0001393612FALSE00013936122024-01-172024-01-17
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 17, 2024
DISCOVER FINANCIAL SERVICES
(Exact name of registrant as specified in its charter)
Commission File Number: 001-33378
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| Delaware | | 36-2517428 |
(State or other jurisdiction
of incorporation) | | (IRS Employer
Identification No.) |
2500 Lake Cook Road, Riverwoods, Illinois 60015
(Address of principal executive offices, including zip code)
(224) 405-0900
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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| ☐ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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| ☐ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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| ☐ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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| ☐ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
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| Securities registered pursuant to Section 12(b) of the Act |
| Title of each class | Trading symbol(s) | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | DFS | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 2.02. Results of Operations and Financial Condition.
On January 17, 2024, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended December 31, 2023. Copies of the press release, financial data supplement and financial results presentation containing this information are attached hereto as exhibits and incorporated herein by reference.
The information contained in this Item 2.02 of this Current Report on Form 8-K, including the exhibits, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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| Exhibit No. | | Description |
| | Press Release of the Company dated January 17, 2024 containing financial information for the quarter ended December 31, 2023 |
| | Financial Data Supplement of the Company for the quarter and the Twelve Months Ended December 31, 2023 |
| | Financial Results Presentation of the Company for the quarter ended December 31, 2023 |
| 104 | | Cover Page Interactive Data File — the cover page from this Current Report on Form 8-K, formatted as Inline XBRL (included as Exhibit 101) |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | DISCOVER FINANCIAL SERVICES |
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| Dated: January 17, 2024 | | By: | | /s/ Hope D. Mehlman |
| | | | Name: Hope D. Mehlman |
| | | | Title: Executive Vice President, Chief Legal Officer, General Counsel and Secretary |
DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER 2023 NET INCOME OF $388 MILLION
OR $1.54 PER DILUTED SHARE AND FULL YEAR NET INCOME OF $2.9 BILLION OR $11.26 PER DILUTED SHARE
BOARD OF DIRECTORS DECLARES SEMI-ANNUAL DIVIDEND FOR PREFERRED STOCK AND QUARTERLY DIVIDEND FOR COMMON STOCK
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Fourth Quarter 2023 Results |
| 2023 | 2022(1) | YOY Change |
| Total loans, end of period (in billions) | $128.4 | $112.1 | 15% |
| Total revenue net of interest expense (in millions) | $4,196 | $3,721 | 13% |
| Total net charge-off rate | 4.11% | 2.13% | 198 bps |
| Net income/(loss) (in millions) | $388 | $1,025 | (62%) |
| Diluted EPS | $1.54 | $3.74 | (59%) |
Note(s)
1. The comparative prior quarter ended December 31, 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
Riverwoods, IL, January 17, 2024 - Discover Financial Services (NYSE: DFS) today reported net income of $388 million or $1.54 per diluted share for the fourth quarter of 2023, as compared to a net income of $1.0 billion or $3.74 per diluted share for the fourth quarter of 2022.
“Discover’s performance in 2023 was driven by strong asset and deposit growth and a resilient net interest margin, while net charge-offs increased but to the low end of our expected range,” said John Owen, Discover’s Interim CEO and President. “Additionally, we have taken steps to strengthen our risk management and compliance programs; launched an important new product, Cashback Debit; and announced our new CEO. These factors position Discover to generate strong shareholder value in 2024 and beyond.”
Segment Results
Digital Banking
Digital Banking pretax income of $458 million for the quarter was $848 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 $128.4 billion, up 15% year-over-year, and up 5% sequentially. Credit card loans ended the quarter at $102.3 billion, up 13% year-over-year. Personal loans increased $1.9 billion, or 23%, and private student loans increased $44 million, relatively flat from the prior period. The organic student loan portfolio, which excludes purchased loans, increased $176 million, or 2% year-over-year.
Net interest income for the quarter increased $401 million, or 13% driven by higher average receivables partially offset by net interest margin compression. Net interest margin was 10.98%, down 29 basis points versus the prior year. Card yield was 15.63%, up 113 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 153 basis points from the prior year period, primarily driven by higher funding costs.
Non-interest income increased $44 million, or 8%, from the prior year period driven by higher loan fee income and discount/ interchange revenue as well as lower rewards cost driven by lower Cashback Match and change in the 5% category.
The total net charge-off rate of 4.11% was 198 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 4.68%, up 231 basis points from the prior year period and up 65 basis points from the prior quarter. The 30+ day delinquency rate for credit card loans was 3.87%, up 134 basis points year-over-year and up 46 basis points from the prior quarter. The student loan net charge-off rate was 1.52%, up 19 basis points from the prior year and up 20 basis points from the prior quarter. Personal loans net charge-off rate of 3.39% was up 190 basis points from the prior year and up 76 basis points from the prior quarter.
Provision for credit losses of $1.9 billion increased $1.0 billion from the prior year driven by a $305 million higher reserve build in the current quarter and a $717 million increase in net-charge offs.
Total operating expenses were up $267 million year-over-year, or 18%. Employee compensation and professional fees were up due to investments in compliance and risk management. Other expense increased as a result of a reserve for customer remediation and marketing expense grew to support the national Cashback Debit campaign.
Payment Services
Payment Services pretax income of $54 million was up $17 million year-over-year primarily driven by increased PULSE revenue.
Payment Services volume was $98.4 billion, up 14% from the prior year period. PULSE dollar volume was up 19% primarily driven by increased debit transaction volume. Diners Club volume was up 14% year-over-year reflecting continued strength across most regions. Network Partners volume decreased 16% from the prior year primarily reflecting lower AribaPay volume.
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 April 30, 2024, to the holders of record at the close of business on April 15, 2024.
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 25, 2024, to the holders of record at the close of business on March 8, 2024.
The Board of Directors declared a quarterly cash dividend of $0.70 per share of common stock payable on March 7, 2024, to holders of record at the close of business on February 22, 2024.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth quarter results on Thursday, January 18, 2024, 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.
Contacts
Investors: Media:
Eric Wasserstrom, 224-405-4555 Matthew Towson, 224-405-5649
investorrelations@discover.com matthewtowson@discover.com
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 September30, 2023, 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.
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| DISCOVER FINANCIAL SERVICES | | | | | | | | | | | | | | | | | Exhibit 99.2 | |
EARNINGS SUMMARY 1 | | | | | | | | | | | | | | | | | | | | | |
| (unaudited, in millions, except per share statistics) | | | | | | | | |
| | Quarter Ended | | | | | | Twelve Months Ended | | | | |
| | Dec 31,
2023 | | Sep 30,
2023 | | Jun 30,
2023 | | Mar 31,
2023 | | Dec 31,
2022 | | Dec 31, 2023 vs. Dec 31, 2022 | | Dec 31,
2023 | | Dec 31,
2022 | | 2023 vs. 2022 | |
| EARNINGS SUMMARY | | | | | | | | | | | | | | | | | | | | | |
| Interest Income | $4,868 | | | $4,610 | | | $4,290 | | | $4,077 | | | $3,856 | | | $1,012 | | | 26 | % | | $17,845 | | | $12,864 | | | $4,981 | | 39 | % | |
