Board of Directors Approves Repurchase of up
to $2.7 Billion of Common Stock and Increases the Quarterly Common
Stock Dividend 17% to $0.70 Per Share
Discover Financial Services (NYSE: DFS):
First Quarter 2023
Results
2023
2022
YOY Change
Total loans, end of period (in
billions)
$112.7
$93.5
21%
Total revenue net of interest expense (in
millions)
$3,753
$2,902
29%
Total net charge-off rate
2.72%
1.61%
111 bps
Net income/(loss) (in millions)
$976
$1,242
(21)%
Diluted EPS
$3.58
$4.22
(15%)
Discover Financial Services (NYSE: DFS) today reported net
income of $1.0 billion or $3.58 per diluted share for the first
quarter of 2023, as compared to a net income of $1.2 billion or
$4.22 per diluted share for the first quarter of 2022.
“Our results for the first quarter of 2023 indicate a solid
start to the year, with continued receivables growth and record
deposit inflows, while credit is normalizing as expected. While
there was stress across some segments of the banking system, our
strong funding and capital generative business model enabled us to
invest for growth while sustaining significant capital return to
shareholders,” said Roger Hochschild, CEO and President of
Discover. “We believe these factors create a compelling position
for Discover in 2023 and beyond.”
Segment Results
Digital Banking
Digital Banking pretax income of $1.2 billion for the quarter
was $498 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 $112.7 billion, up 21%
year-over-year, and flat sequentially. Credit card loans ended the
quarter at $89.8 billion, up 22% year-over-year. Personal loans
increased $1.5 billion, or 21%, and private student loans increased
$166 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $313 million,
or 3% from the prior year period.
Net interest income for the quarter increased $653 million, or
26% driven by higher average receivables and net interest margin
expansion. Net interest margin was 11.34%, up 49 basis points
versus the prior year. Card yield was 15.06%, up 247 basis points
from the prior year primarily driven by higher market rates
partially offset by higher interest charge-offs and a slightly
higher mix of receivables at a promotional rate. Interest expense
as a percent of total loans increased 230 basis points from the
prior year period, primarily driven by higher funding costs.
Non-interest income increased $47 million, or 10%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards cost
driven by higher sales volumes.
The total net charge-off rate of 2.72% was 111 basis points
higher versus the prior year period reflecting credit normalization
across the portfolio. The credit card net charge-off rate was
3.10%, up 126 basis points from the prior year period and up 73
basis points from the prior quarter. The 30+ day delinquency rate
for credit card loans was 2.76%, up 99 basis points year-over year
and up 23 basis points from the prior quarter. The student loan net
charge-off rate was 1.04%, up 35 basis points from the prior year
and down 29 basis points from the prior quarter. Personal loans net
charge-off rate of 1.94% was up 82 basis points from the prior year
and up 45 basis points from the prior quarter.
Provision for credit losses of $1.1 billion increased $948
million from the prior year driven by a $385 million reserve build
in the current quarter compared to a $175 million reserve release
in the prior year quarter and a $382 million increase in net-charge
offs.
Total operating expenses were up $250 million year-over year, or
23%, driven primarily by higher expenses for employee compensation,
professional fees, and marketing. The increase in employee
compensation was driven by higher headcount. Professional fees
increased due to investment in technology and consulting costs.
Marketing increased primarily due to investments in consumer
banking, card acquisition, and brand.
Payment Services
Payment Services pretax income of $47 million was up $148
million year-over-year. Higher revenue was driven by $162 million
net losses on equity investments in the prior year quarter compared
to $18 million net losses in the current year quarter.
Payment Services volume was $85.1 billion, up 10%
year-over-year. PULSE dollar volume was up 9% primarily driven by
increased debit transaction volume. Diners Club volume was up 28%
year-over-year reflecting an improvement in global T&E and
corporate spending. Network Partners volume decreased 1% from the
prior year primarily reflecting lower transaction volume.
Share Repurchase
During the first quarter of 2023, the company repurchased
approximately 11.3 million shares of common stock for $1.2 billion.
Shares of common stock outstanding declined by 4.0% from the prior
quarter.
The Board of Directors has approved a new $2.7 billion share
repurchase program. The new share repurchase program spans five
quarters through June 30, 2024, 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 increased the quarterly dividend from
$0.60 to $0.70 per share, and declared a quarterly cash dividend of
$0.70 per share of common stock payable on June 8, 2023, to holders
of record at the close of business on May 25, 2023.
Conference Call and Webcast Information
The company will host a conference call to discuss its first
quarter results on Thursday, April 20, 2023, at 7:00 a.m. Central
Time. Interested parties can listen to the conference call via a
live audio webcast at https://investorrelations.discover.com.
About Discover
Discover Financial Services (NYSE: DFS) is a digital banking and
payment services company with one of the most recognized brands in
U.S. financial services. Since its inception in 1986, the company
has become one of the largest card issuers in the United States.
The company issues the Discover® card, America's cash rewards
pioneer, and offers private student loans, personal loans, home
loans, checking and savings accounts and certificates of deposit
through its banking business. It operates the Discover Global
Network® comprised of Discover Network, with millions of merchants
and cash access locations; PULSE®, one of the nation's leading
ATM/debit networks; and Diners Club International®, a global
payments network with acceptance around the world. For more
information, visit www.discover.com/company.
