Board of Directors Approves Repurchase of up
to $4.2 Billion of Common Stock and Increases the Quarterly Common
Stock Dividend 20% to $0.60 Per Share
Discover Financial Services (NYSE: DFS):
First Quarter 2022
Results
2022
2021
YOY Change
Total loans, end of period (in
billions)
$93.5
$86.3
8%
Total revenue net of interest expense (in
millions)
$2,902
$2,795
4%
Total net charge-off rate
1.61%
2.48%
(87) bps
Net income/(loss) (in millions)
$1,242
$1,593
(22)%
Diluted EPS
$4.22
$5.04
(16%)
Discover Financial Services (NYSE: DFS) today reported net
income of $1.2 billion or $4.22 per diluted share for the first
quarter of 2022, as compared to a net income of $1.6 billion or
$5.04 per diluted share for the first quarter of 2021.
“The first quarter of this year included a devastating war in
Ukraine, record high inflation, and shifting monetary policy
expectations,” said Roger Hochschild, CEO and President of
Discover. “Notwithstanding, we continue to execute against our
business priorities, evidenced by our accelerating loan growth and
continued strong credit performance, while investing in profitable
growth. Earlier this month, we launched our refreshed Cashback
Debit product, which showcases how we’re innovating to meet our
customers’ needs in a manner consistent with our brand promise
around rewards, no fees, strong service and product
transparency.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.7 billion for the quarter
was $308 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 $93.5 billion, up 8%
year-over-year, and flat sequentially. Credit card loans ended the
quarter at $73.8 billion, up 10% year-over-year. Personal loans
decreased $57 million, or 1%, and private student loans increased
$161 million, or 2%, year-over-year. The organic student loan
portfolio, which excludes purchased loans, increased $360 million,
or 4% from the prior year period.
Net interest income for the quarter increased $149 million, or
6%, from the prior year period, driven by higher average
receivables, favorable funding costs and lower interest
charge-offs, partially offset by a lower credit card revolving loan
balance as payment rates remained elevated. Net interest margin was
10.85%, up 10 basis points versus the prior year. Card yield was
12.59%, down 12 basis points from the prior year primarily driven
by a higher mix of receivables at a promotional rate and the impact
of a high payment rate on revolving loan balances, partially offset
by lower interest charge-offs. Interest expense as a percent of
total loans decreased 33 basis points from the prior year period,
primarily driven by the maturity of high coupon consumer CDs and a
favorable shift in the funding mix.
Non-interest income increased $107 million, or 28%, from the
prior year period, mainly driven by higher discount/interchange
revenue and loan fee income partially offset by higher rewards
cost, which reflected elevated sales volumes.
The total net charge-off rate of 1.61% was 87 basis points lower
versus the prior year period reflecting strong credit performance
across the portfolio. The credit card net charge-off rate was
1.84%, down 96 basis points from the prior year period and up 34
basis points from the prior quarter. The 30+ day delinquency rate
for credit card loans was 1.77%, down 8 basis points year-over year
and up 11 basis points from the prior quarter. The student loan net
charge-off rate was 0.69%, up 16 basis points from the prior year
and down 11 basis points from the prior quarter. Personal loans net
charge-off rate of 1.12% was down 168 basis points from the prior
year and down 9 basis point from the prior quarter.
Provision for credit losses of $154 million increased $519
million from the prior year driven by a higher reserve release in
the prior year quarter, partially offset by lower net charge-offs.
The first quarter of 2022 included a $175 million reserve release
compared to an $879 million reserve release in the first quarter of
2021. Net charge-offs of $368 million were $169 million lower than
the prior year period.
Total operating expenses were up $45 million year-over year, or
4%, driven by higher expenses for marketing and information
processing.
Payment Services
Payment Services pretax loss of $101 million was down $153
million year-over-year. Lower revenue was driven by a $162MM net
loss on equity investments. This was partially offset by higher
PULSE and Network Partners revenue.
Payment Services volume was $77.7 billion, up 2% year-over-year.
PULSE dollar volume was down 1% year-over-year primarily driven by
receding spend on debit products related to the end of federal
stimulus programs. Diners Club volume was up 22% year-over-year
reflecting a rebound from the impacts of the pandemic. Network
Partners volume increased 11% from the prior year primarily
reflecting higher AribaPay volume.
Share Repurchase
During the first quarter of 2022, the company repurchased
approximately 8.0 million shares of common stock for $944 million.
Shares of common stock outstanding declined by 2.6% from the prior
quarter.
The Board of Directors has approved a new $4.2 billion share
repurchase program. The new share repurchase program spans five
quarters through June 30, 2023, 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
$0.50 to $0.60 per share, and declared a quarterly cash dividend of
$0.60 per share of common stock payable on June 9, 2022, to holders
of record at the close of business on May 26, 2022.