| Interest Expense | 1,400 | | | 1,288 | | | 1,113 | | | 945 | | | 789 | | | 611 | | | 77 | % | | 4,746 | | | 1,865 | | | 2,881 | | 154 | % | |
| Net Interest Income | 3,468 | | | 3,322 | | | 3,177 | | | 3,132 | | | 3,067 | | | 401 | | | 13 | % | | 13,099 | | | 10,999 | | | 2,100 | | 19 | % | |
| Discount/Interchange Revenue | 1,158 | | | 1,164 | | | 1,158 | | | 1,046 | | | 1,154 | | | 4 | | | — | % | | 4,526 | | | 4,366 | | | 160 | | 4 | % | |
| Rewards Cost | 788 | | | 787 | | | 788 | | | 716 | | | 797 | | | (9) | | | (1 | %) | | 3,079 | | | 2,986 | | | 93 | | 3 | % | |
| Discount and Interchange Revenue, net | 370 | | | 377 | | | 370 | | | 330 | | | 357 | | | 13 | | | 4 | % | | 1,447 | | | 1,380 | | | 67 | | 5 | % | |
| Protection Products Revenue | 43 | | | 42 | | | 44 | | | 43 | | | 44 | | | (1) | | | (2 | %) | | 172 | | | 172 | | | — | | — | % | |
| Loan Fee Income | 217 | | | 194 | | | 186 | | | 166 | | | 182 | | | 35 | | | 19 | % | | 763 | | | 632 | | | 131 | | 21 | % | |
| Transaction Processing Revenue | 82 | | | 82 | | | 72 | | | 67 | | | 66 | | | 16 | | | 24 | % | | 303 | | | 249 | | | 54 | | 22 | % | |
| Gains (Losses) on Equity Investments | 2 | | | 6 | | | 1 | | | (18) | | | (6) | | | 8 | | | 133 | % | | (9) | | | (214) | | | 205 | | NM | |
| Other Income | 14 | | | 21 | | | 28 | | | 22 | | | 11 | | | 3 | | | 27 | % | | 85 | | | 75 | | | 10 | | 13 | % | |
| Total Non-Interest Income | 728 | | | 722 | | | 701 | | | 610 | | | 654 | | | 74 | | | 11 | % | | 2,761 | | | 2,294 | | | 467 | | 20 | % | |
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| Revenue Net of Interest Expense | 4,196 | | | 4,044 | | | 3,878 | | | 3,742 | | | 3,721 | | | 475 | | | 13 | % | | 15,860 | | | 13,293 | | | 2,567 | | 19 | % | |
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| Provision for Credit Losses | 1,909 | | | 1,702 | | | 1,305 | | | 1,102 | | | 883 | | | 1,026 | | | 116 | % | | 6,018 | | | 2,359 | | | 3,659 | | 155 | % | |
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| Employee Compensation and Benefits | 646 | | | 575 | | | 588 | | | 625 | | | 573 | | | 73 | | | 13 | % | | 2,434 | | | 2,139 | | | 295 | | 14 | % | |
| Marketing and Business Development | 372 | | | 283 | | | 268 | | | 241 | | | 313 | | | 59 | | | 19 | % | | 1,164 | | | 1,035 | | | 129 | | 12 | % | |
| Information Processing & Communications | 170 | | | 149 | | | 150 | | | 139 | | | 143 | | | 27 | | | 19 | % | | 608 | | | 513 | | | 95 | | 19 | % | |
| Professional Fees | 312 | | | 281 | | | 216 | | | 232 | | | 264 | | | 48 | | | 18 | % | | 1,041 | | | 871 | | | 170 | | 20 | % | |
| Premises and Equipment | 25 | | | 22 | | | 20 | | | 22 | | | 48 | | | (23) | | | (48 | %) | | 89 | | | 118 | | | (29) | | (25 | %) | |
| Other Expense | 250 | | | 144 | | | 162 | | | 124 | | | 154 | | | 96 | | | 62 | % | | 680 | | | 540 | | | 140 | | 26 | % | |
| Total Operating Expense | 1,775 | | | 1,454 | | | 1,404 | | | 1,383 | | | 1,495 | | | 280 | | | 19 | % | | 6,016 | | | 5,216 | | | 800 | | 15 | % | |
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| Income/ (Loss) Before Income Taxes | 512 | | | 888 | | | 1,169 | | | 1,257 | | | 1,343 | | | (831) | | | (62 | %) | | 3,826 | | | 5,718 | | | (1,892) | | (33 | %) | |
| Tax Expense | 124 | | | 205 | | | 268 | | | 289 | | | 318 | | | (194) | | | (61 | %) | | 886 | | | 1,344 | | | (458) | | (34 | %) | |
| Net Income/ (Loss) | $388 | | | $683 | | | $901 | | | $968 | | | $1,025 | | | ($637) | | | (62 | %) | | $2,940 | | | $4,374 | | | ($1,434) | | (33 | %) | |
| Net Income/ (Loss) Allocated to Common Stockholders | $386 | | | $647 | | | $895 | | | $931 | | | $1,019 | | | ($633) | | | (62 | %) | | $2,859 | | | $4,286 | | | ($1,427) | | (33 | %) | |
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| Effective Tax Rate | 24.0 | % | | 23.1 | % | | 23.0 | % | | 23.0 | % | | 23.7 | % | | | | | | 23.1 | % | | 23.5 | % | | | | |
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| Net Interest Margin | 10.98 | % | | 10.95 | % | | 11.06 | % | | 11.34 | % | | 11.27 | % | | (29) | | | bps | | 11.07 | % | | 11.04 | % | | 3 | | bps | |
| Operating Efficiency | 42.3 | % | | 36.0 | % | | 36.2 | % | | 36.9 | % | | 40.2 | % | | 210 | | | bps | | 37.9 | % | | 39.2 | % | | (130) | | bps | |
| ROE | 11 | % | | 19 | % | | 26 | % | | 27 | % | | 28 | % | | | | | | 21 | % | | 32 | % | | | | |
| ROCE | 11 | % | | 20 | % | | 28 | % | | 28 | % | | 30 | % | | | | | | 22 | % | | 33 | % | | | | |
| Capital Returned to Common Stockholders | $144 | | | $169 | | | $864 | | | $1,365 | | | $743 | | | ($599) | | | (81 | %) | | $2,541 | | | $2,902 | | | ($361) | | (12 | %) | |
| Payout Ratio | 37 | % | | 26 | % | | 97 | % | | 147 | % | | 73 | % | | | | | | 89 | % | | 68 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
| Ending Common Shares Outstanding | 250 | | | 250 | | | 250 | | | 257 | | | 267 | | | (17) | | | (6 | %) | | 250 | | | 267 | | | (17) | | (6 | %) | |
| Weighted Average Common Shares Outstanding | 250 | | | 250 | | | 253 | | | 262 | | | 272 | | | (22) | | | (8 | %) | | 254 | | | 277 | | | (23) | | (8 | %) | |
| Weighted Average Common Shares Outstanding (fully diluted) | 250 | | | 250 | | | 253 | | | 262 | | | 273 | | | (23) | | | (8 | %) | | 254 | | | 278 | | | (24) | | (9 | %) | |
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| PER SHARE STATISTICS | | | | | | | | | | | | | | | | | | | | | |
| Basic EPS | $1.54 | | | $2.59 | | | $3.54 | | | $3.55 | | | $3.74 | | | ($2.20) | | | (59 | %) | | $11.27 | | | $15.45 | | | ($4.18) | | (27 | %) | |
| Diluted EPS | $1.54 | | | $2.59 | | | $3.54 | | | $3.55 | | | $3.74 | | | ($2.20) | | | (59 | %) | | $11.26 | | | $15.44 | | | ($4.18) | | (27 | %) | |
| Common Dividends Declared Per Share | $0.70 | | | $0.70 | | | $0.70 | | | $0.60 | | | $0.60 | | | $0.10 | | | 17 | % | | $2.70 | | | $2.30 | | | $0.40 | | 17 | % | |
| Common Stock Price (period end) | $112.40 | | | $86.63 | | | $116.85 | | | $98.84 | | | $97.83 | | | $14.57 | | | 15 | % | | $112.40 | | | $97.83 | | | $14.57 | | 15 | % | |
| Book Value per share | $59.29 | | | $56.93 | | | $55.44 | | | $54.79 | | | $53.65 | | | $5.64 | | | 11 | % | | $59.29 | | | $53.65 | | | $5.64 | | 11 | % | |
1 The comparative prior quarters ended March 31, 2023, December 31, 2022 and the twelve months ended December 31, 2022 have been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods for reconciliation to previously reported results. |
| Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | |
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| DISCOVER FINANCIAL SERVICES | |
BALANCE SHEET SUMMARY 1 | |
| (unaudited, in millions) | |
| | Quarter Ended | | | | | |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2023 vs. Dec 31, 2022 | |
| BALANCE SHEET SUMMARY | | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | | |
| Cash and Investment Securities | $25,383 | | | $22,569 | | | $22,110 | | | $22,411 | | | $21,105 | | | $4,278 | | | 20 | % | |
| Total Loan Receivables | 128,409 | | | 122,676 | | | 117,906 | | | 112,674 | | | 112,120 | | | 16,289 | | | 15 | % | |
| Allowance for Credit Losses | (9,283) | | | (8,665) | | | (8,064) | | | (7,691) | | | (7,374) | | | (1,909) | | | (26 | %) | |
| Net Loan Receivables | 119,126 | | | 114,011 | | | 109,842 | | | 104,983 | | | 104,746 | | | 14,380 | | | 14 | % | |
| Premises and Equipment, net | 1,091 | | | 1,084 | | | 1,053 | | | 1,031 | | | 1,003 | | | 88 | | | 9 | % | |
| Goodwill and Intangible Assets, net | 255 | | | 255 | | | 255 | | | 255 | | | 255 | | | — | | | — | % | |
| Other Assets | 5,667 | | | 5,513 | | | 4,822 | | | 4,461 | | | 4,597 | | | 1,070 | | | 23 | % | |
| Total Assets | $151,522 | | | $143,432 | | | $138,082 | | | $133,141 | | | $131,706 | | | $19,816 | | | 15 | % | |
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| Liabilities & Stockholders' Equity | | | | | | | | | | | | | | |
Certificates of Deposits 2 | 24,151 | | 21,755 | | | 21,020 | | | 18,965 | | | 16,124 | | | 8,027 | | | 50 | % | |
Savings, Money Market, and Other Deposits 2, 3 | 59,882 | | | 59,501 | | | 56,326 | | | 56,389 | | | 54,397 | | | 5,485 | | | 10 | % | |
Total Direct to Consumer Deposits 2, 3 | $ | 84,033 | | | $ | 81,256 | | | $ | 77,346 | | | $ | 75,354 | | | $ | 70,521 | | | $ | 13,512 | | | 19 | % | |
| Brokered Deposits and Other Deposits | 24,898 | | | 22,763 | | | 21,641 | | | 20,386 | | | 21,115 | | | 3,783 | | | 18 | % | |
| Deposits | 108,931 | | | 104,019 | | | 98,987 | | | 95,740 | | | 91,636 | | | 17,295 | | | 19 | % | |
Securitized Borrowings 4 | 11,743 | | | 10,889 | | | 11,216 | | | 9,095 | | | 10,259 | | | 1,484 | | | 14 | % | |
Other Borrowings 4 | 9,588 | | | 8,578 | | | 9,060 | | | 9,068 | | | 9,849 | | | (261) | | | (3 | %) | |
| Borrowings | 21,331 | | | 19,467 | | | 20,276 | | | 18,163 | | | 20,108 | | | 1,223 | | | 6 | % | |
