Board of Directors Declares Quarterly Common
Stock Dividend of $0.70 Per Share
Discover Financial Services (NYSE: DFS):
First Quarter 2024
Results
2024
2023(1)
YOY Change
Total loans, end of period (in
billions)
$126.6
$112.7
12%
Total revenue net of interest expense (in
millions)
$4,210
$3,742
13%
Total net charge-off rate
4.92%
2.72%
220 bps
Net income/(loss) (in millions)
$308
$968
(68%)
Diluted EPS
$1.10
$3.55
(69%)
Note(s)
1. The comparative prior quarter ended
March 31, 2023 has been restated as disclosed in the Company's
Financial Data Supplement on Form 8-K for the second quarter
2023
Discover Financial Services (NYSE: DFS) today reported net
income of $308 million or $1.10 per diluted share for the first
quarter of 2024, as compared to a net income of $968 million or
$3.55 per diluted share for the first quarter of 2023.
“Our first quarter results showed good loan growth, net interest
margin expansion, and stabilizing delinquencies, while expenses
were elevated due to our action to advance the resolution of our
card misclassification issue,” said Michael Shepherd, Discover’s
Interim CEO and President. “These results underscore the continued
strength of our underlying operating model and our focus on
enhancing our risk management and compliance foundation. We look
forward to our merger with Capital One, which will create a leading
banking and payments organization, grounded on commitment to an
outstanding customer experience and the communities we serve."
Segment Results
Digital Banking
Digital Banking pretax income of $322 million for the quarter
was $888 million lower than the prior year period reflecting an
increase to our card misclassification remediation reserve, higher
provision for credit losses and higher operating expenses,
partially offset by increased revenue net of interest expense.
Total loans ended the quarter at $126.6 billion, up 12%
year-over-year, and down 1% sequentially. Credit card loans ended
the quarter at $99.5 billion, up 11% year-over-year. Personal loans
increased $1.7 billion, or 21%, and private student loans were
flat. The organic student loan portfolio, which excludes purchased
loans, increased $123 million, or 1% year-over-year.
Net interest income for the quarter increased $355 million, or
11%, driven by higher average receivables partially offset by net
interest margin compression. Net interest margin was 11.03%, down
31 basis points versus the prior year. Card yield was 15.79%, up 73
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
120 basis points from the prior year period, primarily driven by
higher funding costs.
Non-interest income increased $69 million, or 13%, from the
prior year period reflecting higher discount / interchange revenue
from an improved volume mix and lower rewards cost, and higher loan
fee income.
The total net charge-off rate of 4.92% was 220 basis points
higher versus the prior year period reflecting continued seasoning
of recent vintages with higher delinquency trends. The credit card
net charge-off rate was 5.66%, up 256 basis points from the prior
year period and up 98 basis points from the prior quarter. The 30+
day delinquency rate for credit card loans was 3.83%, up 107 basis
points year-over-year and down 4 basis points from the prior
quarter. The student loan net charge-off rate was 1.58%, up 54
basis points from the prior year and up 6 basis points from the
prior quarter. Personal loans net charge-off rate of 4.02% was up
208 basis points from the prior year and up 63 basis points from
the prior quarter.
Provision for credit losses of $1.5 billion increased $395
million from the prior year quarter driven by an $806 million
increase in net-charge offs partially offset by a $410 million
lower reserve build.
Total operating expenses were up $917 million year-over-year, or
68%. Other expense was up due to a $799 million increase to the
card misclassification remediation reserve. Professional fees were
up due to investments in compliance and risk management and higher
recovery fees. Employee compensation increased from higher
technology resources and severance expense while information
processing increased due to technology investments.
Payment Services
Payment Services pretax income of $82 million was up $35 million
year-over-year primarily driven by increased PULSE revenue and
first quarter 2023 net losses on equity investments.
Payment Services volume was $100.3 billion, up 18% from the
prior year period. PULSE dollar volume was up 21% primarily driven
by increased debit transaction volume. Diners Club volume was up
11% year-over-year reflecting continued strength across most
regions. Network Partners volume increased 4% from the prior year
primarily reflecting higher AribaPay volume.
Dividend Declaration
The Board of Directors of Discover Financial Services declared a
quarterly cash dividend of $0.70 per share of common stock payable
on June 6, 2024, to holders of record at the close of business on
May 23, 2024.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth
quarter results on Thursday, April 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.
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).
