Discover Financial Services (NYSE: DFS):
Third Quarter 2021
Results
2021
2020
YOY Change
Total loans, end of period (in
billions)
$89.5
$88.7
1%
Total revenue net of interest expense (in
millions)
$2,777
$2,714
2%
Total net charge-off rate
1.46%
3.00%
-154 bps
Net income/(loss) (in millions)
$1,091
$771
42%
Diluted EPS
$3.54
$2.45
44%
Discover Financial Services (NYSE: DFS) today reported net
income of $1.1 billion or $3.54 per diluted share for the third
quarter of 2021, as compared to a net income of $771 million or
$2.45 per diluted share for the third quarter of 2020.
“Our results this quarter reflected the strengths of our
integrated digital banking and payments model, which continues to
be a source of significant competitive advantage” said Roger
Hochschild, CEO and President of Discover. “Even in an environment
of heightened competition, our attractive value proposition drove
strong new account growth, which contributed to our return to
year-over-year loan growth in the quarter. Further, our success in
managing our operating costs and continued strong credit
performance helped generate substantial capital, supporting the
increase in share repurchases.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.5 billion for the quarter
was $599 million higher than the prior year period primarily
reflecting a lower provision for credit losses and higher revenue
net of interest expense, partially offset by increased operating
expenses.
Total loans ended the quarter at $89.5 billion, up 1%
year-over-year, and up 2% sequentially. Credit card loans ended the
quarter at $70.3 billion, up 1% year-over-year. Personal loans
decreased $321 million, or 4%, and private student loans increased
$168 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $402 million,
or 4% from the prior year period.
Net interest income for the quarter increased $140 million, or
6%, from the prior year period, driven by favorable funding costs
due to lower market rates and decreased interest charge-offs,
partially offset by a lower credit card revolving loan balance as
payment rates remained elevated. Net interest margin was 10.80%, up
61 basis points versus the prior year. Card yield was 12.53%, up 13
basis points from the prior year period primarily driven by
decreased interest charge-offs, and a lower mix of receivables at a
promotional rate, partially offset by the impact of a higher
payment rate on revolving loan balances. Interest expense as a
percent of total loans decreased 66 basis points from the prior
year period, primarily as a result of lower market rates and
proactive management of deposit costs, maturity of high coupon
consumer CDs and a favorable shift in the funding mix.
Non-interest income increased $76 million, or 20%, 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 1.46% was 154 basis points
lower versus the prior year period reflecting strong credit
performance across the portfolio. The credit card net charge-off
rate was 1.65%, down 180 basis points from the prior year period
and down 80 basis points from the prior quarter. The 30+ day
delinquency rate for credit card loans was 1.48%, down 43 basis
points year-over year and up 5 basis points from the prior quarter.
The student loan net charge-off rate was 0.68%, up 10 basis points
from the prior year and up 15 basis points from the prior quarter.
Personal loans net charge-off rate of 1.11% was down 158 basis
points from the prior year and down 69 basis point from the prior
quarter.
Provision for credit losses of $185 million decreased $565
million from the prior year period driven by lower net charge-offs
and a reserve release in the quarter. The third quarter of 2021
included a $165 million reserve release, compared to a $42 million
reserve build in the third quarter of 2020. Net charge-offs of $325
million were $343 million lower than the prior year period.
Total operating expenses were up $182 million, year-over year,
or 19%, primarily reflecting higher marketing expense, increased
other expenses, increased recovery fees, and higher employee
compensation.
Payment Services
Payment Services had a pretax loss of $114 million, down $156
million year-over-year. Lower revenue was driven by a $167 million
unrealized loss on equity investments. This was partially offset by
higher PULSE and Network Partners revenue.
Payment Services volume was $76.8 billion, up 10%
year-over-year. PULSE dollar volume was up 9% year-over-year with
growth across all debit products driven by increased spend related
to the economic recovery. Diners Club volume was up 12%
year-over-year reflecting a rebound from the impacts of the
pandemic. Network Partners volume increased 16% from the prior year
primarily reflecting higher AribaPay volume.
Share Repurchase
During the third quarter of 2021, the company repurchased
approximately 6.5 million shares of common stock for $815 million.
Shares of common stock outstanding declined by 2.1% from the prior
quarter.