| Accrued Expenses and Other Liabilities | 6,432 | | | 5,710 | | | 4,963 | | | 5,178 | | | 5,618 | | | 814 | | | 14 | % | |
| Total Liabilities | 136,694 | | | 129,196 | | | 124,226 | | | 119,081 | | | 117,362 | | | 19,332 | | | 16 | % | |
| Total Equity | 14,828 | | | 14,236 | | | 13,856 | | | 14,060 | | | 14,344 | | | 484 | | | 3 | % | |
| Total Liabilities and Stockholders' Equity | $151,522 | | | $143,432 | | | $138,082 | | | $133,141 | | | $131,706 | | | $19,816 | | | 15 | % | |
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| LIQUIDITY | | | | | | | | | | | | | | |
| Liquidity Portfolio | $23,254 | | | $21,186 | | | $20,895 | | | $21,450 | | | $19,798 | | | $3,456 | | | 17 | % | |
| Private Asset-backed Securitizations | 2,750 | | | 3,500 | | | 3,500 | | | 3,500 | | | 3,500 | | | (750) | | | (21 | %) | |
| Federal Home Loan Bank Borrowing Capacity | 2,551 | | | 2,202 | | | 2,372 | | | 2,056 | | | 1,712 | | | 839 | | | 49 | % | |
Federal Reserve Discount Window 5 | 41,199 | | | 48,658 | | | 45,936 | | | 43,780 | | | 42,268 | | | (1,069) | | | (3 | %) | |
Undrawn Credit Facilities 5 | 46,500 | | | 54,360 | | | 51,808 | | | 49,336 | | | 47,480 | | | (980) | | | (2 | %) | |
| Total Liquidity | $69,754 | | $75,546 | | $72,703 | | $70,786 | | $67,278 | | $2,476 | | 4 | % | |
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1 The comparative prior quarters ended March 31, 2023, December 31, 2022 and the twelve months ended December 31, 2022 have been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods for reconciliation to previously reported results. |
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2 Includes Affinity relationships | |
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3 Savings, Money Market, and Other Deposits and reflects both interest-bearing and non-interest bearing direct to consumer deposits | |
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4 Includes short-term and long-term borrowings | |
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5 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio | |
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| Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | | | | | | |
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| DISCOVER FINANCIAL SERVICES | |
BALANCE SHEET STATISTICS 1 | |
| (unaudited, in millions) | |
| | Quarter Ended | | | | | |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2023 vs. Dec 31, 2022 | |
| BALANCE SHEET STATISTICS | | | | | | | | | | | | | | |
| Total Common Equity | $13,772 | | | $13,180 | | | $12,800 | | | $13,004 | | | $13,288 | | | $484 | | | 4 | % | |
| Total Common Equity/Total Assets | 9.1 | % | | 9.2 | % | | 9.3 | % | | 9.8 | % | | 10.1 | % | | | | | |
| Total Common Equity/Net Loans | 11.6 | % | | 11.6 | % | | 11.7 | % | | 12.4 | % | | 12.7 | % | | | | | |
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| Tangible Assets | $151,267 | | | $143,177 | | | $137,827 | | | $132,886 | | | $131,451 | | | $19,816 | | | 15 | % | |
Tangible Common Equity 2 | $13,517 | | | $12,925 | | | $12,545 | | | $12,749 | | | $13,033 | | | $484 | | | 4 | % | |
Tangible Common Equity/Tangible Assets 2 | 8.9 | % | | 9.0 | % | | 9.1 | % | | 9.6 | % | | 9.9 | % | | | | | |
Tangible Common Equity/Net Loans 2 | 11.3 | % | | 11.3 | % | | 11.4 | % | | 12.1 | % | | 12.4 | % | | | | | |
Tangible Common Equity per share 2 | $54.04 | | | $51.69 | | | $50.19 | | | $49.68 | | | $48.74 | | | $5.30 | | | 11 | % | |
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| Basel III | | | | | |
| Quarter Ended | | | | | |
REGULATORY CAPITAL RATIOS 3 | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | | | | |
| Total Risk Based Capital Ratio | 13.7 | % | | 14.1 | % | | 14.3 | % | | 14.7 | % | | 15.8 | % | | | | | |
| Tier 1 Risk Based Capital Ratio | 12.1 | % | | 12.5 | % | | 12.5 | % | | 13.0 | % | | 14.0 | % | | | | | |
| Tier 1 Leverage Ratio | 10.7 | % | | 11.0 | % | | 11.1 | % | | 11.4 | % | | 12.5 | % | | | | | |
| Common Equity Tier 1 Capital Ratio | 11.3 | % | | 11.6 | % | | 11.7 | % | | 12.1 | % | | 13.1 | % | | | | | |
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1 The comparative prior quarters ended March 31, 2023, December 31, 2022 and the twelve months ended December 31, 2022 have been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods for reconciliation to previously reported results. |
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2 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule | |
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3 Based on the final rule published September 30, 2020. Capital ratios reflect delay in the recognition of the impact of CECL reserves on regulatory capital for two years in accordance with the final rule | |
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| Note: See Glossary of Financial Terms for definitions of financial terms | |
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| DISCOVER FINANCIAL SERVICES |
| AVERAGE BALANCE SHEET |
| (unaudited, in millions) |
| | Quarter Ended | | | | |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2023 vs. Dec 31, 2022 |
| AVERAGE BALANCES | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | |
| Cash and Investment Securities | $22,448 | | | $21,210 | | | $21,251 | | | $19,579 | | | $19,529 | | | $2,919 | | | 15 | % |
| Restricted Cash | 104 | | | 238 | | | 75 | | | 588 | | | 393 | | | (289) | | | (74 | %) |
| Credit Card Loans | 99,610 | | | 95,796 | | | 91,825 | | | 89,460 | | | 86,396 | | | 13,214 | | | 15 | % |
| Private Student Loans | 10,369 | | | 10,274 | | | 10,343 | | | 10,546 | | | 10,284 | | | 85 | | | 1 | % |
| Personal Loans | 9,754 | | | 9,368 | | | 8,744 | | | 8,155 | | | 7,871 | | | 1,883 | | | 24 | % |
| Other Loans | 5,654 | | | 4,942 | | | 4,347 | | | 3,888 | | | 3,485 | | | 2,169 | | | 62 | % |
| Total Loans | 125,387 | | | 120,380 | | | 115,259 | | | 112,049 | | | 108,036 | | | 17,351 | | | 16 | % |
| Total Interest Earning Assets | 147,939 | | | 141,828 | | | 136,585 | | | 132,216 | | | 127,958 | | | 19,981 | | | 16 | % |
| Allowance for Credit Losses | (8,668) | | | (8,063) | | | (7,691) | | | (7,307) | | | (7,059) | | | (1,609) | | | (23 | %) |
| Other Assets | 7,462 | | | 7,116 | | | 6,668 | | | 6,494 | | | 6,235 | | | 1,227 | | | 20 | % |
| Total Assets | $146,733 | | | $140,881 | | | $135,562 | | | $131,403 | | | $127,134 | | | $19,599 | | | 15 | % |
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| Liabilities and Stockholders' Equity | | | | | | | | | | | | | |
Non-Interest-bearing Direct to Consumer Deposits 1 | $987 | | | $961 | | | $985 | | | $1,023 | | | $1,062 | | | ($75) | | | (7 | %) |
Certificates of Deposits 1 | 22,496 | | | 21,473 | | | 20,159 | | | 17,565 | | | 15,189 | | | 7,307 | | | 48 | % |
Savings, Money Market, and Other Deposits 1 | 58,766 | | | 56,797 | | | 54,776 | | | 54,386 | | | 51,703 | | | 7,063 | | | 14 | % |
Interest-bearing Direct to Consumer Deposits 1 | $81,262 | | | $78,270 | | | $74,935 | | | $71,951 | | | $66,892 | | | $14,370 | | | 21 | % |
| Brokered Deposits and Other Deposits | 23,271 | | | 21,336 | | | 20,457 | | | 19,267 | | | 19,165 | | | 4,106 | | | 21 | % |
| Total Interest-bearing Deposits | 104,533 | | | 99,606 | | | 95,392 | | | 91,218 | | | 86,057 | | | 18,476 | | | 21 | % |
Securitized Borrowings 2 | 11,045 | | | 11,161 | | | 10,214 | | | 9,667 | | | 9,954 | | | 1,091 | | | 11 | % |
Other Borrowings 2 | 9,228 | | | 8,873 | | | 9,070 | | | 9,372 | | | 9,636 | | | (408) | | | (4 | %) |
| Total Interest-bearing Liabilities | 124,806 | | | 119,640 | | | 114,676 | | | 110,257 | | | 105,647 | | | 19,159 | | | 18 | % |
| Other Liabilities & Stockholders' Equity | 20,940 | | | 20,280 | | | 19,901 | | | 20,123 | | | 20,425 | | | 515 | | | 3 | % |
| Total Liabilities and Stockholders' Equity | $146,733 | | | $140,881 | | | $135,562 | | | $131,403 | | | $127,134 | | | $19,599 | | | 15 | % |
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| AVERAGE YIELD | | | | | | | | | | | | | |
| Assets | | | | | | | | | | | | | |
| Cash and Investment Securities | 4.36 | % | | 4.19 | % | | 4.08 | % | | 3.89 | % | | 3.45 | % | | 91 | | | bps |
| Restricted Cash | 16.71 | % | | 10.65 | % | | 10.27 | % | | 4.05 | % | | 2.73 | % | | 1,398 | | | bps |
| Credit Card Loans | 15.63 | % | | 15.43 | % | | 15.14 | % | | 15.06 | % | | 14.50 | % | | 113 | | | bps |
| Private Student Loans | 10.16 | % | | 10.11 | % | | 9.87 | % | | 9.68 | % | | 9.02 | % | | 114 | | | bps |
| Personal Loans | 13.20 | % | | 12.94 | % | | 12.72 | % | | 12.35 | % | | 12.04 | % | | 116 | | | bps |
| Other Loans | 7.14 | % | | 6.95 | % | | 6.81 | % | | 6.64 | % | | 6.16 | % | | 98 | | | bps |
