Board of Directors Approves Repurchase of up
to $2.4 Billion of Common Stock and Increases the Quarterly Common
Stock Dividend 14% From $0.44 to $0.50 Per Share
Discover Financial Services (NYSE: DFS):
Second Quarter 2021
Results
2021
2020
YOY Change
Total loans, end of period (in
billions)
$87.7
$88.9
(1%)
Total revenue net of interest expense (in
millions)
$3,579
$2,662
34%
Total net charge-off rate
2.12%
3.44%
-132 bps
Net income/(loss) (in millions)
$1,698
($368)
NM
Diluted EPS
$5.55
($1.20)
NM
Discover Financial Services (NYSE: DFS) today reported net
income of $1.7 billion or $5.55 per diluted share for the second
quarter of 2021, as compared to a net loss of ($368) million or
($1.20) per diluted share for the second quarter of 2020.
“In the second quarter, our marketing investments, strong value
proposition, and accelerating sales trends produced sequential card
receivables growth, while credit performance continued to improve.
Additionally, we generated significant capital which supported our
decision to substantially increase our dividend and share
repurchase authorization,” said Roger Hochschild, CEO and President
of Discover. “Looking ahead, these results improve our confidence
in our loan growth expectation for this year, while we see
opportunity to increase our marketing and other investments to
accelerate growth in future periods.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.5 billion for the quarter
was $2.0 billion higher than the prior year period primarily driven
by a decrease in the provision for credit losses and higher revenue
net of interest expenses, partially offset by higher operating
expenses.
Total loans ended the quarter at $87.7 billion, down 1%
year-over-year, but up 2% sequentially. Credit card loans ended the
quarter at $68.9 billion, down 2% year-over-year. Personal loans
decreased $451 million, or 6%, and private student loans increased
$134 million, or 1%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $386 million,
or 4% from the prior year period.
Net interest income for the quarter increased $109 million, or
5%, from the prior year period, driven by a favorable net impact
from lower market rates and decreased interest charge-offs,
partially offset by lower average receivables. Net interest margin
was 10.68%, up 87 basis points versus the prior year. Card yield
was 12.52%, up 18 basis points from the prior year period primarily
driven by a lower mix of receivables at a promotional rate and
decreased interest charge-offs, partially offset by the impact of a
higher payment rate on revolving loan balances. Interest expense as
a percent of total loans decreased 81 basis points from the prior
year period, primarily as a result of lower market rates and
proactive management of deposit costs, and a favorable shift in the
funding mix.
Non-interest income increased $104 million, or 29%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards
cost.
The total net charge-off rate of 2.12% was 132 basis points
lower versus the prior year period reflecting strong credit
performance across the portfolio. The credit card net charge-off
rate was 2.45%, down 145 basis points from the prior year period
and down 35 basis points from the prior quarter. The 30+ day
delinquency rate for credit card loans was 1.43%, down 74 basis
points year-over year and down 42 basis points from the prior
quarter. The student loan net charge-off rate was 0.53%, down 9
basis points from the prior year and flat to the prior quarter.
Personal loans net charge-off rate of 1.80% was down 163 basis
points from the prior year and down 100 basis point from the prior
quarter.
Provision for credit losses of $135 million decreased $1.9
billion from the prior year period driven by a reserve release in
the quarter and lower net charge-offs. The second quarter of 2021
included a $321 million reserve release, compared to a reserve
build of $1.3 billion in the second quarter of 2020. Net
charge-offs of $456 million were $311 million lower than the prior
year period.
Total operating expenses were up $110 million, year-over year,
or 11%, primarily reflecting higher marketing expense, higher
compensation accruals, and software related write-offs. Marketing
increased driven by acquisition and brand investments.
Payment Services
Payment Services pretax income was $692 million, up $669 million
year-over-year. Higher revenue was driven by a $729 million
one-time gain on an equity investment. This was partially offset by
a $92 million intangible impairment in our Diners business due to
global T&E spend remaining below pre-pandemic levels. The prior
year quarter included a $59 million intangible impairment charge in
our Diners business related to the steep decline in T&E
spend.
Payment Services volume was $78.4 billion, up 22%
year-over-year. PULSE dollar volume was up 19% year-over-year with
growth across all debit products driven by increased spend related
to the economic recovery. Diners Club volume was up 41%
year-over-year reflecting a partial rebound from the impacts of the
pandemic but remains 28% below volume levels in the second quarter
of 2019. Network Partners volume increased by 30% year-over-year
driven by AribaPay volume.
Share Repurchase
During the second quarter of 2021, the company repurchased
approximately 4.9 million shares of common stock for $553 million.
Shares of common stock outstanding declined by 1.6% from the prior
quarter.
The Board of Directors has approved a new $2.4 billion share
repurchase program and increased the quarterly common stock
dividend from $0.44 to $0.50 per share. The new share repurchase
program spans three quarters through March 31, 2022, replaces the
prior program, and may be terminated at any time. The company
expects to make share repurchases from time to time subject to the
company’s capital plan, market conditions and other factors,
including legal and regulatory restrictions and required
approvals.
