense
1,288
1,113
514
Net Interest Income
3,322
3,177
2,843
Discount/Interchange Revenue
1,164
1,158
1,146
Rewards Cost
787
788
811
Discount and Interchange Revenue, net
377
370
335
Protection Products Revenue
42
44
42
Loan Fee Income
194
186
168
Transaction Processing Revenue
82
72
65
Gains/Losses on Equity Investments
6
1
(4
)
Other Income
21
28
19
Total Non-Interest Income
722
701
625
Revenue Net of Interest Expense
4,044
3,878
3,468
Provision for Credit Losses
1,702
1,305
773
Employee Compensation and Benefits
575
588
551
Marketing and Business Development
283
268
276
Information Processing & Communications
149
150
124
Professional Fees
281
216
241
Premises and Equipment
22
20
22
Other Expense
144
162
154
Total Operating Expense
1,454
1,404
1,368
Income/(Loss) Before Income Taxes
888
1,169
1,327
Tax Expense
205
268
314
Net Income/(Loss)
$683
$901
$1,013
Net Income/(Loss) Allocated to Common Stockholders
$647
$895
$975
PER SHARE
STATISTICS Basic EPS
$2.59
$3.54
$3.57
Diluted EPS
$2.59
$3.54
$3.56
Common Stock Price (period end)
$86.63
$116.85
$90.92
Book Value per share
$56.93
$55.44
$51.42
BALANCE SHEET SUMMARY
Total Assets
$143,432
$138,082
$121,961
Total Liabilities
129,196
124,226
107,913
Total Equity
14,236
13,856
14,048
Total Liabilities and Stockholders' Equity
$143,432
$138,082
$121,961
TOTAL LOAN RECEIVABLES
Ending Loans 2
$122,676
$117,906
$104,908
Average Loans 2
$120,380
$115,259
$102,035
Interest Yield
14.44
%
14.17
%
12.67
%
Gross Principal Charge-off Rate
4.24
%
4.01
%
2.56
%
Net Principal Charge-off Rate
3.52
%
3.22
%
1.71
%
Delinquency Rate (30 or more days)
3.06
%
2.57
%
1.94
%
Delinquency Rate (90 or more days)
1.34
%
1.16
%
0.80
%
Gross Principal Charge-off Dollars
$1,287
$1,153
$659
Net Principal Charge-off Dollars
$1,070
$924
$439
Net Interest and Fee Charge-off Dollars
$223
$202
$98
Loans Delinquent 30 or more days
$3,756
$3,027
$2,034
Loans Delinquent 90 or more days
$1,637
$1,361
$837
Allowance for Credit Losses (period end)
$8,665
$8,064
$7,061
Reserve Change Build/(Release) 3
$601
$373
$304
Reserve Rate
7.06
%
6.84
%
6.73
%
CREDIT CARD LOANS Ending
Loans
$97,389
$93,955
$83,630
Average Loans
$95,796
$91,825
$81,445
Interest Yield
15.43
%
15.14
%
13.56
%
Gross Principal Charge-off Rate
4.85
%
4.59
%
2.88
%
Net Principal Charge-off Rate
4.03
%
3.68
%
1.92
%
Delinquency Rate (30 or more days)
3.41
%
2.86
%
2.11
%
Delinquency Rate (90 or more days)
1.57
%
1.35
%
0.92
%
Gross Principal Charge-off Dollars
$1,171
$1,051
$592
Net Principal Charge-off Dollars
$973
$842
$395
Loans Delinquent 30 or more days
$3,324
$2,689
$1,761
Loans Delinquent 90 or more days
$1,527
$1,269
$770
Allowance for Credit Losses (period end)
$7,070
$6,525
$5,561
Reserve Change Build/(Release) 3
$545
$390
$254
Reserve Rate
7.26
%
6.94
%
6.65
%
Total Discover Card Volume
$58,965
$58,774
$58,561
Discover Card Sales Volume
$54,952
$55,229
$54,793
Rewards Rate
1.42
%
1.42
%
1.47
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$803
$1,099
$1,274
Payment Services
85
70
53
Total
$888
$1,169
$1,327
NETWORK VOLUME PULSE
Network
$72,146
$69,008
$63,437
Network Partners
9,899
10,408
11,894
Diners Club International 4
9,723
9,897
8,793
Total Payment Services
91,768
89,313
84,124
Discover Network - Proprietary
57,228
57,099
56,633
Total
$148,996
$146,412
$140,757
1 The comparative prior quarter ended September 30, 2022 has
been restated to reflect immaterial corrections to the financial
statements. See Reconciliation of Prior Periods for reconciliation
to previously reported results. 2 Total Loans includes Home
Equity and other loans. 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).
RECONCILIATION OF PRIOR PERIOD RESTATED FINANCIAL
RESULTS Quarter Ended - September 30, 2022
As Previously Reported Restated Impacts AsRestated
EARNINGS SUMMARY
Discount/Interchange Revenue
$1,157
($11
)
$1,146
Discount and Interchange Revenue, net
346
(11
)
335
Total Non-Interest Income
636
(11
)
625
Revenue Net of Interest Expense
$3,479
($11
)
$3,468
Other Expense
$174
($20
)
$154
Total Operating Expense
$1,388
($20
)
$1,368
Income/(Loss) Before Income Taxes
$1,318
$9
$1,327
Tax Expense
312
2
314
Net Income/(Loss)
$1,006
$7
$1,013
Net Income/(Loss) Allocated to Common Stockholders
$967
$8
$975
PER SHARE STATISTICS
Basic EPS
$3.54
$0.03
$3.57
Diluted EPS
$3.54
$0.02
$3.56
Book Value per share
$52.29
($0.87
)
$51.42
BALANCE SHEET SUMMARY
Total Assets
$121,886
$75
$121,961
Total Liabilities
107,600
313
107,913
Total Equity
14,286
(238
)
14,048
Total Liabilities and Stockholders' Equity
$121,886
$75
$121,961
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,265
$9
$1,274
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231017894743/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Matthew Towson, 224-405-5649
matthewtowson@discover.com
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