Forward Looking Statements
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; risks related
to the proposed merger with Capital One Financial Corporation
(“Capital One”) including, among others, (i) failure to complete
the merger with Capital One or unexpected delays related to the
merger or the inability of the parties to obtain regulatory
approvals or satisfy other closing conditions required to complete
the merger, (ii) regulatory approvals resulting in the imposition
of conditions that could adversely affect the combined company or
the expected benefits of the transaction, (iii) diversion of
management’s attention from ongoing business operations and
opportunities, (iv) cost and revenue synergies from the merger may
not be fully realized or may take longer than anticipated to be
realized, (v) the integration of each party’s management, personnel
and operations will not be successfully achieved or may be
materially delayed or will be more costly or difficult than
expected, (vi) deposit attrition, customer or employee loss and/or
revenue loss as a result of the announcement of the proposed
merger, (vii) expenses related to the proposed merger being greater
than expected, and (viii) shareholder litigation that could prevent
or delay the closing of the proposed merger or otherwise negatively
impact our business and operations; 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 our card and
personal loan growth; our ability to complete the proposed sale of
the Discover Financial Services’ (“Discover”) Student Loan
portfolio; our ability to increase or sustain Discover card usage
or attract new customers; difficulty obtaining regulatory approval
for, financing, closing, transitioning, integrating or managing the
expenses of acquisitions of or investments in new businesses,
products or technologies; our ability to manage our credit risk,
market risk, liquidity risk, operational risk, compliance and legal
risk and strategic risk; the availability and cost of funding and
capital; access to deposit, securitization, equity, debt and credit
markets; the impact of rating agency actions; the level and
volatility of equity prices, commodity prices and interest rates,
currency values, investments, other market fluctuations and other
market indices; losses in 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 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, investments in
or divestitures from 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, 2023, which is filed with the SEC
and available at the SEC's internet site (http://www.sec.gov) and
subsequent reports on Forms 8-K and 10-Q, including the company's
Current Report on Form 8-K filed today with the SEC.
Important Information About the Transaction and Where to Find
It
Capital One intends to file a registration statement on Form S-4
with the SEC to register the shares of Capital One’s common stock
that will be issued to Discover stockholders in connection with the
proposed transaction. The registration statement will include a
joint proxy statement of Capital One and Discover that also
constitutes a prospectus of Capital One. The definitive joint proxy
statement/prospectus will be sent to the stockholders of each of
Discover and Capital One in connection with the proposed
transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE
REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS WHEN
THEY BECOME AVAILABLE (AND ANY OTHER DOCUMENTS FILED WITH THE SEC
IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE
INTO THE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS
WILL CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED
TRANSACTION AND RELATED MATTERS. Investors and security holders may
obtain free copies of these documents and other documents filed
with the SEC by Discover or Capital One through the website
maintained by the SEC at http://www.sec.gov or by contacting the
investor relations department of Discover or Capital One at:
Discover Financial
Services
Capital One
Financial Corporation
2500 Lake Cook Road
1680 Capital One Drive
Riverwoods, IL 60015
McLean, VA 22102
Attention: Investor Relations
Attention: Investor Relations
investorrelations@discover.com
(224) 405-4555
investorrelations@capitalone.com
(703) 720-1000
Before making any voting or investment decision, investors
and security holders of Discover and Capital One are urged to read
carefully the entire registration statement and joint proxy
statement/prospectus when they become available, including any
amendments thereto, because they will contain important information
about the proposed transaction. Free copies of these documents may
be obtained as described above.
Participants in Solicitation
Discover, Capital One and certain of their directors and
executive officers may be deemed participants in the solicitation
of proxies from the stockholders of each of Discover and Capital
One in connection with the transaction. Information regarding the
directors and executive officers of Discover and Capital One and
other persons who may be deemed participants in the solicitation of
the stockholders of Discover or of Capital One in connection with
the transaction will be included in the joint proxy
statement/prospectus related to the proposed transaction, which
will be filed by Capital One with the SEC. Information about the
directors and executive officers of Discover and their ownership of
Discover common stock can also be found in Discover’s definitive
proxy statement in connection with its 2024 annual meeting of
stockholders, as filed with the SEC on March 15, 2024, as
supplemented by Discover’s proxy statement supplement, as filed
with the SEC on April 2, 2024, and other documents subsequently
filed by Discover with the SEC. Information about the directors and
executive officers of Capital One and their ownership of Capital
One common stock can also be found in Capital One’s definitive
proxy statement in connection with its 2024 annual meeting of
stockholders, as filed with the SEC on March 20, 2024, and other
documents subsequently filed by Capital One with the SEC.
Additional information regarding the interests of such participants
will be included in the joint proxy statement/prospectus and other
relevant documents regarding the proposed transaction filed with
the SEC when they become available.
