NYSE:DFS Discover Financial Services Q3 2024 Earnings Report $185.02 -2.44 (-1.30%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$183.46 -1.56 (-0.84%) As of 04/25/2025 07:59 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Discover Financial Services EPS ResultsActual EPS$3.69Consensus EPS $3.28Beat/MissBeat by +$0.41One Year Ago EPS$2.59Discover Financial Services Revenue ResultsActual Revenue$5.91 billionExpected Revenue$4.36 billionBeat/MissBeat by +$1.55 billionYoY Revenue GrowthN/ADiscover Financial Services Announcement DetailsQuarterQ3 2024Date10/16/2024TimeAfter Market ClosesConference Call DateThursday, October 17, 2024Conference Call Time8:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Discover Financial Services Q3 2024 Earnings Call TranscriptProvided by QuartrOctober 17, 2024 ShareLink copied to clipboard.There are 4 speakers on the call. Operator00:00:00Thank you, and welcome to this morning's call. By way of introduction, I'm Erin Stiebert, Senior Vice President of Financial Planning and Analysis and Investor Relations. Eric Wasserstrom has decided to pursue an opportunity outside the company. We appreciate his contributions to the Investor Relations and Corporate Strategy programs over the past 4 years and wish him well. I'm excited for this new opportunity and look forward to getting to know all of you over the coming months. Operator00:00:31I'll begin by referencing Slides 23 of our earnings presentation, which you can find in the Financials section of our Investor Relations website, investorrelations. Discover.com. Our discussion today contains certain forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward looking statements that appear in our Q3 2024 earnings press release and presentation as well as the risk factors detailed in our annual report and other filings with the SEC. Our call today will include remarks from our Interim CEO, Michael Shepherd and John Green, our Chief Financial Officer. Operator00:01:22There will be no question and answer session following today's remarks. However, the Investor Relations team will be available for any inquiries. It is now my pleasure to turn the call over to Michael. Speaker 100:01:35Thank you, Erin. Good morning, and welcome to today's call. Discover's financial performance remains strong in the Q3 and we continue to advance our critical strategic priorities of driving business results, strengthening risk management and compliance and planning for the merger with Capital One. We've made significant progress on the execution of the sale of the private student loan portfolio, successfully completing the first of 4 closings. Additionally, earlier this month, we completed the sale of the second tranche. Speaker 100:02:10As we near the end of our student loan disposition journey, we look forward to realizing the benefits of a more focused business model. John will review the details of the sale a bit later in the call. Our risk management and compliance capabilities continue to advance. We are seeing improved results from new programs, which focus on reducing risk and preventing customer harm. Our organization is driven by our commitment to customers, communities and employees. Speaker 100:02:41And as part of our culture, we reinforce ethical decision making and customer service through strengthened governance and controls. Discover ranked number 2 in customer satisfaction among U. S. Credit card issuers by J. D. Speaker 100:02:56Power for the 5th consecutive year. We are glad to report that this marks an 18 year run of being ranked either 1st or second. We recently reached 2 important milestones in our community based facilities strategy. First, we celebrated the grand opening of our Whitehall, Ohio Customer Care and Community Center, marking a significant investment in the region. 2nd, we achieved 1,000 active jobs in the Chatham neighborhood of Chicago, fulfilling our 3 year commitment. Speaker 100:03:29We are proud to create valuable jobs and offer free access to state of the art facilities in the communities where we operate. Our employees are a key reason for our success and our award winning customer service. We are very pleased that employee engagement remains high, attrition is relatively low, and we continue to be recognized as a great place to work. Discover was ranked number 16 by Fortune for Best Large Workplaces in Financial Services and Insurance and was also recognized as a 2024 Best Place to Work for People with Disabilities. Shifting attention to our pending merger, Capital One continues to lead merger related activities with applications currently under regulatory review. Speaker 100:04:20Integration planning is advancing well. With that, I'll now ask John Green to review our Q3 2024 financial results. Speaker 200:04:30Thank you, Michael, and good morning, everyone. I'll start with our summary financial results on Slide 5. In the quarter, we reported net income of $965,000,000 which was up 41% from the prior year. Financial performance was strong driven by revenue growth from modestly higher loan balances, net interest margin expansion. We recognized a gain from the first closing of the private student loan portfolio sale and credit is performing in line with expectations with net charge offs plateauing. Speaker 200:05:05Let's review the details beginning on Slide 6. Our net interest margin ended the quarter at 11.38%, up 43 basis points from the prior year and up 21 basis points sequentially. On a quarter over quarter basis, margin expansion was primarily driven by a lower card promotional balance mix. Card receivables increased 3% year over year due to a lower payment rate, partially offset by a decrease in sales volume. The payment rate declined around 100 basis points from last year, was stable versus the prior quarter and is approximately 70 basis points above pre pandemic levels. Speaker 200:05:50Discover card sales were