| Total Loans | 14.61 | % | | 14.44 | % | | 14.17 | % | | 14.06 | % | | 13.53 | % | | 108 | | | bps |
| Total Interest Earning Assets | 13.05 | % | | 12.90 | % | | 12.60 | % | | 12.51 | % | | 11.96 | % | | 109 | | | bps |
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| AVERAGE RATES | | | | | | | | | | | | | |
| Liabilities and Stockholders' Equity | | | | | | | | | | | | | |
Certificates of Deposits 1 | 4.24 | % | | 3.84 | % | | 3.35 | % | | 2.65 | % | | 1.83 | % | | 241 | | | bps |
Savings, Money Market, and Other Deposits 1 | 4.39 | % | | 4.30 | % | | 3.84 | % | | 3.41 | % | | 2.76 | % | | 163 | | | bps |
Interest-bearing Direct to Consumer Deposits 1 | 4.35 | % | | 4.18 | % | | 3.71 | % | | 3.23 | % | | 2.55 | % | | 180 | | | bps |
| Brokered Deposits and Other Deposits | 4.64 | % | | 4.43 | % | | 4.15 | % | | 3.87 | % | | 3.50 | % | | 114 | | | bps |
| Total Interest-bearing Deposits | 4.41 | % | | 4.23 | % | | 3.80 | % | | 3.36 | % | | 2.76 | % | | 165 | | | bps |
Securitized Borrowings 2 | 4.68 | % | | 4.60 | % | | 4.24 | % | | 3.67 | % | | 3.33 | % | | 135 | | | bps |
Other Borrowings 2 | 4.55 | % | | 4.32 | % | | 4.43 | % | | 4.40 | % | | 4.37 | % | | 18 | | | bps |
| Total Interest-bearing Liabilities | 4.45 | % | | 4.27 | % | | 3.89 | % | | 3.48 | % | | 2.96 | % | | 149 | | | bps |
| Net Interest Margin | 10.98 | % | | 10.95 | % | | 11.06 | % | | 11.34 | % | | 11.27 | % | | (29) | | | bps |
| Net Yield on Interest-earning Assets | 9.30 | % | | 9.29 | % | | 9.33 | % | | 9.61 | % | | 9.51 | % | | (21) | | | bps |
1 Includes Affinity relationships |
2 Includes short-term and long-term borrowings |
| Note: See Glossary of Financial Terms for definitions of financial terms |
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| DISCOVER FINANCIAL SERVICES | | | | | | | | | | | |
| LOAN STATISTICS | | | | | | | | | | | |
| (unaudited, in millions) | | | | | | | | | | | |
| | Quarter Ended | | | | | | Twelve Months Ended | | | | | | | |
| | Dec 31,
2023 | | Sep 30,
2023 | | Jun 30,
2023 | | Mar 31,
2023 | | Dec 31,
2022 | | Dec 31, 2023 vs. Dec 31, 2022 | | Dec 31,
2023 | | Dec 31,
2022 | | 2023 vs. 2022 | | | | |
| TOTAL LOAN RECEIVABLES | | | | | | | | | | | | | | | | | | | | | | | | |
Ending Loans 1 | $128,409 | | | $122,676 | | | $117,906 | | | $112,674 | | | $112,120 | | | $16,289 | | | 15 | % | | $128,409 | | | $112,120 | | | $16,289 | | 15 | % | | | | |
Average Loans 1 | $125,387 | | | $120,380 | | | $115,259 | | | $112,049 | | | $108,036 | | | $17,351 | | | 16 | % | | $118,311 | | | $99,673 | | | $18,638 | | 19 | % | | | | |
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| Interest Yield | 14.61 | % | | 14.44 | % | | 14.17 | % | | 14.06 | % | | 13.53 | % | | 108 | | | bps | | 14.33 | % | | 12.54 | % | | 179 | | bps | | | | |
| Gross Principal Charge-off Rate | 4.82 | % | | 4.24 | % | | 4.01 | % | | 3.50 | % | | 2.87 | % | | 195 | | | bps | | 4.17 | % | | 2.71 | % | | 146 | | bps | | | | |
| Net Principal Charge-off Rate | 4.11 | % | | 3.52 | % | | 3.22 | % | | 2.72 | % | | 2.13 | % | | 198 | | | bps | | 3.42 | % | | 1.82 | % | | 160 | | bps | | | | |
| Delinquency Rate (30 or more days) | 3.45 | % | | 3.06 | % | | 2.57 | % | | 2.48 | % | | 2.30 | % | | 115 | | | bps | | 3.45 | % | | 2.30 | % | | 115 | | bps | | | | |
| Delinquency Rate (90 or more days) | 1.59 | % | | 1.34 | % | | 1.16 | % | | 1.14 | % | | 0.98 | % | | 61 | | | bps | | 1.59 | % | | 0.98 | % | | 61 | | bps | | | | |
| Gross Principal Charge-off Dollars | $1,521 | | | $1,287 | | | $1,153 | | | $966 | | | $781 | | | $740 | | | 95 | % | | $4,927 | | | $2,702 | | | $2,225 | | 82 | % | | | | |
| Net Principal Charge-off Dollars | $1,298 | | | $1,070 | | | $924 | | | $750 | | | $581 | | | $717 | | | 123 | % | | $4,042 | | | $1,817 | | | $2,225 | | 122 | % | | | | |
| Net Interest and Fee Charge-off Dollars | $279 | | | $223 | | | $202 | | | $169 | | | $126 | | | $153 | | | 121 | % | | $873 | | | $403 | | | $470 | | 117 | % | | | | |
| Loans Delinquent 30 or more days | $4,427 | | | $3,756 | | | $3,027 | | | $2,791 | | | $2,578 | | | $1,849 | | | 72 | % | | $4,427 | | | $2,578 | | | $1,849 | | 72 | % | | | | |
| Loans Delinquent 90 or more days | $2,045 | | | $1,637 | | | $1,361 | | | $1,290 | | | $1,101 | | | $944 | | | 86 | % | | $2,045 | | | $1,101 | | | $944 | | 86 | % | | | | |
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| Allowance for Credit Losses (period end) | $9,283 | | | $8,665 | | | $8,064 | | | $7,691 | | | $7,374 | | | $1,909 | | | 26 | % | | $9,283 | | | $7,374 | | | $1,909 | | 26 | % | | | | |
Reserve Change Build/ (Release) 2 | $618 | | | $601 | | | $373 | | | $385 | | | $313 | | | $305 | | | | | $1,977 | | | $552 | | | $1,425 | | | | | | |
| Reserve Rate | 7.23 | % | | 7.06 | % | | 6.84 | % | | 6.83 | % | | 6.58 | % | | 65 | | | bps | | 7.23 | % | | 6.58 | % | | 65 | | bps | | | | |
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| CREDIT CARD LOANS | | | | | | | | | | | | | | | | | | | | | | | | |
| Ending Loans | $102,259 | | | $97,389 | | | $93,955 | | | $89,755 | | | $90,113 | | | $12,146 | | | 13 | % | | $102,259 | | | $90,113 | | | $12,146 | | 13 | % | | | | |
| Average Loans | $99,610 | | | $95,796 | | | $91,825 | | | $89,460 | | | $86,396 | | | $13,214 | | | 15 | % | | $94,205 | | | $79,243 | | | $14,962 | | 19 | % | | | | |
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| Interest Yield | 15.63 | % | | 15.43 | % | | 15.14 | % | | 15.06 | % | | 14.50 | % | | 113 | | | bps | | 15.33 | % | | 13.42 | % | | 191 | | bps | | | | |
| Gross Principal Charge-off Rate | 5.50 | % | | 4.85 | % | | 4.59 | % | | 3.99 | % | | 3.20 | % | | 230 | | | bps | | 4.76 | % | | 3.05 | % | | 171 | | bps | | | | |
| Net Principal Charge-off Rate | 4.68 | % | | 4.03 | % | | 3.68 | % | | 3.10 | % | | 2.37 | % | | 231 | | | bps | | 3.90 | % | | 2.05 | % | | 185 | | bps | | | | |
| Delinquency Rate (30 or more days) | 3.87 | % | | 3.41 | % | | 2.86 | % | | 2.76 | % | | 2.53 | % | | 134 | | | bps | | 3.87 | % | | 2.53 | % | | 134 | | bps | | | | |
| Delinquency Rate (90 or more days) | 1.87 | % | | 1.57 | % | | 1.35 | % | | 1.34 | % | | 1.14 | % | | 73 | | | bps | | 1.87 | % | | 1.14 | % | | 73 | | bps | | | | |
| Gross Principal Charge-off Dollars | $1,380 | | | $1,171 | | | $1,051 | | | $879 | | | $697 | | | $683 | | | 98 | % | | $4,481 | | | $2,417 | | | $2,064 | | 85 | % | | | | |
| Net Principal Charge-off Dollars | $1,175 | | | $973 | | | $842 | | | $684 | | | $516 | | | $659 | | | 128 | % | | $3,674 | | | $1,623 | | | $2,051 | | 126 | % | | | | |
| Loans Delinquent 30 or more days | $3,955 | | | $3,324 | | | $2,689 | | | $2,477 | | | $2,278 | | | $1,677 | | | 74 | % | | $3,955 | | | $2,278 | | | $1,677 | | 74 | % | | | | |
| Loans Delinquent 90 or more days | $1,917 | | | $1,527 | | | $1,269 | | | $1,204 | | | $1,028 | | | $889 | | | 86 | % | | $1,917 | | | $1,028 | | | $889 | | 86 | % | | | | |
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| Allowance for Credit Losses (period end) | $7,619 | | | $7,070 | | | $6,525 | | | $6,135 | | | $5,883 | | | $1,736 | | | 30 | % | | $7,619 | | | $5,883 | | | $1,736 | | 30 | % | | | | |
Reserve Change Build/ (Release) 2 | $549 | | | $545 | | | $390 | | | $318 | | | $322 | | | $227 | | | | | $1,802 | | | $610 | | | $1,192 | | | | | | |
| Reserve Rate | 7.45 | % | | 7.26 | % | | 6.94 | % | | 6.84 | % | | 6.53 | % | | 92 | | | bps | | 7.45 | % | | 6.53 | % | | 92 | | bps | | | | |
| Total Discover Card Volume | $60,917 | | | $58,965 | | | $58,774 | | | $54,129 | | | $59,153 | | | $1,764 | | | 3 | % | | $232,785 | | | $224,477 | | | $8,308 | | 4 | % | | | | |
| Discover Card Sales Volume | $57,145 | | | $54,952 | | | $55,229 | | | $50,588 | | | $55,663 | | | $1,482 | | | 3 | % | | $217,914 | | | $210,645 | | | $7,269 | | 3 | % | | | | |
| Rewards Rate | 1.37 | % | | 1.42 | % | | 1.42 | % | | 1.41 | % | | 1.42 | % | | (5) | | | bps | | 1.40 | % | | 1.41 | % | | (1) | | bps | | | | |
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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 | | | | |
| Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | | | | | | | | | | | | |
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| DISCOVER FINANCIAL SERVICES | | | | | | | |
| LOAN STATISTICS | | | | | | | |
| (unaudited, in millions) | | | | | | | |
| | Quarter Ended | | | | | | Twelve Months Ended | | | |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2023 vs. Dec 31, 2022 | | Dec 31, 2023 | | Dec 31, 2022 | | 2023 vs. 2022 |
| PRIVATE STUDENT LOANS | | | | | | | | | | | | | | | | | | | | |
| Organic Student Loans | $9,894 | | | $9,963 | | | $9,723 | | | $9,927 | | | $9,718 | | | $176 | | | 2 | % | | $9,894 | | | $9,718 | | | $176 | | 2 | % |
