Board of Directors Declares Quarterly Common Stock Dividend of $0.70 Per Share
Discover Financial Services (NYSE: DFS):
|
First Quarter 2024 Results |
|||
|
|
2024 |
2023(1) |
YOY Change |
|
Total loans, end of period (in billions) |
$126.6 |
$112.7 |
12% |
|
Total revenue net of interest expense (in millions) |
$4,210 |
$3,742 |
13% |
|
Total net charge-off rate |
4.92% |
2.72% |
220 bps |
|
Net income/(loss) (in millions) |
$308 |
$968 |
(68%) |
|
Diluted EPS |
$1.10 |
$3.55 |
(69%) |
|
Note(s) |
|
1. The comparative prior quarter ended March 31, 2023 has been restated as disclosed in the Company’s Financial Data Supplement on Form 8-K for the second quarter 2023 |
Discover Financial Services (NYSE: DFS) today reported net income of $308 million or $1.10 per diluted share for the first quarter of 2024, as compared to a net income of $968 million or $3.55 per diluted share for the first quarter of 2023.
“Our first quarter results showed good loan growth, net interest margin expansion, and stabilizing delinquencies, while expenses were elevated due to our action to advance the resolution of our card misclassification issue,” said Michael Shepherd, Discover’s Interim CEO and President. “These results underscore the continued strength of our underlying operating model and our focus on enhancing our risk management and compliance foundation. We look forward to our merger with Capital One, which will create a leading banking and payments organization, grounded on commitment to an outstanding customer experience and the communities we serve.”
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Segment Results
Digital Banking
Digital Banking pretax income of $322 million for the quarter was $888 million lower than the prior year period reflecting an increase to our card misclassification remediation reserve, higher provision for credit losses and higher operating expenses, partially offset by increased revenue net of interest expense.
Total loans ended the quarter at $126.6 billion, up 12% year-over-year, and down 1% sequentially. Credit card loans ended the quarter at $99.5 billion, up 11% year-over-year. Personal loans increased $1.7 billion, or 21%, and private student loans were flat. The organic student loan portfolio, which excludes purchased loans, increased $123 million, or 1% year-over-year.
Net interest income for the quarter increased $355 million, or 11%, driven by higher average receivables partially offset by net interest margin compression. Net interest margin was 11.03%, down 31 basis points versus the prior year. Card yield was 15.79%, up 73 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 120 basis points from the prior year period, primarily driven by higher funding costs.
Non-interest income increased $69 million, or 13%, from the prior year period reflecting higher discount / interchange revenue from an improved volume mix and lower rewards cost, and higher loan fee income.
The total net charge-off rate of 4.92% was 220 basis points higher versus the prior year period reflecting continued seasoning of recent vintages with higher delinquency trends. The credit card net charge-off rate was 5.66%, up 256 basis points from the prior year period and up 98 basis points from the prior quarter. The 30+ day delinquency rate for credit card loans was 3.83%, up 107 basis points year-over-year and down 4 basis points from the prior quarter. The student loan net charge-off rate was 1.58%, up 54 basis points from the prior year and up 6 basis points from the prior quarter. Personal loans net charge-off rate of 4.02% was up 208 basis points from the prior year and up 63 basis points from the prior quarter.
Provision for credit losses of $1.5 billion increased $395 million from the prior year quarter driven by an $806 million increase in net-charge offs partially offset by a $410 million lower reserve build.
Total operating expenses were up $917 million year-over-year, or 68%. Other expense was up due to a $799 million increase to the card misclassification remediation reserve. Professional fees were up due to investments in compliance and risk management and higher recovery fees. Employee compensation increased from higher technology resources and severance expense while information processing increased due to technology investments.
Payment Services
Payment Services pretax income of $82 million was up $35 million year-over-year primarily driven by increased PULSE revenue and first quarter 2023 net losses on equity investments.
Payment Services volume was $100.3 billion, up 18% from the prior year period. PULSE dollar volume was up 21% primarily driven by increased debit transaction volume. Diners Club volume was up 11% year-over-year reflecting continued strength across most regions. Network Partners volume increased 4% from the prior year primarily reflecting higher AribaPay volume.
Dividend Declaration
The Board of Directors of Discover Financial Services declared a quarterly cash dividend of $0.70 per share of common stock payable on June 6, 2024, to holders of record at the close of business on May 23, 2024.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth quarter results on Thursday, April 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.
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