Conference Call and Webcast Information
The company will host a conference call to discuss its first
quarter results on Thursday, April 28, 2022, 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 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 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; 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 and merchants; the
company's ability to sustain its card, private student loan and
personal loan growth; the company’s ability to increase or sustain
Discover card usage or attract new customers; 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 its or others’ key systems; the company's ability to remain
organizationally effective; the effect of political, economic and
market conditions, geopolitical events, climate change 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, as well as those which
we have no direct relationship such as our employees’ internet
service providers; the company's ability to maintain current
technology and integrate new and acquired systems and technology;
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; the company’s ability to
comply with regulatory requirements; 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, 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 March
31,2022 December 31,2021 March 31,2021
EARNINGS SUMMARY Interest
Income
$2,736
$2,742
$2,646
Interest Expense
257
259
316
Net Interest Income
2,479
2,483
2,330
Discount/Interchange Revenue
955
1,042
766
Rewards Cost
635
697
525
Discount and Interchange Revenue, net
320
345
241
Protection Products Revenue
44
36
43
Loan Fee Income
140
131
107
Transaction Processing Revenue
57
60
51
Unrealized Gains/(Losses) on Equity Investments
(188
)
(139
)
0
Realized Gains/(Losses) on Equity Investments
26
1
0
Other Income
24
19
23
Total Non-Interest Income
423
453
465
Revenue Net of Interest Expense
2,902
2,936
2,795
Provision for Credit Losses
154
263
(365
)
Employee Compensation and Benefits
500
499
506
Marketing and Business Development
192
271
154
Information Processing & Communications
125
125
109
Professional Fees
177
230
182
Premises and Equipment
24
23
24
Other Expense
112
164
106
Total Operating Expense
1,130
1,312
1,081
Income/(Loss) Before Income Taxes
1,618
1,361
2,079
Tax Expense
376
294
486
Net Income/(Loss)
$1,242
$1,067
$1,593
Net Income/(Loss) Allocated to Common Stockholders
$1,205
$1,062
$1,546
PER SHARE
STATISTICS Basic EPS
$4.23
$3.64
$5.04
Diluted EPS
$4.22
$3.64
$5.04
Common Stock Price (period end)
$110.19
$115.56
$94.99
Book Value per share
$47.81
$46.50
$39.72
BALANCE SHEET SUMMARY
Total Assets
$107,412
$110,242
$113,871
Total Liabilities
93,979
96,834
101,717
Total Equity
13,433
13,408
12,154
Total Liabilities and Stockholders' Equity
$107,412
$110,242
$113,871
TOTAL LOAN RECEIVABLES
Ending Loans 1
$93,471
$93,684
$86,347
Average Loans 1
$92,691
$91,095
$87,905
Interest Yield
11.80
%
11.75
%
11.96
%
Gross Principal Charge-off Rate
2.64
%
2.36
%
3.45
%
Net Principal Charge-off Rate
1.61
%
1.37
%
2.48
%
Delinquency Rate (30 or more days)
1.64
%
1.55
%
1.67
%
Delinquency Rate (90 or more days)
0.72
%
0.66
%
0.85
%
Gross Principal Charge-off Dollars
$603
$543
$747
Net Principal Charge-off Dollars
$368
$313
$537
Net Interest and Fee Charge-off Dollars
$87
$70
$118
Loans Delinquent 30 or more days
$1,537
$1,451
$1,438
Loans Delinquent 90 or more days
$678
$618
$732
Allowance for Credit Losses (period end)
$6,647
$6,822
$7,347
Reserve Change Build/(Release) 2
($175
)
($39
)
($879
)
Reserve Rate
7.11
%
7.28
%
8.51
%
CREDIT CARD LOANS Ending
Loans
$73,783
$74,369
$67,304
Average Loans
$73,042
$71,865
$68,723
Interest Yield
12.59
%
12.50
%
12.71
%
Gross Principal Charge-off Rate
3.00
%
2.63
%
3.91
%
Net Principal Charge-off Rate
1.84
%
1.50
%
2.80
%
Delinquency Rate (30 or more days)
1.77
%
1.66
%
1.85
%
Delinquency Rate (90 or more days)
0.83
%
0.76
%
1.01
%
Gross Principal Charge-off Dollars
$541
$477
$663
Net Principal Charge-off Dollars
$331
$272
$474
Loans Delinquent 30 or more days
$1,305
$1,232
$1,245
Loans Delinquent 90 or more days
$613
$562
$680
Allowance for Credit Losses (period end)
$5,120
$5,273
$5,640
Reserve Change Build/(Release)
($153
)
($25
)
($851
)
Reserve Rate
6.94
%
7.09
%
8.38
%
Total Discover Card Volume
$49,379
$53,983
$40,334
Discover Card Sales Volume
$46,329
$51,308
$37,744
Rewards Rate
1.36
%
1.35
%
1.38
%
SEGMENT- INCOME/(LOSS) BEFORE
INCOME TAXES Digital Banking
$1,719
$1,458
$2,027
Payment Services
(101
)
(97
)
52
Total
$1,618
$1,361
$2,079
NETWORK VOLUME PULSE
Network
$59,836
$64,787
$60,399
Network Partners
10,683
11,233
9,629
Diners Club International 3
7,176
7,367
5,897
Total Payment Services
77,695
83,387
75,925
Discover Network - Proprietary
48,129
53,197
39,202
Total
$125,824
$136,584
$115,127
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/20220426006041/en/
Investors: Eric Wasserstrom, 224-405-4555
investorrelations@discover.com
Media: Jon Drummond, 224-405-1888
jondrummond@discover.com
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