| Purchased Student Loans | 458 | | | 485 | | | 518 | | | 553 | | | 590 | | | (132) | | | (22 | %) | | 458 | | | 590 | | | (132) | | (22 | %) |
| Total Private Student Loans | $10,352 | | | $10,448 | | | $10,241 | | | $10,480 | | | $10,308 | | | $44 | | | — | % | | $10,352 | | | $10,308 | | | $44 | | — | % |
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| Interest Yield | 10.16 | % | | 10.11 | % | | 9.87 | % | | 9.68 | % | | 9.02 | % | | 114 | | | bps | | 9.95 | % | | 8.11 | % | | 184 | | bps |
| Net Principal Charge-off Rate | 1.52 | % | | 1.32 | % | | 1.25 | % | | 1.04 | % | | 1.33 | % | | 19 | | | bps | | 1.29 | % | | 1.00 | % | | 29 | | bps |
| Delinquency Rate (30 or more days) | 2.62 | % | | 2.62 | % | | 2.13 | % | | 2.02 | % | | 2.05 | % | | 57 | | | bps | | 2.62 | % | | 2.05 | % | | 57 | | bps |
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| Reserve Rate | 8.29 | % | | 8.29 | % | | 8.29 | % | | 8.32 | % | | 8.14 | % | | 15 | | | bps | | 8.29 | % | | 8.14 | % | | 15 | | bps |
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| PERSONAL LOANS | | | | | | | | | | | | | | | | | | | | |
| Ending Loans | $9,852 | | | $9,559 | | | $9,106 | | | $8,374 | | | $7,998 | | | $1,854 | | | 23 | % | | $9,852 | | | $7,998 | | | $1,854 | | 23 | % |
| | | | | | | | | | | | | | | | | | | | |
| Interest Yield | 13.20 | % | | 12.94 | % | | 12.72 | % | | 12.35 | % | | 12.04 | % | | 116 | | | bps | | 12.83 | % | | 11.95 | % | | 88 | | bps |
| Net Principal Charge-off Rate | 3.39 | % | | 2.63 | % | | 2.28 | % | | 1.94 | % | | 1.49 | % | | 190 | | | bps | | 2.60 | % | | 1.25 | % | | 135 | | bps |
| Delinquency Rate (30 or more days) | 1.45 | % | | 1.24 | % | | 1.00 | % | | 0.91 | % | | 0.80 | % | | 65 | | | bps | | 1.45 | % | | 0.80 | % | | 65 | | bps |
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| Reserve Rate | 7.33 | % | | 6.83 | % | | 6.83 | % | | 7.43 | % | | 7.44 | % | | (11) | | | bps | | 7.33 | % | | 7.44 | % | | (11) | | bps |
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| Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | |
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| DISCOVER FINANCIAL SERVICES | | | | | | | | | | | | |
SEGMENT RESULTS AND VOLUME STATISTICS 1 | | | | | | | | | | | | |
| (unaudited, in millions) | | | | | | | | | | | | |
| | Quarter Ended | | | | | | Twelve Months Ended | | | | | | | | |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2023 vs. Dec 31, 2022 | | Dec 31, 2023 | | Dec 31, 2022 | | 2023 vs. 2022 | | | | | |
| DIGITAL BANKING | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Income | $4,868 | | | $4,610 | | | $4,290 | | | $4,077 | | | $3,856 | | | $1,012 | | | 26 | % | | $17,845 | | | $12,864 | | | $4,981 | | 39 | % | | | | | |
| Interest Expense | 1,400 | | | 1,288 | | | 1,113 | | | 945 | | | 789 | | | 611 | | | 77 | % | | 4,746 | | | 1,865 | | | 2,881 | | 154 | % | | | | | |
| Net Interest Income | 3,468 | | | 3,322 | | | 3,177 | | | 3,132 | | | 3,067 | | | 401 | | | 13 | % | | 13,099 | | | 10,999 | | | 2,100 | | 19 | % | | | | | |
| Non-Interest Income | 611 | | | 592 | | | 586 | | | 522 | | | 567 | | | 44 | | | 8 | % | | 2,311 | | | 2,118 | | | 193 | | 9 | % | | | | | |
| Revenue Net of Interest Expense | 4,079 | | | 3,914 | | | 3,763 | | | 3,654 | | | 3,634 | | | 445 | | | 12 | % | | 15,410 | | | 13,117 | | | 2,293 | | 17 | % | | | | | |
| Provision for Credit Losses | 1,909 | | | 1,702 | | | 1,305 | | | 1,102 | | | 883 | | | 1,026 | | | 116 | % | | 6,018 | | | 2,359 | | | 3,659 | | 155 | % | | | | | |
| Total Operating Expense | 1,712 | | | 1,409 | | | 1,359 | | | 1,342 | | | 1,445 | | | 267 | | | 18 | % | | 5,822 | | | 5,049 | | | 773 | | 15 | % | | | | | |
| Income/ (Loss) Before Income Taxes | $458 | | | $803 | | | $1,099 | | | $1,210 | | | $1,306 | | | ($848) | | | (65 | %) | | $3,570 | | | $5,709 | | | ($2,139) | | (37 | %) | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | |
| Net Interest Margin | 10.98 | % | | 10.95 | % | | 11.06 | % | | 11.34 | % | | 11.27 | % | | (29) | | | bps | | 11.07 | % | | 11.04 | % | | 3 | | bps | | | | | |
| Pretax Return on Loan Receivables | 1.45 | % | | 2.65 | % | | 3.82 | % | | 4.38 | % | | 4.80 | % | | (335) | | | bps | | 3.02 | % | | 5.73 | % | | (271) | | bps | | | | | |
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| Allowance for Credit Losses (period end) | $9,283 | | | $8,665 | | | $8,064 | | | $7,691 | | | $7,374 | | | $1,909 | | | 26 | % | | $9,283 | | | $7,374 | | | $1,909 | | 26 | % | | | | | |
| Reserve Change Build/ (Release) | $618 | | | $601 | | | $373 | | | $385 | | | $313 | | | $305 | | | | | $1,977 | | | $552 | | | $1,425 | | | | | | | |
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| PAYMENT SERVICES | | | | | | | | | | | | | | | | | | | | | | | | | |
| Interest Income | $— | | | $— | | | $— | | | $— | | | $— | | | $— | | | NM | | $— | | | $— | | | $— | | NM | | | | | |
| Interest Expense | — | | | — | | | — | | | — | | | — | | | — | | | NM | | — | | | — | | | — | | NM | | | | | |
| Net Interest Income | — | | | — | | | — | | | — | | | — | | | — | | | NM | | — | | | — | | | — | | NM | | | | | |
| Non-Interest Income (Loss) | 117 | | | 130 | | | 115 | | | 88 | | | 87 | | | 30 | | | 34 | % | | 450 | | | 176 | | | 274 | | 156 | % | | | | | |
| Revenue Net of Interest Expense | 117 | | | 130 | | | 115 | | | 88 | | | 87 | | | 30 | | | 34 | % | | 450 | | | 176 | | | 274 | | 156 | % | | | | | |
| Provision for Credit Losses | — | | | — | | | — | | | — | | | — | | | — | | | NM | | — | | | — | | | — | | NM | | | | | |
| Total Operating Expense | 63 | | | 45 | | | 45 | | | 41 | | | 50 | | | 13 | | | 26 | % | | 194 | | | 167 | | | 27 | | 16 | % | | | | | |
| Income/ (Loss) Before Income Taxes | $54 | | | $85 | | | $70 | | | $47 | | | $37 | | | $17 | | | NM | | $256 | | | $9 | | | $247 | | NM | | | | | |
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| TRANSACTIONS PROCESSED ON NETWORKS | | | | | | | | | | | | | | | | | | | | | | | | | |
| Discover Network | 974 | | | 964 | | | 940 | | | 850 | | | 946 | | | 28 | | | 3 | % | | 3,728 | | | 3,617 | | | 111 | | 3 | % | | | | | |
| PULSE Network | 2,308 | | | 2,011 | | | 1,761 | | | 1,625 | | | 1,666 | | | 642 | | | 39 | % | | 7,705 | | | 6,200 | | | 1,505 | | 24 | % | | | | | |
| Total | 3,282 | | | 2,975 | | | 2,701 | | | 2,475 | | | 2,612 | | | 670 | | | 26 | % | | 11,433 | | | 9,817 | | | 1,616 | | 16 | % | | | | | |
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| NETWORK VOLUME | | | | | | | | | | | | | | | | | | | | | | | | | |
| PULSE Network | $79,194 | | | $72,146 | | | $69,008 | | | $65,268 | | | $66,807 | | | $12,387 | | | 19 | % | | $285,616 | | | $253,072 | | | $32,544 | | 13 | % | | | | | |
| Network Partners | 8,736 | | | 9,899 | | | 10,408 | | | 10,628 | | | 10,433 | | | (1,697) | | | (16 | %) | | 39,671 | | | 44,542 | | | (4,871) | | (11 | %) | | | | | |
Diners Club International 2 | 10,468 | | | 9,723 | | | 9,897 | | | 9,211 | | | 9,155 | | | 1,313 | | | 14 | % | | 39,299 | | | 33,505 | | | 5,794 | | 17 | % | | | | | |
| Total Payment Services | 98,398 | | | 91,768 | | | 89,313 | | | 85,107 | | | 86,395 | | | 12,003 | | | 14 | % | | 364,586 | | | 331,119 | | | 33,467 | | 10 | % | | | | | |
| Discover Network - Proprietary | 58,419 | | | 57,228 | | | 57,099 | | | 51,826 | | | 58,138 | | | 281 | | | — | % | | 224,572 | | | 218,738 | | | 5,834 | | 3 | % | | | | | |
| Total | $156,817 | | | $148,996 | | | $146,412 | | | $136,933 | | | $144,533 | | | $12,284 | | | 8 | % | | $589,158 | | | $549,857 | | | $39,301 | | 7 | % | | | | | |
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1 The comparative prior quarters ended March 31, 2023, December 31, 2022 and the twelve months ended December 31, 2022 have been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods for reconciliation to previously reported results. | | | | | |
2 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 of Financial Terms for definitions of financial terms | | | | | | | | | | | | | | | | | | | | |
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| DISCOVER FINANCIAL SERVICES - GLOSSARY OF FINANCIAL TERMS |
| | | |
| Balance Sheet & Regulatory Capital Terms |
Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments |
| | | |
Regulatory Capital Ratios are preliminary |
| • | Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets |
| • | Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets |
| • | Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets |
| • | Common Equity Tier 1 Capital Ratio represents common equity tier 1 capital divided by risk weighted assets |
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Tangible Assets represents total assets less goodwill and intangibles |
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Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data |
