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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Discover Financial Services | NYSE:DFS | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
4.19 | 3.06% | 141.25 | 141.95 | 136.74 | 137.00 | 1,020,457 | 17:30:04 |
Discover Financial Services (NYSE: DFS):
Third Quarter Results
2019
2018
YOY Change
Total loans, end of period (in billions)
$92.5
$86.9
6%
Total revenue net of interest expense (in millions)
$2,900
$2,724
6%
Total net charge-off rate
3.05%
2.97%
8 bps
Net income (in millions)
$770
$720
7%
Diluted EPS
$2.36
$2.05
15%
Discover Financial Services (NYSE: DFS) today reported net income of $770 million or $2.36 per diluted share for the third quarter of 2019, as compared to $720 million or $2.05 per diluted share for the third quarter of 2018. The company’s return on equity for the third quarter of 2019 was 26%.
Commenting on the company's results, Roger Hochschild, CEO and President of Discover, said, “We had a strong third quarter, achieving key objectives for loan growth, margin expansion and credit performance, against the backdrop of continued stability in the consumer sector of the U.S. economy. We continued to invest in our operating model with the objective of driving sustained profitable growth and solid returns.” Hochschild added, “Once again this quarter we generated an outstanding return on equity of 26%, reflecting the strength of our business model. Looking ahead to the fourth quarter, we expect to finish the year on a very solid footing, achieving all elements of our 2019 financial and operational guidance.”
Segment Results:
Direct Banking
Direct Banking pretax income of $943 million increased by $20 million from the prior year driven by higher net interest income, partially offset by an increase in the provision for loan losses and higher operating expenses.
Total loans ended the quarter at $92.5 billion, up 6% compared to the prior year. Credit card loans ended the quarter at $74.0 billion, up 7% from the prior year. Personal loans increased $51 million, or 1%, from the prior year. Private student loans increased $333 million, or 4%, year-over-year. The organic student loan portfolio, which excludes purchased loans, increased $727 million, or 9% from the prior year.
Net interest income increased $179 million, or 8%, from the prior year, driven by loan growth and net interest margin expansion. Net interest margin was 10.43%, up 15 basis points versus the prior year. Card yield was 13.35%, an increase of 29 basis points from the prior year primarily driven by prime rate increases in 2018 as well as favorable portfolio mix, partially offset by higher interest charge-offs and recent prime rate decreases. Interest expense as a percent of total loans increased 19 basis points from the prior year, primarily as a result of higher market rates.
Other income decreased $12 million, or 3%, from the prior year, primarily driven by higher rewards costs.
The 30+ day delinquency rate for credit card loans was 2.50%, up 18 basis points from the prior year and up 16 basis points from the prior quarter. The credit card net charge-off rate was 3.32%, up 18 basis points from the prior year and down 17 basis points from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 0.69%, down 50 basis points from the prior year and down 4 basis points from the prior quarter. The personal loans net charge-off rate of 3.99% was down 10 basis points from the prior year and down 34 basis points from the prior quarter. The higher overall net charge-off rate was primarily due to the seasoning of recent years' loan growth and supply-driven credit normalization.
Provision for loan losses of $799 million increased $57 million from the prior year as higher net charge-offs were slightly offset by a lower reserve build. The reserve build for the third quarter of 2019 was $98 million, compared to a reserve build of $100 million in the third quarter of 2018.
Expenses were up $90 million from the prior year primarily as a result of increases in employee compensation, professional fees and marketing. Employee compensation increased as a result of higher average salaries and benefits. Professional fees increased primarily in connection with achieving a higher level of recoveries. Marketing expense increased as a result of higher investment in new account acquisition.
Payment Services
Payment Services pretax income was $51 million in the quarter, up $7 million from the prior year, due to higher revenue driven by transaction volume growth.
Payment Services volume was $62.6 billion, up 7% versus the prior year. PULSE dollar volume was up 5% year-over-year, which reflects the impact of strong growth from existing issuers and acquirers, as well as new issuing and acquiring relationships. Network Partners volume increased by 30% from the prior year driven by AribaPay.
Share Repurchases
During the third quarter of 2019, the company repurchased approximately 5.1 million shares of common stock for $419 million. Shares of common stock outstanding declined by 1.4% from the prior quarter.
Conference Call and Webcast Information
The company will host a conference call to discuss its third quarter results on Tuesday, October 22, 2019, at 4:00 p.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 direct 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 equity loans, checking and savings accounts and certificates of deposit through its direct 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: 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 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; the company's ability to sustain and grow its non-card 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; 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 key systems; the company's ability to remain organizationally effective; the company's ability to increase or sustain Discover card usage or attract new customers; the company's ability to maintain relationships with merchants; the effect of political, economic and market conditions, geopolitical events 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; the company's ability to maintain current technology and integrate new and acquired systems; 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; 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, 2018, and “Management's Discussion & Analysis of Financial Condition and Results of Operations” in the company's Quarterly Report on Form 10-Q for the quarter ended June 30, 2019, which are filed with the SEC and available at the SEC's internet site (http://www.sec.gov).