Dividend Declaration
The Board of Directors declared a quarterly cash dividend of
$0.50 per share of common stock payable on September 2, 2021, to
holders of record at the close of business on August 19, 2021.
The Board of Directors of Discover Financial Services also
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 November 1,
2021, to the holders of record at the close of business on October
15, 2021.
The Board of Directors of Discover Financial Services declared a
semi-annual cash dividend Fixed Rate Non-Cumulative Perpetual
Preferred Stock, Series D, in the amount of $3,063 per share. The
dividend equals $30.63 per depositary share each representing
1/100th interest in a share of the Series D Preferred Stock. The
dividend will be payable on September 23, 2021, to the holders of
record at the close of business on September 8, 2021.
Conference Call and Webcast Information
The company will host a conference call to discuss its second
quarter results on Thursday, July 22, 2021, 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 merchant
and cash access locations; PULSE, one of the nation's leading
ATM/debit networks; and Diners Club International, a global
payments network with acceptance around the world. For more
information, visit www.discover.com/company.
A financial summary follows. Financial, statistical, and
business related information, as well as information regarding
business and segment trends, is included in the financial
supplement filed as Exhibit 99.2 to the company's Current Report on
Form 8-K filed today with the Securities and Exchange Commission
(“SEC”). Both the earnings release and the financial supplement are
available online at the SEC's website (http://www.sec.gov) and the
company's website (https://investorrelations.discover.com).
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements, which speak to our expected business and
financial performance, among other matters, contain words such as
“believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,”
“may,” “should,” “could,” “would,” “likely,” and similar
expressions. Such statements are based upon the current beliefs and
expectations of the company's management and are subject to
significant risks and uncertainties. Actual results may differ
materially from those set forth in the forward-looking statements.
These forward-looking statements speak only as of the date of this
press release, and there is no undertaking to update or revise them
as more information becomes available.
The following factors, among others, could cause actual results
to differ materially from those set forth in the forward-looking
statements: the effect of the coronavirus disease 2019 ("COVID-19")
pandemic and measures taken to mitigate the pandemic, including
their impact on our credit quality and business operations as well
as their impact on general economic and financial markets, changes
in economic variables, such as the availability of consumer credit,
the housing market, energy costs, the number and size of personal
bankruptcy filings, the rate of unemployment, the levels of
consumer confidence and consumer debt, and investor sentiment; the
impact of current, pending and future legislation, regulation,
supervisory guidance, and regulatory and legal actions, including,
but not limited to, those related to tax reform, financial
regulatory reform, consumer financial services practices,
anti-corruption, and funding, capital and liquidity; the actions
and initiatives of current and potential competitors; the company's
ability to manage its expenses; the company's ability to
successfully achieve card acceptance across its networks and
maintain relationships with network participants; the company's
ability to sustain and grow its non-card 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; the
company's ability to manage its credit risk, market risk, liquidity
risk, operational risk, compliance and legal risk, and strategic
risk; the availability and cost of funding and capital; access to
deposit, securitization, equity, debt and credit markets; the
impact of rating agency actions; the level and volatility of equity
prices, commodity prices and interest rates, currency values,
investments, other market fluctuations and other market indices;
losses in the company's investment portfolio; limits on the
company's ability to pay dividends and repurchase its common stock;
limits on the company's ability to receive payments from its
subsidiaries; fraudulent activities or material security breaches
of key systems; the company's ability to remain organizationally
effective; the company's ability to increase or sustain Discover
card usage or attract new customers; the company's ability to
maintain relationships with merchants; the effect of political,
economic and market conditions, geopolitical events and unforeseen
or catastrophic events; the company's ability to introduce new
products or services; the company's ability to manage its
relationships with third-party vendors; the company's ability to
maintain current technology and integrate new and acquired systems;
the company's ability to collect amounts for disputed transactions
from merchants and merchant acquirers; the company's ability to
attract and retain employees; the company's ability to protect its
reputation and its intellectual property; and new lawsuits,
investigations or similar matters or unanticipated developments
related to current matters. The company routinely evaluates and may
pursue acquisitions of or investments in businesses, products,
technologies, loan portfolios or deposits, which may involve
payment in cash or the company's debt or equity securities.
Additional factors that could cause the company's results to
differ materially from those described in the forward-looking
statements can be found under “Risk Factors,” “Business -
Competition,” “Business - Supervision and Regulation” and
“Management's Discussion and Analysis of Financial Condition and
Results of Operations” in the company's Annual Report on Form 10-K
for the year ended December 31, 2020, "Risk Factors" and
“Management's Discussion & Analysis of Financial Condition and
Results of Operations” in the company's Quarterly Report on Form
10-Q for the quarter ended March 31, 2021 which is filed with the
SEC and available at the SEC's internet site (http://www.sec.gov)
and subsequent reports on Forms 8-K and 10-Q, including the
company's Current Report on Form 8-K filed today with the SEC.