| | | |
Tangible Common Equity/Net Loans, a non-GAAP measure, represents TCE divided by total loans less the allowance for credit losses (period end) |
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Tangible Common Equity per Share, a non-GAAP measure, represents TCE divided by ending common shares outstanding |
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Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents TCE divided by total assets less goodwill and intangibles |
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Undrawn Credit Facilities represents asset-backed conduit funding facilities and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio) |
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| Credit Related Terms |
Delinquency Rate (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective product loans, as appropriate) |
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Delinquency Rate (90 or more days) represents loans delinquent ninety days or more divided by ending loans (total or respective product loans, as appropriate) |
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Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) |
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Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) |
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Reserve Rate represents the allowance for credit losses divided by total loans (total or respective product loans, as appropriate) |
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| Earnings and Shareholder Return Terms |
Book Value per share represents total equity divided by ending common shares outstanding |
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Capital Returned to Common Stockholders represents common stock dividends declared and treasury share repurchases, excluding common stock issued under employee benefit plans and stock based compensation |
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Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding |
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Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) |
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Net Income Allocated to Common Stockholders represents net income less preferred stock dividends and income allocated to participating securities |
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Net Interest Margin represents net interest income (annualized) divided by average total loans for the period |
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Net Yield on Interest Earning Assets represents net interest income (annualized) divided by average total interest earning assets for the period |
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Operating Efficiency represents total operating expense divided by revenue net of interest expense |
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Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period |
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Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders |
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Return on Common Equity represents net income available for common stockholders (annualized) divided by average total common equity for the reporting period |
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Return on Equity represents net income (annualized) divided by average total equity for the reporting period |
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Rewards Rate represents Credit Card rewards cost divided by Discover Card sales volume |
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| Volume Terms |
Discover Card Sales Volume represents Discover card activity related to sales net of returns |
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Discover Card Volume represents Discover card activity related to sales net of returns, balance transfers, cash advances and other activity |
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Discover Network Proprietary Volume represents gross Discover Card sales volume on the Discover Network |
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| DISCOVER FINANCIAL SERVICES |
RECONCILIATION OF GAAP TO NON-GAAP DATA 1 |
| (unaudited, in millions) |
| | Quarter Ended |
| | Dec 31, 2023 | | Sep 30, 2023 | | Jun 30, 2023 | | Mar 31, 2023 | | Dec 31, 2022 |
| GAAP Total Common Equity | $13,772 | | | $13,180 | | | $12,800 | | | $13,004 | | | $13,288 | |
| Less: Goodwill | (255) | | | (255) | | | (255) | | | (255) | | | (255) | |
| Less: Intangibles | — | | | — | | | — | | | — | | | — | |
Tangible Common Equity 2 | $13,517 | | | $12,925 | | | $12,545 | | | $12,749 | | | $13,033 | |
| | | | | | | | | |
| GAAP Book Value Per Share | $59.29 | | | $56.93 | | | $55.44 | | | $54.79 | | | $53.65 | |
| Less: Goodwill | (1.03) | | | (1.02) | | | (1.03) | | | (1.00) | | | (0.96) | |
| Less: Intangibles | — | | | — | | | — | | | — | | | — | |
| Less: Preferred Stock | (4.22) | | | (4.22) | | | (4.22) | | | (4.11) | | | (3.95) | |
| Tangible Common Equity Per Share | $54.04 | | | $51.69 | | | $50.19 | | | $49.68 | | | $48.74 | |
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1 The comparative prior quarters ended March 31, 2023, December 31, 2022 and the twelve months ended December 31, 2022 have been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods for reconciliation to previously reported results. |
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2 Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles. A reconciliation of TCE to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use TCE and definitions may vary, so users of this information are advised to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the Company |
|
| Note: See Glossary of Financial Terms for definitions of financial terms |
| | |
| DISCOVER FINANCIAL SERVICES |
|
| RECONCILIATION OF PRIOR PERIOD RESTATED FINANCIAL RESULTS |
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|
| The following pages present a reconciliation for certain information disclosed in the financial data supplement. |
|
| Beginning around mid-2007, Discover incorrectly classified certain credit card accounts into its highest merchant and merchant acquirer pricing tier. The Company determined the revenue impact of the incorrect card product classification was immaterial to the consolidated financial statements for the prior periods presented in this disclosure. For comparative purposes, the Company has made these immaterial corrections to the consolidated financial statements in the prior periods presented. |
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| DISCOVER FINANCIAL SERVICES | | | | | | | | | | | | |
| RECONCILIATION OF PRIOR PERIOD RESTATED FINANCIAL RESULTS | | | | | | |
| (unaudited, in millions, except per share statistics) | | | | | | |
| As Previously Reported | | Restatement Impacts | | As Restated |
| Quarter Ended | | Twelve
Months Ended | | Quarter Ended | | Twelve
Months Ended | | Quarter Ended | | Twelve
Months Ended |
| Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2022 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2022 | | Mar 31, 2023 | | Dec 31, 2022 | | Dec 31, 2022 |
| EARNINGS SUMMARY | | | | | | | | | | | | | | |
| Discount/Interchange Revenue | $1,057 | | $1,165 | | $4,410 | | ($11) | | ($11) | | ($44) | | $1,046 | | $1,154 | | $4,366 |
| Discount and Interchange Revenue, net | 341 | | 368 | | 1,424 | | (11) | | (11) | | (44) | | 330 | | 357 | | 1,380 |
| Total Non-Interest Income | 621 | | 665 | | 2,338 | | (11) | | (11) | | (44) | | 610 | | 654 | | 2,294 |
| Revenue Net of Interest Expense | $3,753 | | $3,732 | | $13,337 | | ($11) | | ($11) | | ($44) | | $3,742 | | $3,721 | | $13,293 |
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| Other Expense | $124 | | $154 | | $560 | | $— | | $— | | ($20) | | $124 | | $154 | | $540 |
| Total Operating Expense | $1,383 | | $1,495 | | $5,236 | | $— | | $— | | ($20) | | $1,383 | | $1,495 | | $5,216 |
| | | | | | | | | | | | | | | | | |
| Income/ (Loss) Before Income Taxes | $1,268 | | $1,354 | | $5,742 | | ($11) | | ($11) | | ($24) | | $1,257 | | $1,343 | | $5,718 |
| Tax Expense | 292 | | 321 | | 1,350 | | (3) | | (3) | | (6) | | 289 | | 318 | | 1,344 |
| Net Income/ (Loss) | $976 | | $1,033 | | $4,392 | | ($8) | | ($8) | | ($18) | | $968 | | $1,025 | | $4,374 |
| | | | | | | | | | | | | | | | | |
| Net Income/ (Loss) Allocated to Common Stockholders | $939 | | $1,027 | | $4,304 | | ($8) | | ($8) | | ($18) | | $931 | | $1,019 | | $4,286 |
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| Operating Efficiency | 36.8 | % | | 40.0 | % | | 39.3 | % | | 10 | bps | 20 | bps | (10) | bps | 36.9 | % | | 40.2 | % | | 39.2 | % |
