Board of Directors Declares Semi-annual
Dividend for Preferred Stock and Quarterly Dividend for Common
Stock
Discover Financial Services (NYSE: DFS):
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
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.
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 September 30, 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.
DISCOVER FINANCIAL SERVICES (unaudited, in millions,
except per share statistics) Quarter Ended Dec
31,2023 Sep 30,2023 Dec 31,20221 EARNINGS SUMMARY Interest Income
$4,868
$4,610
$3,856
Interest Expense
1,400
1,288
789
Net Interest Income
3,468
3,322
3,067
Discount/Interchange Revenue
1,158
1,164
1,154
Rewards Cost
788
787
797
Discount and Interchange Revenue, net
370
377
357
Protection Products Revenue
43
42
44
Loan Fee Income
217
194
182
Transaction Processing Revenue
82
82
66
Gains/Losses on Equity Investments
2
6
(6
)
Other Income
14
21
11
Total Non-Interest Income
728
722
654
Revenue Net of Interest Expense
4,196
4,044
3,721
Provision for Credit Losses
1,909
1,702
883
Employee Compensation and Benefits
646
575
573
Marketing and Business Development
372
283
313
Information Processing & Communications
170
149
143
Professional Fees
312
281
264
Premises and Equipment
25
22
48
Other Expense
250
144
154
Total Operating Expense
1,775
1,454
1,495
Income/(Loss) Before Income Taxes
512
888
1,343
Tax Expense
124
205
318
Net Income/(Loss)
$388
$683
$1,025
Net Income/(Loss) Allocated to Common Stockholders
$386
$647
$1,019
PER SHARE
STATISTICS Basic EPS
$1.54
$2.59
$3.74
Diluted EPS
$1.54
$2.59
$3.74
Common Stock Price (period end)
$112.40
$86.63
$97.83
Book Value per share
$59.29
$56.93
$53.65
BALANCE SHEET SUMMARY
Total Assets
$151,522
$143,432
$131,706
Total Liabilities
136,694
129,196
117,362
Total Equity
14,828
14,236
14,344
Total Liabilities and Stockholders' Equity
$151,522
$143,432
$131,706
TOTAL LOAN RECEIVABLES
Ending Loans 2
$128,409
$122,676
$112,120
Average Loans 2
$125,387
$120,380
$108,036
Interest Yield
14.61
%
14.44
%
13.53
%
Gross Principal Charge-off Rate
4.82
%
4.24
%
2.87
%
Net Principal Charge-off Rate
4.11
%
3.52
%
2.13
%
Delinquency Rate (30 or more days)
3.45
%
3.06
%
2.30
%
Delinquency Rate (90 or more days)
1.59
%
1.34
%
0.98
%
Gross Principal Charge-off Dollars
$1,521
$1,287
$781
Net Principal Charge-off Dollars
$1,298
$1,070
$581
Net Interest and Fee Charge-off Dollars
$279
$223
$126
Loans Delinquent 30 or more days
$4,427
$3,756
$2,578
Loans Delinquent 90 or more days
$2,045
$1,637
$1,101
Allowance for Credit Losses (period end)
$9,283
$8,665
$7,374
Reserve Change Build/(Release) 3
$618
$601
$313
Reserve Rate
7.23
%
7.06
%
6.58
%
CREDIT CARD LOANS Ending
Loans
$102,259
$97,389
$90,113
Average Loans
$99,610
$95,796
$86,396
Interest Yield
15.63
%
15.43
%
14.50
%
Gross Principal Charge-off Rate
5.50
%
4.85
%
3.20
%
Net Principal Charge-off Rate
4.68
%
4.03
%
2.37
%
Delinquency Rate (30 or more days)
3.87
%
3.41
%
2.53
%
Delinquency Rate (90 or more days)
1.87
%
1.57
%
1.14
%
Gross Principal Charge-off Dollars
$1,380
$1,171
$697
Net Principal Charge-off Dollars
$1,175
$973
$516
Loans Delinquent 30 or more days
$3,955
$3,324
$2,278
Loans Delinquent 90 or more days
$1,917
$1,527
$1,028
Allowance for Credit Losses (period end)
$7,619
$7,070
$5,883
Reserve Change Build/(Release) 3
$549
$545
$322
Reserve Rate
7.45
%
7.26
%
6.53
%
Total Discover Card Volume
$60,917
$58,965
$59,153
Discover Card Sales Volume
$57,145
$54,952
$55,663
Rewards Rate
1.37
%
1.42
%
1.42
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$458
$803
$1,306
Payment Services
54
85
37
Total
$512
$888
$1,343
NETWORK VOLUME PULSE
Network
$79,194
$72,146
$66,807
Network Partners
8,736
9,899
10,433
Diners Club International 4
10,468
9,723
9,155
Total Payment Services
98,398
91,768
86,395
Discover Network - Proprietary
58,419
57,228
58,138
Total
$156,817
$148,996
$144,533
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 for reconciliation
to previously reported results. 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).
RECONCILIATION OF PRIOR PERIOD RESTATED FINANCIAL
RESULTS Quarter Ended - December 31, 2022
AsPreviouslyReported RestatedImpacts AsRestated
EARNINGS SUMMARY
Discount/Interchange Revenue
$1,165
($11)
$1,154
Discount and Interchange Revenue, net
368
(11)
357
Total Non-Interest Income
665
(11)
654
Revenue Net of Interest Expense
$3,732
($11)
$3,721
Other Expense
$154
$0
$154
Total Operating Expense
$1,495
$0
$1,495
Income/(Loss) Before Income Taxes
$1,354
($11)
$1,343
Tax Expense
321
(3)
318
Net Income/(Loss)
$1,033
($8)
$1,025
Net Income/(Loss) Allocated to Common Stockholders
$1,027
($8)
$1,019
PER SHARE STATISTICS
Basic EPS
$3.77
($0.03)
$3.74
Diluted EPS
$3.77
($0.03)
$3.74
Book Value per share
$54.57
($0.92)
$53.65
BALANCE SHEET SUMMARY
Total Assets
$131,628
$78
$131,706
Total Liabilities
117,038
324
117,362
Total Equity
14,590
(246)
14,344
Total Liabilities and Stockholders' Equity
$131,628
$78
$131,706
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,317
($11)
$1,306
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240116878616/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Matthew Towson, 224-405-5649
matthewtowson@discover.com
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