Discover Financial Services Reports Third Quarter 2023 Net Income of $683 Million or $2.59 Per Diluted Share

Rhea-AI Summary

Discover Financial Services reports net income of $683 million for Q3 2023, a decrease of 33% compared to Q3 2022. Total loans and total revenue both increased by 17% year-over-year.

Positive

• Total loans increased by 17% year-over-year
• Total revenue net of interest expense increased by 17% year-over-year

Negative

• Net income decreased by 33% compared to the same quarter last year

Board of Directors Declares Quarterly Dividend for Common Stock

RIVERWOODS, Ill.--(BUSINESS WIRE)-- Discover Financial Services (NYSE: DFS):

Third Quarter 2023 Results
	2023	2022(1)	YOY Change
Total loans, end of period (in billions)	$122.7	$104.9	17%
Total revenue net of interest expense (in millions)	$4,044	$3,468	17%
Total net charge-off rate	3.52%	1.71%	181 bps
Net income/(loss) (in millions)	$683	$1,013	(33%)
Diluted EPS	$2.59	$3.56	(27%)
Note(s)
1. The comparative prior quarter ended September 30, 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 $683 million or $2.59 per diluted share for the third quarter of 2023, as compared to a net income of $1.0 billion or $3.56 per diluted share for the third quarter of 2022.

“The quarter was characterized by strong growth in revenues, receivables and deposits, while credit continued to season with charge-offs within expected ranges,” said John Owen, Discover’s interim CEO and President. “These results underscore the strength of our business model, the power of our brand, and our commitment to providing best-in-class customer service while enhancing our compliance and risk management capabilities, which remains our top priority.”

Segment Results

Digital Banking

Digital Banking pretax income of $803 million for the quarter was $471 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 $122.7 billion, up 17% year-over-year, and up 4% sequentially. Credit card loans ended the quarter at $97.4 billion, up 16% year-over-year. Personal loans increased $1.9 billion, or 25%, and private student loans increased $99 million, or 1%, year-over-year. The organic student loan portfolio, which excludes purchased loans, increased $241 million, or 2% from the prior year period.

Net interest income for the quarter increased $479 million, or 17% driven by higher average receivables partially offset by net interest margin compression. Net interest margin was 10.95%, down 10 basis points versus the prior year. Card yield was 15.43%, up 187 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 225 basis points from the prior year period, primarily driven by higher funding costs.

Non-interest income increased $62 million, or 12%, from the prior year period, mainly driven by higher loan fee income and discount/interchange revenue as well as lower rewards cost driven by a change in the 5% category from restaurants to gas.

The total net charge-off rate of 3.52% was 181 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 4.03%, up 211 basis points from the prior year period and up 35 basis points from the prior quarter. The 30+ day delinquency rate for credit card loans was 3.41%, up 130 basis points year-over year and up 55 basis points from the prior quarter. The student loan net charge-off rate was 1.32%, up 41 basis points from the prior year and up 7 basis points from the prior quarter. Personal loans net charge-off rate of 2.63% was up 149 basis points from the prior year and up 35 basis points from the prior quarter.

Provision for credit losses of $1.7 billion increased $929 million from the prior year driven by a $297 million higher reserve build in the current quarter and a $631 million increase in net-charge offs.

Total operating expenses were up $83 million year-over year, or 6%, primarily driven by expenses for professional fees, information processing, employee compensation and marketing. The increase in professional fees was driven by continued investment in compliance and risk management initiatives. Employee compensation increased due to higher headcount. Information processing was up due to investments in technology. Marketing increased to support deposit acquisition.

Payment Services

Payment Services pretax income of $85 million was up $32 million year-over-year primarily driven by increased PULSE revenue.

Payment Services volume was $91.8 billion, up 9% year-over-year. PULSE dollar volume was up 14% primarily driven by increased debit transaction volume. Diners Club volume was up 11% year-over-year reflecting continued strength across all regions. Network Partners volume decreased 17% from the prior year primarily reflecting lower AribaPay volume.

Dividend Declaration

The Board of Directors declared a quarterly cash dividend of $0.70 per share of common stock payable on December 7, 2023, to holders of record at the close of business on November 22, 2023.