| ROE | 27 | % | | 28 | % | | 31 | % | | — | bps | — | bps | 100 | bps | 27 | % | | 28 | % | | 32 | % |
| Payout Ratio | 145 | % | | 72 | % | | 67 | % | | 200 | bps | 100 | bps | 100 | bps | 147 | % | | 73 | % | | 68 | % |
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| PER SHARE STATISTICS | | | | | | | | | | | | | | |
| Basic EPS | $3.58 | | | $3.77 | | | $15.52 | | | ($0.03) | | | ($0.03) | | | ($0.07) | | | $3.55 | | | $3.74 | | | $15.45 | |
| Diluted EPS | $3.58 | | | $3.77 | | | $15.50 | | | ($0.03) | | | ($0.03) | | | ($0.06) | | | $3.55 | | | $3.74 | | | $15.44 | |
| Book Value per share | $55.79 | | | $54.57 | | | $54.57 | | | ($1.00) | | | ($0.92) | | | ($0.92) | | | $54.79 | | | $53.65 | | | $53.65 | |
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| SEGMENT RESULTS | | | | | | | | | | | | | |
| Digital Banking | | | | | | | | | | | | | |
| Non-Interest Income | $533 | | | $578 | | | $2,162 | | | ($11) | | | ($11) | | | ($44) | | | $522 | | | $567 | | | $2,118 | |
| Revenue Net of Interest Expense | $3,665 | | | $3,645 | | | $13,161 | | | ($11) | | | ($11) | | | ($44) | | | $3,654 | | | $3,634 | | | $13,117 | |
| | | | | | | | | | | | | | | | | |
| Total Operating Expense | $1,342 | | | $1,445 | | | $5,069 | | | $— | | | $— | | | ($20) | | | $1,342 | | | $1,445 | | | $5,049 | |
| Income/ (Loss) Before Income Taxes | $1,221 | | | $1,317 | | | $5,733 | | | ($11) | | | ($11) | | | ($24) | | | $1,210 | | | $1,306 | | | $5,709 | |
| Pretax Return on Loan Receivables | 4.42 | % | | 4.84 | % | | 5.75 | % | | (4) | | bps | (4) | | bps | (2) | | bps | 4.38 | % | | 4.80 | % | | 5.73 | % |
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| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| DISCOVER FINANCIAL SERVICES | | | | | | | | | | | |
| RECONCILIATION OF PRIOR PERIOD RESTATED FINANCIAL RESULTS | | | | | | | |
| (unaudited, in millions, except per share statistics) | | | | | | | |
| As Previously Reported | | Restatement Impacts | | As Restated |
| Quarter Ended | | Quarter Ended | | Quarter Ended |
| Mar 31, 2023 | | Dec 31, 2022 | | Mar 31, 2023 | | Dec 31, 2022 | | Mar 31, 2023 | | Dec 31, 2022 |
| BALANCE SHEET SUMMARY | | | | | | | | | | | |
| Assets | | | | | | | | | | | |
| Other Assets | $4,381 | | | $4,519 | | | $80 | | | $78 | | | $4,461 | | | $4,597 | |
| Total Assets | $133,061 | | | $131,628 | | | $80 | | | $78 | | | $133,141 | | | $131,706 | |
| | | | | | | | | | | |
| Liabilities & Stockholders' Equity | | | | | | | | | | | |
| Accrued Expenses and Other Liabilities | $4,843 | | | $5,294 | | | $335 | | | $324 | | | $5,178 | | | $5,618 | |
| Total Liabilities | 118,746 | | | 117,038 | | | 335 | | | 324 | | | 119,081 | | | 117,362 | |
| Total Equity | 14,315 | | | 14,590 | | | (255) | | | (246) | | | 14,060 | | | 14,344 | |
| Total Liabilities and Stockholders' Equity | $133,061 | | | $131,628 | | | $80 | | | $78 | | | $133,141 | | | $131,706 | |
| | | | | | | | | | | |
| BALANCE SHEET STATISTICS | | | | | | | | | | | |
| Total Common Equity | $13,259 | | | $13,534 | | | ($255) | | | ($246) | | | $13,004 | | | $13,288 | |
| Total Common Equity/Total Assets | 10.0 | % | | 10.3 | % | | (20) | | bps | (20) | | bps | 9.8 | % | | 10.1 | % |
| Total Common Equity/Net Loans | 12.6 | % | | 12.9 | % | | (20) | | bps | (20) | | bps | 12.4 | % | | 12.7 | % |
| | | | | | | | | | | |
| Tangible Assets | $132,806 | | | $131,373 | | | $80 | | | $78 | | | $132,886 | | | $131,451 | |
| Tangible Common Equity | $13,004 | | | $13,279 | | | ($255) | | | ($246) | | | $12,749 | | | $13,033 | |
| Tangible Common Equity/Tangible Assets | 9.8 | % | | 10.1 | % | | (20) | | bps | (20) | | bps | 9.6 | % | | 9.9 | % |
| Tangible Common Equity/Net Loans | 12.4 | % | | 12.7 | % | | (30) | | bps | (30) | | bps | 12.1 | % | | 12.4 | % |
| Tangible Common Equity per share | $50.68 | | | $49.66 | | | ($1) | | | ($0.92) | | | $49.68 | | | $48.74 | |
| | | | | | | | | | | |
| REGULATORY CAPITAL RATIOS | | | | | | | | | | | |
| Total Risk Based Capital Ratio | 14.9 | % | | 16.0 | % | | (20) | | bps | (20) | | bps | 14.7 | % | | 15.8 | % |
| Tier 1 Risk Based Capital Ratio | 13.2 | % | | 14.3 | % | | (20) | | bps | (30) | | bps | 13.0 | % | | 14.0 | % |
| Tier 1 Leverage Ratio | 11.6 | % | | 12.7 | % | | (20) | | bps | (20) | | bps | 11.4 | % | | 12.5 | % |
| Common Equity Tier 1 Capital Ratio | 12.3 | % | | 13.3 | % | | (20) | | bps | (20) | | bps | 12.1 | % | | 13.1 | % |
| | | | | | | | | | | |
©2024 DISCOVER FINANCIAL SERVICES Exhibit 99.3 2023 & 4Q23 Financial Results January 17, 2024
The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as well as information regarding business and segment trends, see the earnings release and financial supplement included as exhibits to the Company’s Current Report on Form 8-K filed today and available on the Company’s website (www.discover.com) and the SEC’s website (www.sec.gov). The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "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 September 30, 2023, June 30, 2023 and March 31, 2023, which are filed with the SEC and available at the SEC's website (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. The Company does not undertake to update or revise forward-looking statements as more information becomes available. Notice 2
2023 & 4Q23 Highlights 3 • 2023 net income of $2.9Bn; diluted EPS of $11.26; and return on equity of 21% ◦ 4Q23 net income of $388MM; diluted EPS of $1.54 • Delivered strong 2023 financial results ◦ Card receivables grew 13%; direct-to-consumer deposits grew 19% ◦ Credit seasoning consistent with recent periods of elevated growth ◦ Generated a 38% efficiency ratio while investing in compliance and risk management capabilities • Achieved several important milestones ◦ Exceeded $100Bn in Card receivables ◦ Successfully launched Cashback Debit on a national scale ◦ Announced intent to exit student lending ◦ Maintained our award-winning products and customer service ◦ Appointed our new CEO • Well positioned to continue driving sustainable long-term performance
• Revenue net of interest expense was $4.2Bn, up 13%, due to higher net interest income, loan fee income, and higher debit and credit volumes • Provision for credit losses increased by $1.0Bn reflecting a $305MM increase in reserve build and a $717MM increase in net charge-offs • Expenses increased $280MM, or 19%, driven by investments in compliance and risk management, a reserve for customer remediation, and marketing for Cashback Debit 4Q23 Summary Financial Results Key Points 4 $1,025 $401 $74 $(1,026) $(280) $194 $388 4Q22 Net Income Net Interest Income Non- Interest Income Provision for Credit Losses Operating Expense Income Tax/ Capital Action 4Q23 Net Income Year-Over-Year Net Income & EPS ($MM, except EPS) 4Q23 $ 3,468 $ 728 $ 1,909 $ 1,775 $ 124 4Q22 $ 3,067 $ 654 $ 883 $ 1,495 $ 318 B/(W) $ 401 $ 74 $ (1,026) $ (280) $ 194 EPS $ 3.74 $ 1.12 $ 0.21 $ (2.87) $ (0.78) $ 0.12 $ 1.54 (1) Note(s) 1. The comparative prior quarter ended December 31, 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
• NIM on loans was 10.98%, up 3bps QOQ as favorable loan and cash and securities yields were mostly offset by higher funding costs • Total loan yield was up 17bps QOQ primarily due to lower payment rates, partially offset by higher interest charge-offs • The net funding rate increased by 14bps QOQ, reflecting higher consumer deposit pricing • Average consumer deposits were up 4% QOQ and up 21% YOY 4Q23 Net Interest Income Drivers 5 Key Points Note(s) 1. Includes checking and reflects both interest-bearing and non-interest bearing consumer deposits 2. Net Funding Rate reflects interest expense, net of interest income from other interest-earning assets, as a percentage of average receivables 11.27% 11.34% 11.06% 10.95% 10.98% 4Q22 1Q23 2Q23 3Q23 4Q23 NIM on Loans Loan Growth ($Bn) Funding Mix (%), Average Balance $90.1 $89.8 $94.0 $97.4 $102.3 $9.7 $9.9 $9.7 $10.0 $9.9$8.0 $8.4 $9.1 $9.6 $9.9 $4.3 $4.6 $5.1 $5.8 $6.4 Card +13% YOY Organic Student +2% YOY Personal +23% YOY Other + 49% YOY 4Q22 1Q23 2Q23 3Q23 4Q23 64% 66% 66% 66% 65% 18% 17% 18% 18% 18% 9% 9% 9% 9% 9% 9% 8% 7% 7% 8% DTC and Affinity Deposits Brokered & Other Deposits Securitized Borrowing Unsecured Borrowing 4Q22 1Q23 2Q23 3Q23 4Q23 Total Loan Yield 13.53% 14.06% 14.17% 14.44% 14.61% Net Funding Rate (2) 2.26% 2.72% 3.11% 3.49% 3.63% (1)