DISCOVER FINANCIAL SERVICES (unaudited, in millions, except per share statistics) Quarter Ended September 30, 2019 June 30, 2019 September 30, 2018 EARNINGS SUMMARY Interest Income$3,040
$2,977
$2,781
Interest Expense638
645
558
Net Interest Income2,402
2,332
2,223
Discount/Interchange Revenue775
759
753
Rewards Cost520
460
473
Discount and Interchange Revenue, net255
299
280
Protection Products Revenue48
49
51
Loan Fee Income120
102
103
Transaction Processing Revenue52
48
47
Other Income23
22
20
Total Other Income498
520
501
Revenue Net of Interest Expense2,900
2,852
2,724
Provision for Loan Losses799
787
742
Employee Compensation and Benefits439
427
408
Marketing and Business Development230
224
218
Information Processing & Communications96
101
89
Professional Fees189
183
166
Premises and Equipment26
26
26
Other Expense127
117
108
Total Other Expense1,107
1,078
1,015
Income Before Income Taxes994
987
967
Tax Expense224
234
247
Net Income$770
$753
$720
Net Income Allocated to Common Stockholders$749
$747
$699
PER SHARE STATISTICS Basic EPS$2.36
$2.32
$2.05
Diluted EPS$2.36
$2.32
$2.05
Common Stock Price (period end)$81.09
$77.59
$76.45
Book Value per share$37.20
$35.97
$32.60
BALANCE SHEET SUMMARY Total Assets$110,786
$110,707
$105,842
Total Liabilities99,069
99,214
94,826
Total Equity11,717
11,493
11,016
Total Liabilities and Stockholders' Equity$110,786
$110,707
$105,842
TOTAL LOAN RECEIVABLES Ending Loans 1, 2$92,493
$90,229
$86,894
Average Loans 1, 2$91,345
$89,358
$85,855
Interest Yield12.76%
12.82%
12.45%
Gross Principal Charge-off Rate3.87%
4.03%
3.63%
Gross Principal Charge-off Rate excluding PCI Loans 33.93%
4.10%
3.71%
Net Principal Charge-off Rate3.05%
3.22%
2.97%
Net Principal Charge-off Rate excluding PCI Loans 33.09%
3.27%
3.03%
Delinquency Rate (30 or more days) excluding PCI Loans 32.32%
2.18%
2.22%
Delinquency Rate (90 or more days) excluding PCI Loans 31.06%
1.04%
1.00%
Gross Principal Charge-off Dollars$891
$898
$785
Net Principal Charge-off Dollars$702
$718
$642
Net Interest and Fee Charge-off Dollars$156
$158
$135
Loans Delinquent 30 or more days 3$2,114
$1,939
$1,894
Loans Delinquent 90 or more days 3$968
$922
$854
Allowance for Loan Loss (period end)$3,299
$3,202
$2,927
Reserve Change Build/(Release) 4$97
$69
$100
Reserve Rate3.57%
3.55%
3.37%
Reserve Rate excluding PCI Loans 33.59%
3.58%
3.41%
CREDIT CARD LOANS Ending Loans$73,968
$72,393
$69,253
Average Loans$73,248
$71,492
$68,613
Interest Yield13.35%
13.44%
13.06%
Gross Principal Charge-off Rate4.25%
4.43%
3.90%
Net Principal Charge-off Rate3.32%
3.49%
3.14%
Delinquency Rate (30 or more days)2.50%
2.34%
2.32%
Delinquency Rate (90 or more days)1.21%
1.18%
1.12%
Gross Principal Charge-off Dollars$784
$789
$674
Net Principal Charge-off Dollars$611
$623
$543
Loans Delinquent 30 or more days$1,847
$1,692
$1,608
Loans Delinquent 90 or more days$897
$857
$777
Allowance for Loan Loss (period end)$2,799
$2,691
$2,424
Reserve Change Build/(Release)$108
$69
$90
Reserve Rate3.78%
3.72%
3.50%
Total Discover Card Volume$41,168
$39,935
$39,414
Discover Card Sales Volume$37,432
$36,664
$35,896
Rewards Rate1.38%
1.25%
1.31%
SEGMENT- INCOME BEFORE INCOME TAXES Direct Banking$943
$941
$923
Payment Services51
46
44
Total$994
$987
$967
NETWORK VOLUME PULSE Network$47,535
$47,389
$45,244
Network Partners6,656
5,950
5,113
Diners Club International 58,386
8,472
8,370
Total Payment Services62,577
61,811
58,727
Discover Network - Proprietary38,722
37,891
36,642
Total$101,299
$99,702
$95,369
1 Total Loans includes Home Equity and other loans. 2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables. 3 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing. 4 Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses. 5 Volume is derived from data provided by licensees 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/20191022006144/en/
Investors: Craig Streem, 224-405-5923 craigstreem@discover.com
Media: Jon Drummond, 224-405-1888 jondrummond@discover.com
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