Conference Call and Webcast Information

The company will host a conference call to discuss its third quarter results on Thursday, October 19, 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," "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 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
		Sep 30, 2023			Jun 30, 2023			Sep 30, 20221
EARNINGS SUMMARY
Interest Income		$4,610			$4,290			$3,357
Interest Expense		1,288			1,113			514
Net Interest Income		3,322			3,177			2,843
Discount/Interchange Revenue		1,164			1,158			1,146
Rewards Cost		787			788			811
Discount and Interchange Revenue, net		377			370			335
Protection Products Revenue		42			44			42
Loan Fee Income		194			186			168
Transaction Processing Revenue		82			72			65
Gains/Losses on Equity Investments		6			1			(4	)
Other Income		21			28			19
Total Non-Interest Income		722			701			625
Revenue Net of Interest Expense		4,044			3,878			3,468
Provision for Credit Losses		1,702			1,305			773
Employee Compensation and Benefits		575			588			551
Marketing and Business Development		283			268			276
Information Processing & Communications		149			150			124
Professional Fees		281			216			241
Premises and Equipment		22			20			22
Other Expense		144			162			154
Total Operating Expense		1,454			1,404			1,368
Income/(Loss) Before Income Taxes		888			1,169			1,327
Tax Expense		205			268			314
Net Income/(Loss)		$683			$901			$1,013
Net Income/(Loss) Allocated to Common Stockholders		$647			$895			$975
PER SHARE STATISTICS
Basic EPS		$2.59			$3.54			$3.57
Diluted EPS		$2.59			$3.54			$3.56
Common Stock Price (period end)		$86.63			$116.85			$90.92
Book Value per share		$56.93			$55.44			$51.42
BALANCE SHEET SUMMARY
Total Assets		$143,432			$138,082			$121,961
Total Liabilities		129,196			124,226			107,913
Total Equity		14,236			13,856			14,048
Total Liabilities and Stockholders' Equity		$143,432			$138,082			$121,961
TOTAL LOAN RECEIVABLES
Ending Loans 2		$122,676			$117,906			$104,908
Average Loans 2		$120,380			$115,259			$102,035
Interest Yield		14.44	%		14.17	%		12.67	%
Gross Principal Charge-off Rate		4.24	%		4.01	%		2.56	%
Net Principal Charge-off Rate		3.52	%		3.22	%		1.71	%
Delinquency Rate (30 or more days)		3.06	%		2.57	%		1.94	%
Delinquency Rate (90 or more days)		1.34	%		1.16	%		0.80	%
Gross Principal Charge-off Dollars		$1,287			$1,153			$659
Net Principal Charge-off Dollars		$1,070			$924			$439
Net Interest and Fee Charge-off Dollars		$223			$202			$98
Loans Delinquent 30 or more days		$3,756			$3,027			$2,034
Loans Delinquent 90 or more days		$1,637			$1,361			$837
Allowance for Credit Losses (period end)		$8,665			$8,064			$7,061
Reserve Change Build/(Release) 3		$601			$373			$304
Reserve Rate		7.06	%		6.84	%		6.73	%
CREDIT CARD LOANS
Ending Loans		$97,389			$93,955			$83,630
Average Loans		$95,796			$91,825			$81,445
Interest Yield		15.43	%		15.14	%		13.56	%
Gross Principal Charge-off Rate		4.85	%		4.59	%		2.88	%
Net Principal Charge-off Rate		4.03	%		3.68	%		1.92	%
Delinquency Rate (30 or more days)		3.41	%		2.86	%		2.11	%
Delinquency Rate (90 or more days)		1.57	%		1.35	%		0.92	%
Gross Principal Charge-off Dollars		$1,171			$1,051			$592
Net Principal Charge-off Dollars		$973			$842			$395
Loans Delinquent 30 or more days		$3,324			$2,689			$1,761
Loans Delinquent 90 or more days		$1,527			$1,269			$770
Allowance for Credit Losses (period end)		$7,070			$6,525			$5,561
Reserve Change Build/(Release) 3		$545			$390			$254
Reserve Rate		7.26	%		6.94	%		6.65	%
Total Discover Card Volume		$58,965			$58,774			$58,561
Discover Card Sales Volume		$54,952			$55,229			$54,793
Rewards Rate		1.42	%		1.42	%		1.47	%
SEGMENT- INCOME/(LOSS) BEFORE INCOME TAXES
Digital Banking		$803			$1,099			$1,274
Payment Services		85			70			53
Total		$888			$1,169			$1,327
NETWORK VOLUME
PULSE Network		$72,146			$69,008			$63,437
Network Partners		9,899			10,408			11,894
Diners Club International 4		9,723			9,897			8,793
Total Payment Services		91,768			89,313			84,124
Discover Network - Proprietary		57,228			57,099			56,633
Total		$148,996			$146,412			$140,757
1 The comparative prior quarter ended September 30, 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 - September 30, 2022		As Previously Reported		Restated Impacts			As Restated
EARNINGS SUMMARY
Discount/Interchange Revenue		$1,157		($11	)		$1,146
Discount and Interchange Revenue, net		346		(11	)		335
Total Non-Interest Income		636		(11	)		625
Revenue Net of Interest Expense		$3,479		($11	)		$3,468
Other Expense		$174		($20	)		$154
Total Operating Expense		$1,388		($20	)		$1,368
Income/(Loss) Before Income Taxes		$1,318		$9			$1,327
Tax Expense		312		2			314
Net Income/(Loss)		$1,006		$7			$1,013
Net Income/(Loss) Allocated to Common Stockholders		$967		$8			$975
PER SHARE STATISTICS
Basic EPS		$3.54		$0.03			$3.57
Diluted EPS		$3.54		$0.02			$3.56
Book Value per share		$52.29		($0.87	)		$51.42
BALANCE SHEET SUMMARY
Total Assets		$121,886		$75			$121,961
Total Liabilities		107,600		313			107,913
Total Equity		14,286		(238	)		14,048
Total Liabilities and Stockholders' Equity		$121,886		$75			$121,961
SEGMENT- INCOME/(LOSS) BEFORE INCOME TAXES
Digital Banking		$1,265		$9			$1,274

 

View source version on businesswire.com: https://www.businesswire.com/news/home/20231017894743/en/

Investors:

Eric Wasserstrom, 224-405-4555

investorrelations@discover.com

Media:

Matthew Towson, 224-405-5649

matthewtowson@discover.com

Source: Discover Financial Services

FAQ

What was Discover Financial Services' net income for Q3 2023?

Discover Financial Services reported net income of $683 million for Q3 2023.

How much did total loans increase by year-over-year?

Total loans increased by 17% year-over-year.

What was the change in net income compared to Q3 2022?

Net income decreased by 33% compared to Q3 2022.

What was the total revenue net of interest expense for Q3 2023?

Total revenue net of interest expense was $4,044 million for Q3 2023.

When is the quarterly cash dividend for common stock payable?

The quarterly cash dividend of $0.70 per share of common stock is payable on December 7, 2023.