DISCOVER FINANCIAL SERVICES (unaudited, in
millions, except per share statistics)
Quarter Ended
June 30, 2021
March 31, 2021
June 30, 2020
EARNINGS SUMMARY Interest
Income
$2,589
$2,646
$2,672
Interest Expense
290
316
482
Net Interest Income
2,299
2,330
2,190
Discount/Interchange Revenue
937
766
622
Rewards Cost
598
525
385
Discount and Interchange Revenue, net
339
241
237
Protection Products Revenue
43
43
44
Loan Fee Income
105
107
85
Transaction Processing Revenue
58
51
49
Unrealized Gains on Equity Investments
729
0
0
Realized Gains on Equity Investments
0
0
43
Other Income
6
23
14
Total Non-Interest Income
1,280
465
472
Revenue Net of Interest Expense
3,579
2,795
2,662
Provision for Credit Losses
135
(365
)
2,046
Employee Compensation and Benefits
498
506
452
Marketing and Business Development
175
154
129
Information Processing & Communications
145
109
117
Professional Fees
187
182
181
Premises and Equipment
22
24
27
Other Expense
195
106
171
Total Operating Expense
1,222
1,081
1,077
Income/(Loss) Before Income Taxes
2,222
2,079
(461
)
Tax Expense
524
486
(93
)
Net Income/(Loss)
$1,698
$1,593
($368
)
Net Income/(Loss) Allocated to Common Stockholders
$1,688
$1,546
($369
)
PER SHARE
STATISTICS Basic EPS
$5.56
$5.04
($1.20
)
Diluted EPS
$5.55
$5.04
($1.20
)
Common Stock Price (period end)
$118.29
$94.99
$50.09
Book Value per share
$43.72
$39.72
$31.47
BALANCE SHEET SUMMARY
Total Assets
$110,985
$113,871
$113,792
Total Liabilities
97,814
101,717
104,149
Total Equity
13,171
12,154
9,643
Total Liabilities and Stockholders' Equity
$110,985
$113,871
$113,792
TOTAL LOAN RECEIVABLES
Ending Loans 1
$87,674
$86,347
$88,927
Average Loans 1
$86,296
$87,905
$89,771
Interest Yield
11.79
%
11.96
%
11.70
%
Gross Principal Charge-off Rate
3.20
%
3.45
%
4.26
%
Net Principal Charge-off Rate
2.12
%
2.48
%
3.44
%
Delinquency Rate (30 or more days)
1.34
%
1.67
%
1.98
%
Delinquency Rate (90 or more days)
0.63
%
0.85
%
1.03
%
Gross Principal Charge-off Dollars
$688
$747
$950
Net Principal Charge-off Dollars
$456
$537
$767
Net Interest and Fee Charge-off Dollars
$101
$118
$169
Loans Delinquent 30 or more days
$1,172
$1,438
$1,763
Loans Delinquent 90 or more days
$550
$732
$916
Allowance for Credit Losses (period end)
$7,026
$7,347
$8,184
Reserve Change Build/(Release) 2, 3
($321
)
($879
)
$1,271
Reserve Rate
8.01
%
8.51
%
9.20
%
CREDIT CARD LOANS Ending
Loans
$68,886
$67,304
$70,201
Average Loans
$67,420
$68,723
$70,848
Interest Yield
12.52
%
12.71
%
12.34
%
Gross Principal Charge-off Rate
3.69
%
3.91
%
4.84
%
Net Principal Charge-off Rate
2.45
%
2.80
%
3.90
%
Delinquency Rate (30 or more days)
1.43
%
1.85
%
2.17
%
Delinquency Rate (90 or more days)
0.73
%
1.01
%
1.21
%
Gross Principal Charge-off Dollars
$620
$663
$852
Net Principal Charge-off Dollars
$412
$474
$688
Loans Delinquent 30 or more days
$983
$1,245
$1,523
Loans Delinquent 90 or more days
$504
$680
$846
Allowance for Credit Losses (period end)
$5,409
$5,640
$6,491
Reserve Change Build/(Release) 2
($231
)
($851
)
$1,185
Reserve Rate
7.85
%
8.38
%
9.25
%
Total Discover Card Volume
$48,049
$40,334
$33,105
Discover Card Sales Volume
$45,460
$37,744
$30,721
Rewards Rate
1.31
%
1.38
%
1.24
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,530
$2,027
($484
)
Payment Services
692
52
23
Total
$2,222
$2,079
($461
)
NETWORK VOLUME PULSE
Network
$62,855
$60,399
$52,859
Network Partners
9,468
9,629
7,280
Diners Club International 4
6,126
5,897
4,339
Total Payment Services
78,449
75,925
64,478
Discover Network - Proprietary
47,201
39,202
32,349
Total
$125,650
$115,127
$96,827
1 Total Loans includes Home Equity and other loans. 2
Excludes January 1, 2020 CECL day one impact 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/20210721005924/en/
Investors: Eric Wasserstrom, 224-405-5923
ericwasserstrom@discover.com
Media: Jon Drummond, 224-405-1888
jondrummond@discover.com
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