DISCOVER FINANCIAL SERVICES (unaudited, in millions,
except per share statistics) Quarter Ended Mar
31,2024 Dec 31,2023 Mar 31,20231 EARNINGS SUMMARY Interest Income
$4,948
$4,868
$4,077
Interest Expense
1,461
1,400
945
Net Interest Income
3,487
3,468
3,132
Discount/Interchange Revenue
1,074
1,158
1,046
Rewards Cost
703
788
716
Discount and Interchange Revenue, net
371
370
330
Protection Products Revenue
42
43
43
Loan Fee Income
200
217
166
Transaction Processing Revenue
87
82
67
Gains (Losses) on Equity Investments
0
2
(18
)
Other Income
23
14
22
Total Non-Interest Income
723
728
610
Revenue Net of Interest Expense
4,210
4,196
3,742
Provision for Credit Losses
1,497
1,909
1,102
Employee Compensation and Benefits
671
646
625
Marketing and Business Development
250
372
241
Information Processing & Communications
163
170
139
Professional Fees
292
312
232
Premises and Equipment
20
25
22
Other Expense
913
250
124
Total Operating Expense
2,309
1,775
1,383
Income/(Loss) Before Income Taxes
404
512
1,257
Tax Expense
96
124
289
Net Income/(Loss)
$308
$388
$968
Net Income/(Loss) Allocated to Common Stockholders
$274
$386
$931
PER SHARE
STATISTICS Basic EPS
$1.10
$1.54
$3.55
Diluted EPS
$1.10
$1.54
$3.55
Common Stock Price (period end)
$131.09
$112.40
$98.84
Book Value per share
$58.74
$59.29
$54.79
BALANCE SHEET SUMMARY
Total Assets
$152,689
$151,522
$133,141
Total Liabilities
137,969
136,694
119,081
Total Equity
14,720
14,828
14,060
Total Liabilities and Stockholders' Equity
$152,689
$151,522
$133,141
TOTAL LOAN RECEIVABLES
Ending Loans2
$126,555
$128,409
$112,674
Average Loans2
$127,126
$125,387
$112,049
Interest Yield
14.71
%
14.61
%
14.06
%
Gross Principal Charge-off Rate
5.74
%
4.82
%
3.50
%
Net Principal Charge-off Rate
4.92
%
4.11
%
2.72
%
Delinquency Rate (30 or more days)
3.38
%
3.45
%
2.48
%
Delinquency Rate (90 or more days)
1.64
%
1.59
%
1.14
%
Gross Principal Charge-off Dollars
$1,812
$1,521
$966
Net Principal Charge-off Dollars
$1,556
$1,298
$750
Net Interest and Fee Charge-off Dollars
$348
$279
$169
Loans Delinquent 30 or more days
$4,282
$4,427
$2,791
Loans Delinquent 90 or more days
$2,079
$2,045
$1,290
Allowance for Credit Losses (period end)
$9,258
$9,283
$7,691
Reserve Change Build/(Release)3
($25
)
$618
$385
Reserve Rate
7.32
%
7.23
%
6.83
%
CREDIT CARD LOANS Ending
Loans
$99,475
$102,259
$89,755
Average Loans
$100,310
$99,610
$89,460
Interest Yield
15.79
%
15.63
%
15.06
%
Gross Principal Charge-off Rate
6.61
%
5.50
%
3.99
%
Net Principal Charge-off Rate
5.66
%
4.68
%
3.10
%
Delinquency Rate (30 or more days)
3.83
%
3.87
%
2.76
%
Delinquency Rate (90 or more days)
1.95
%
1.87
%
1.34
%
Gross Principal Charge-off Dollars
$1,649
$1,380
$879
Net Principal Charge-off Dollars
$1,411
$1,175
$684
Loans Delinquent 30 or more days
$3,810
$3,955
$2,477
Loans Delinquent 90 or more days
$1,941
$1,917
$1,204
Allowance for Credit Losses (period end)
$7,541
$7,619
$6,135
Reserve Change Build/(Release)3
($78
)
$549
$318
Reserve Rate
7.58
%
7.45
%
6.84
%
Total Discover Card Volume
$53,239
$60,917
$54,129
Discover Card Sales Volume
$50,137
$57,145
$50,588
Rewards Rate
1.39
%
1.37
%
1.41
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$322
$458
$1,210
Payment Services
82
54
47
Total
$404
$512
$1,257
NETWORK VOLUME PULSE
Network
$79,073
$79,194
$65,268
Network Partners
11,070
8,736
10,628
Diners Club International4
10,181
10,468
9,211
Total Payment Services
100,324
98,398
85,107
Discover Network - Proprietary
51,764
58,419
51,826
Total
$152,088
$156,817
$136,933
1 The comparative prior quarter ended March 31, 2023 has
been restated as disclosed in the Company's Financial Data
Supplement on Form 8-K for the second quarter 2023. 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).
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240416756235/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Matthew Towson, 224-405-5649
matthewtowson@discover.com
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