Conference Call and Webcast Information
The company will host a conference call to discuss its third
quarter results on Thursday, October 21, 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 June 30, 2021 and 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 September
30,2021 June 30,2021 September 30,2020
EARNINGS SUMMARY Interest
Income
$2,674
$2,589
$2,681
Interest Expense
269
290
416
Net Interest Income
2,405
2,299
2,265
Discount/Interchange Revenue
988
937
752
Rewards Cost
689
598
514
Discount and Interchange Revenue, net
299
339
238
Protection Products Revenue
43
43
44
Loan Fee Income
121
105
100
Transaction Processing Revenue
58
58
50
Unrealized Gains/ (Losses) on Equity Investments
(167
)
729
0
Realized Gains/ (Losses) on Equity Investments
0
0
0
Other Income
18
6
17
Total Non-Interest Income
372
1,280
449
Revenue Net of Interest Expense
2,777
3,579
2,714
Provision for Credit Losses
185
135
750
Employee Compensation and Benefits
483
498
471
Marketing and Business Development
210
175
140
Information Processing & Communications
121
145
111
Professional Fees
198
187
151
Premises and Equipment
23
22
26
Other Expense
155
195
106
Total Operating Expense
1,190
1,222
1,005
Income/ (Loss) Before Income Taxes
1,402
2,222
959
Tax Expense
311
524
188
Net Income/ (Loss)
$1,091
$1,698
$771
Net Income/ (Loss) Allocated to Common Stockholders
$1,055
$1,688
$751
PER SHARE
STATISTICS Basic EPS
$3.54
$5.56
$2.45
Diluted EPS
$3.54
$5.55
$2.45
Common Stock Price (period end)
$122.85
$118.29
$57.78
Book Value per share
$45.00
$43.72
$33.45
BALANCE SHEET SUMMARY
Total Assets
$108,544
$110,985
$124,349
Total Liabilities
95,281
97,814
114,097
Total Equity
13,263
13,171
10,252
Total Liabilities and Stockholders' Equity
$108,544
$110,985
$124,349
TOTAL LOAN RECEIVABLES
Ending Loans 1
$89,542
$87,674
$88,660
Average Loans 1
$88,356
$86,296
$88,422
Interest Yield
11.79
%
11.79
%
11.78
%
Gross Principal Charge-off Rate
2.50
%
3.20
%
3.78
%
Net Principal Charge-off Rate
1.46
%
2.12
%
3.00
%
Delinquency Rate (30 or more days)
1.40
%
1.34
%
1.77
%
Delinquency Rate (90 or more days)
0.58
%
0.63
%
0.80
%
Gross Principal Charge-off Dollars
$556
$688
$842
Net Principal Charge-off Dollars
$325
$456
$668
Net Interest and Fee Charge-off Dollars
$72
$101
$141
Loans Delinquent 30 or more days
$1,258
$1,172
$1,567
Loans Delinquent 90 or more days
$522
$550
$708
Allowance for Credit Losses (period end)
$6,861
$7,026
$8,226
Reserve Change Build/(Release) 2, 3
($165
)
($321
)
$42
Reserve Rate
7.66
%
8.01
%
9.28
%
CREDIT CARD LOANS Ending
Loans
$70,320
$68,886
$69,656
Average Loans
$69,416
$67,420
$69,643
Interest Yield
12.53
%
12.52
%
12.40
%
Gross Principal Charge-off Rate
2.83
%
3.69
%
4.33
%
Net Principal Charge-off Rate
1.65
%
2.45
%
3.45
%
Delinquency Rate (30 or more days)
1.48
%
1.43
%
1.91
%
Delinquency Rate (90 or more days)
0.66
%
0.73
%
0.93
%
Gross Principal Charge-off Dollars
$495
$620
$759
Net Principal Charge-off Dollars
$289
$412
$604
Loans Delinquent 30 or more days
$1,040
$983
$1,328
Loans Delinquent 90 or more days
$467
$504
$650
Allowance for Credit Losses (period end)
$5,298
$5,409
$6,491
Reserve Change Build/(Release) 2
($111
)
($231
)
$0
Reserve Rate
7.54
%
7.85
%
9.32
%
Total Discover Card Volume
$50,389
$48,049
$39,783
Discover Card Sales Volume
$47,613
$45,460
$37,134
Rewards Rate
1.44
%
1.31
%
1.38
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,516
$1,530
$917
Payment Services
(114
)
692
42
Total
$1,402
$2,222
$959
NETWORK VOLUME PULSE
Network
$59,872
$62,855
$54,993
Network Partners
10,377
9,468
8,917
Diners Club International 4
6,547
6,126
5,839
Total Payment Services
76,796
78,449
69,749
Discover Network - Proprietary
49,360
47,201
38,699
Total
$126,156
$125,650
$108,448
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/20211020006070/en/
Investors: Eric Wasserstrom, 224-405-5923
ericwasserstrom@discover.com
Media: Jon Drummond, 224-405-1888
jondrummond@discover.com
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