Note(s) 1. The comparative prior quarter ended December 31, 2022 has been restated to reflect immaterial corrections to the financial statements. See Reconciliation of Prior Periods in the Financial Supplement for reconciliation to previously reported results 2. Rewards rate represents credit card rewards cost divided by Discover Card sales volume • Net interest income increased due to higher loan receivables partially offset by margin compression • Net discount and interchange revenue was up 4% from higher sales and lower rewards • Transaction processing revenue up 24% from higher PULSE volume • Loan fee income increase reflects higher delinquencies from recent vintages • The rewards rate was 1.37%, down 5bps YOY driven by lower Cashback Match and change in the 5% category 4Q23 Amazon & Target 4Q22 Amazon & Digital Wallets 4Q23 Revenue 6 Key Points Inc / (Dec) ($MM) 4Q23 4Q22 $ % Net Interest Income 3,468 3,067 401 13% Net Discount/Interchange Revenue 370 357 13 4% Protection Products Revenue 43 44 (1) (2%) Loan Fee Income 217 182 35 19% Transaction Processing Revenue 82 66 16 24% Gain/(Loss) on Equity Investment 2 (6) 8 133% Other Income 14 11 3 27% Total Non-Interest Income 728 654 74 11% Revenue Net of Interest Expense $4,196 $3,721 $475 13% Change 4Q23 4Q22 QOQ YOY Discover Card Sales Volume ($MM) $57,145 $55,663 4 % 3% Rewards Rate (2) 1.37 % 1.42 % (5)bps (5)bps $3,721 $401 $13 $(1) $35 $16 $8 $3 $4,196 4Q22 Rev Net of Int Exp Net Interest Income Net Discount/ Interchange Protection Products Loan Fee Income Transaction Processing Gain/(Loss) on Equity Investments Other Income 4Q23 Rev Net of Int Exp Year-Over-Year Revenue ($MM) (1) (1)
Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense 2. The comparative prior quarter ended December 31, 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 • Employee compensation increased due to higher headcount • Marketing increased to support our national Cashback Debit campaign • Professional fees were up driven by continued investment in compliance and risk management initiatives • Other expense reflects a reserve for customer remediation 4Q23 Operating Expense Inc / (Dec) ($MM) 4Q23 4Q22 $ % Employee Compensation and Benefits $646 $573 73 13% Marketing and Business Development 372 313 59 19% Information Processing & Communications 170 143 27 19% Professional Fees 312 264 48 18% Premises and Equipment 25 48 (23) (48%) Other Expense 250 154 96 62% Total Operating Expense $1,775 $1,495 $280 19% Operating Efficiency(1)(2) 42.3 % 40.2 % 210 bps 7 Key Points Year-Over-Year Expense ($MM) $1,495 $73 $59 $27 $48 $73 $1,775 4Q22 Expense Employee Comp Marketing Info Processing Professional Fees All Other 4Q23 Expense
• Higher credit card net charge-off rate driven by seasoning of recent vintages with higher delinquency trends • Student loan net charge-offs reflect macroeconomic conditions • Personal loan net charge-offs increased from credit normalization 4Q23 Key Credit Metrics 8 Key PointsChange 4Q22 3Q23 4Q23 QOQ YOY Credit Card Loans Ending Loan Balance ($MM) $90,113 $97,389 $102,259 5% 13% Net Principal Charge-off Rate 2.37% 4.03% 4.68% 65 bps 231 bps 30-Day Delinquency Rate 2.53% 3.41% 3.87% 46 bps 134 bps Private Student Loans Ending Loan Balance ($MM) $10,308 $10,448 $10,352 (1)% —% Net Principal Charge-off Rate 1.33% 1.32% 1.52% 20 bps 19 bps 30-Day Delinquency Rate 2.05% 2.62% 2.62% 0 bps 57 bps Personal Loans Ending Loan Balance ($MM) $7,998 $9,559 $9,852 3% 23% Net Principal Charge-off Rate 1.49% 2.63% 3.39% 76 bps 190 bps 30-Day Delinquency Rate 0.80% 1.24% 1.45% 21 bps 65 bps Total Loans Ending Loan Balance ($MM) $112,120 $122,676 $128,409 5% 15% Net Principal Charge-off Rate 2.13% 3.52% 4.11% 59 bps 198 bps 30-Day Delinquency Rate 2.30% 3.06% 3.45% 39 bps 115 bps
9 ($MM) Credit Card Student Loans Personal Loans Other Total Loans Balance at September 30, 2023 $7,070 $866 $653 $76 $8,665 Reserve rate 7.26% 8.29% 6.83% N/A 7.06% Provision for credit losses 1,724 32 152 8 1,916 Net Charge-offs 1,175 40 83 — 1,298 Balance at December 31, 2023 $7,619 $858 $722 $84 $9,283 Reserve rate 7.45% 8.29% 7.33% N/A 7.23% Total Loan Reserve Rate 6.58% 6.83% 6.84% 7.06% 7.23% 4Q22 1Q23 2Q23 3Q23 4Q23 Allowance for Credit Losses
$2.1 $1.8 $0.3 $2.3 $2.4 $1.9 $0.40 $0.44 $0.44 $0.50 $0.60 $0.70 2018 2019 2020 2021 2022 2023 10 Capital Return(3)Capital Position Common Equity Tier 1 (CET1) Capital Ratio (%) Note(s) 1. Capital for years ended 2022 and prior have been restated for comparative purposes and considers the impacts of the immaterial corrections to the financial statements; years 2018-2021 reflect a best estimate 2. Based on the final rule published September 30, 2020. Capital ratios reflect delay in the recognition of the impact of CECL reserves on regulatory capital for two years in accordance with the final rule 3. Quarterly dividend per share figures for 2018 through 2023 represent year-end levels 10.9% 11.0% 12.9% 14.5% 13.1% 11.3% 2018 2019 2020 2021 2022 2023 • The Common Equity Tier 1 ratio of 11.3% declined 30bps sequentially driven by loan growth • Declared quarterly cash dividend of $0.70 per share of common stock Key Points Capital Position & Capital Return Trends Share Repurchases ($Bn) Quarterly Dividend per Share (1) (2)
11 2024 Perspective 2023 Actual 2024 Perspective Loan Growth 15% • Expect loans to be relatively flat Net Interest Margin 11.07% • Expect NIM of 10.5-10.8% depending on rate outlook Operating Expense $6.0Bn • Anticipate total operating expense to be up mid-single digits subject to risk and compliance matters Net Charge-offs 3.42% • Expect full year average net charge-off rate of 4.9-5.3% Capital Management $2.5Bn returned to shareholders • To be updated post CCAR results
Appendix
4Q23 Asset Yield & Liabilities Rate 4Q23 3Q23 4Q22 Interest-Earning Assets ($Bn) Avg Bal Yield Avg Bal Yield Avg Bal Yield Total Loans $125.4 14.61 % $120.4 14.44 % $108.0 13.53 % Other Interest-Earning Assets 22.5 4.41 % 21.4 4.26 % 20.0 3.42 % Total Interest-Earning Assets $147.9 13.05 % $141.8 12.90 % $128.0 11.96 % 4Q23 3Q23 4Q22 Interest-Bearing Liabilities ($Bn) Avg Bal Rate Avg Bal Rate Avg Bal Rate Direct to Consumer Deposits (1) (2) $81.3 4.35 % $78.3 4.18 % $66.9 2.55 % Brokered Deposits and Other 23.3 4.64 % 21.3 4.43 % 19.2 3.50 % Interest Bearing-Deposits 104.5 4.41 % 99.6 4.23 % 86.1 2.76 % Borrowings 20.3 4.62 % 20.0 4.49 % 19.5 3.84 % Total Interest-Bearing Liabilities $124.8 4.45 % $119.6 4.27 % $105.6 2.96 % 13 Note(s) 1. Includes Affinity relationships 2. Excludes checking which is a non-interest bearing deposit product
2.7% 2.7% 2.8% 2.7% 2.8% 2.9% 3.0% 3.2% 3.4% 3.6% 3.8% 3.9% 93 95 99 101 106 110 116 120 131 138 140 134 30+ day DQ rate (%) YoY bps Increase Ja n-23 Feb -23 Mar- 23 Apr-2 3 May -23 Ju n-23 Ju l-2 3 Aug-23 Sep -23 Oct- 23 Nov-2 3 Dec -23 3.2% 3.0% 1.8% 1.8% 3.4% 4.9% 2019 2020 2021 2022 2023 2024 Forecast Credit Drivers 14 • 2022 vintage to reach peak maturation in 2024 • The rate of increase in Card delinquency formation is slowing • Post-pandemic vintages are expected to generate returns at or above targeted thresholds Key Points Card 30+ Delinquency TrendsCard New Accounts (#) Portfolio NCO (Total Company) 2019 2020 2021 2022 2023 2024 Forecast ~1.4x above 2019 levels YoY Growth (8)% +23% +23% (9)% 4.9-5.3%
Total Company Loans Credit Card Loans Private Student Loans Personal Loans 1.46 1.37 1.61 1.80 1.71 2.13 2.72 3.22 3.52 4.11 1.40 1.55 1.64 1.63 1.94 2.30 2.48 2.57 3.06 3.45 NCO rate (%) 30+ day DQ rate (%) 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1.65 1.50 1.84 2.01 1.92 2.37 3.10 3.68 4.03 4.68 1.48 1.66 1.77 1.76 2.11 2.53 2.76 2.86 3.41 3.87 NCO rate (%) 30+ day DQ rate (%) 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 1.11 1.21 1.12 1.21 1.14 1.49 1.94 2.28 2.63 3.39 0.71 0.69 0.69 0.63 0.69 0.80 0.91 1.00 1.24 1.45 NCO rate (%) 30+ day DQ rate (%) 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 0.68 0.80 0.69 1.08 0.91 1.33 1.04 1.25 1.32 1.52 1.55 1.55 1.62 1.66 1.94 2.05 2.02 2.13 2.62 2.62 NCO rate (%) 30+ day DQ rate (%) 3Q21 4Q21 1Q22 2Q22 3Q22 4Q22 1Q23 2Q23 3Q23 4Q23 Credit Performance Trends 15
YOY YOY YOY YOY 4Q23 Payments Volume ($Bn) Discover Network • Discover Network volume was up slightly reflecting an increase in Discover card sales volume • PULSE volume was up 19% driven by an increase in debit transaction volume • Diners volume was up 14% reflecting strength across most regions • Network Partners was down 16% YOY driven by lower AribaPay volume Key Points $58.1 $51.8 $57.1 $57.2 $58.4 4Q22 1Q23 2Q23 3Q23 4Q23 $66.8 $65.3 $69.0 $72.1 $79.2 4Q22 1Q23 2Q23 3Q23 4Q23 $9.2 $9.2 $9.9 $9.7 $10.5 4Q22 1Q23 2Q23 3Q23 4Q23 $10.4 $10.6 $10.4 $9.9 $8.7 4Q22 1Q23 2Q23 3Q23 4Q23 Diners (1) PULSE Network Partners 0% 19% 14% (16%) Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment Total Network Volume up 8% YOY 16
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Grafico Azioni Discover Financial Servi... (NYSE:DFS)
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