A financial summary follows. Financial, statistical, and
business related information, as well as information regarding
business and segment trends, is included in the financial
supplement filed as Exhibit 99.2 to the company's Current Report on
Form 8-K filed today with the Securities and Exchange Commission
(“SEC”). Both the earnings release and the financial supplement are
available online at the SEC's website (http://www.sec.gov) and the
company's website (https://investorrelations.discover.com).
This press release contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of
1995. Such statements, which speak to our expected business and
financial performance, among other matters, contain words such as
“believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,”
“may,” “should,” “could,” “would,” “likely,” 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: 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, 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 March 31,
2023 December 31, 2022 March 31, 2022
EARNINGS SUMMARY Interest
Income
$4,077
$3,856
$2,736
Interest Expense
945
789
257
Net Interest Income
3,132
3,067
2,479
Discount/Interchange Revenue
1,057
1,165
955
Rewards Cost
716
797
635
Discount and Interchange Revenue, net
341
368
320
Protection Products Revenue
43
44
44
Loan Fee Income
166
182
140
Transaction Processing Revenue
67
66
57
Gains/Losses on Equity Investments
(18
)
(6
)
(162
)
Other Income
22
11
24
Total Non-Interest Income
621
665
423
Revenue Net of Interest Expense
3,753
3,732
2,902
Provision for Credit Losses
1,102
883
154
Employee Compensation and Benefits
625
573
500
Marketing and Business Development
241
313
192
Information Processing & Communications
139
143
125
Professional Fees
232
264
177
Premises and Equipment
22
48
24
Other Expense
124
154
112
Total Operating Expense
1,383
1,495
1,130
Income/(Loss) Before Income Taxes
1,268
1,354
1,618
Tax Expense
292
321
376
Net Income/(Loss)
$976
$1,033
$1,242
Net Income/(Loss) Allocated to Common Stockholders
$939
$1,027
$1,205
PER SHARE
STATISTICS Basic EPS
$3.58
$3.77
$4.23
Diluted EPS
$3.58
$3.77
$4.22
Common Stock Price (period end)
$98.84
$97.83
$110.19
Book Value per share
$55.79
$54.57
$47.81
BALANCE SHEET SUMMARY
Total Assets
$133,061
$131,628
$107,412
Total Liabilities
118,746
117,038
93,979
Total Equity
14,315
14,590
13,433
Total Liabilities and Stockholders' Equity
$133,061
$131,628
$107,412
TOTAL LOAN RECEIVABLES
Ending Loans 1
$112,674
$112,120
$93,471
Average Loans 1
$112,049
$108,036
$92,691
Interest Yield
14.06
%
13.53
%
11.80
%
Gross Principal Charge-off Rate
3.50
%
2.87
%
2.64
%
Net Principal Charge-off Rate
2.72
%
2.13
%
1.61
%
Delinquency Rate (30 or more days)
2.48
%
2.30
%
1.64
%
Delinquency Rate (90 or more days)
1.14
%
0.98
%
0.72
%
Gross Principal Charge-off Dollars
$966
$781
$603
Net Principal Charge-off Dollars
$750
$581
$368
Net Interest and Fee Charge-off Dollars
$169
$126
$87
Loans Delinquent 30 or more days
$2,791
$2,578
$1,537
Loans Delinquent 90 or more days
$1,290
$1,101
$678
Allowance for Credit Losses (period end)
$7,691
$7,374
$6,647
Reserve Change Build/(Release) 2
$385
$313
($175
)
Reserve Rate
6.83
%
6.58
%
7.11
%
CREDIT CARD LOANS Ending
Loans
$89,755
$90,113
$73,783
Average Loans
$89,460
$86,396
$73,042
Interest Yield
15.06
%
14.50
%
12.59
%
Gross Principal Charge-off Rate
3.99
%
3.20
%
3.00
%
Net Principal Charge-off Rate
3.10
%
2.37
%
1.84
%
Delinquency Rate (30 or more days)
2.76
%
2.53
%
1.77
%
Delinquency Rate (90 or more days)
1.34
%
1.14
%
0.83
%
Gross Principal Charge-off Dollars
$879
$697
$541
Net Principal Charge-off Dollars
$684
$516
$331
Loans Delinquent 30 or more days
$2,477
$2,278
$1,305
Loans Delinquent 90 or more days
$1,204
$1,028
$613
Allowance for Credit Losses (period end)
$6,135
$5,883
$5,120
Reserve Change Build/(Release) 2
$318
$322
($153
)
Reserve Rate
6.84
%
6.53
%
6.94
%
Total Discover Card Volume
$54,129
$59,153
$49,379
Discover Card Sales Volume
$50,588
$55,663
$46,329
Rewards Rate
1.41
%
1.42
%
1.36
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,221
$1,317
$1,719
Payment Services
47
37
(101
)
Total
$1,268
$1,354
$1,618
NETWORK VOLUME PULSE
Network
$65,268
$66,807
$59,836
Network Partners
10,628
10,433
10,683
Diners Club International 3
9,211
9,155
7,176
Total Payment Services
85,107
86,395
77,695
Discover Network - Proprietary
51,826
58,138
48,129
Total
$136,933
$144,533
$125,824
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 3 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/20230418006221/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Matthew Towson, 224-405-5649
matthewtowson@discover.com
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