down 3% compared to the prior year. Sales were impacted by cautious consumer behavior and credit tightening actions, which began in 2022. We expect these dynamics to persist for the remainder of the year. Personal loans were up 9% from the prior year. We continue to see strong demand from consumers seeking debt consolidation. Speaker 200:06:16The average FICO for new personal loan accounts is above 750. Student loans were down 19% year over year as a result of the 1st student loan asset sale. We recognized a gain of $70,000,000 in the quarter. As Michael mentioned, shortly after the quarter ended, we completed the sale of the 2nd tranche. Approximately 55% of the portfolio has been sold to date. Speaker 200:06:45We expect to sell the remaining portions of the portfolio by mid November. Average consumer deposits were up 11% year over year and 1% sequentially. We are managing deposit balances to meet our liquidity needs and we have benefited from the student loan sale. We anticipate a through the cycle beta of around 70%. Looking at other revenue on Slide 7. Speaker 200:07:14Non interest income increased $76,000,000 or 11%. Other income increased due to the gain from the loan sale. Loan fee revenue was up $20,000,000 driven by higher instances. Our rewards rate was 144 basis points in the period, an increase of 2 basis points versus the prior year quarter and up 12 basis points sequentially. The increases were driven by changes in the promotional categories. Speaker 200:07:42During the Q3 of 2024, consumers enjoyed higher rewards with grocery and Walmart spend earning 5%. Moving to expenses on Slide 8. Total operating expenses were up $238,000,000 or 16% year over year. Looking at our major expense categories, compensation costs increased $128,000,000 or 22%, primarily due to higher wage rates and employee retention awards. Information processing increased as a result of technology investments and accelerated student loan software depreciation. Speaker 200:08:23And professional fees were up $42,000,000 or 15%, driven by higher recovery fees and merger and integration costs. We recognized $43,000,000 of merger and integration planning costs in the quarter, dollars 65,000,000 year to date and anticipate about $125,000,000 for the full year 2024 spread across multiple expense categories. We expect total risk management and compliance expense of approximately $550,000,000 in 20.24, excluding card misclassification costs. Moving to credit performance on Slide 9. Total net charge offs were 4.86%, 134 basis points higher than the prior year and up 3 basis points from the prior quarter. Speaker 200:09:17Adjusting for the impact of reclassifying private student loans to held for sale, the total net charge off rate would have declined 20 basis points. In card, net charge offs declined 27 basis points from the prior quarter, outperforming seasonality. 30 plus day delinquency formation increased in line with seasonal trends. The 2023 card vintage continues to perform in line with the 2022 vintage and remains highly profitable. An early look at the 2024 vintage suggests improvements compared to 20222023. Speaker 200:09:59Personal loan net charge offs and delinquencies ticked up modestly, but are well within historical norms and vintages are meeting profitability targets. We continue to see a stable yet cautious consumer. The labor markets remain strong and wages are growing. However, households are contending with inflation and the impacts on everyday living expenses. Spend per card member is returning to a more normal level. Speaker 200:10:26Slower, stable spending indicates that households have adjusted spending patterns to manage their budgets, which is beneficial from a credit standpoint. Turning to the allowance for credit losses on Slide 10. Our credit reserve balance increased $31,000,000 from the prior quarter as a result of loan growth. The reserve rate was 7.18%, down 4 basis points from the prior quarter, driven by our credit performance and modest improvements in the forecast for household net worth and debt service burden. Our economic outlook assumes year Looking at Slide 11. Speaker 200:11:20Our common equity Tier 1 ratio for the period was 12.7%, up 80 basis points supported by core earnings and the student loan sale. We declared a quarterly cash dividend of $0.70 per share of common stock. Before we discuss or revise you of 2024, I would like to provide a brief regulatory update. As part of its review of the joint proxy statement and prospectus, the staff of the SEC has indicated that they disagree with certain aspects of Discover's accounting approach for the card misclassification matter. We are working diligently to resolve their comments, which largely focus on the allocation of previously incurred card misclassification charges between revenue and expense. Speaker 200:12:10We do not anticipate resolution of this matter to have an impact to cumulative historical earnings, capital or our counterparty restitution plan liability. Including on Slide 12, we have revised our 2024 outlook to reflect our latest view. We are updating our loan growth expectations to down lowtomidsingledigits. This change is driven by a higher than anticipated payment rate and slightly lower card sales. Excluding the student loan sale, loans are estimated to grow low single digits. Speaker 200:12:49We are tightening our net interest margin range to 11.2% to 11.4%. Our operating expense guidance is unchanged. We are tightening our range of net charge offs to 4.9% to 5%, reflecting our improved credit performance. Our capital management expectations have not changed. In summary, we continue to deliver strong financial results, prudently manage our business and prepare for our merger with Capital One. Speaker 200:13:22This concludes our remarks. I'll turn the call back over to the operator. Speaker 300:13:28Thank you. Today's call has ended. The Discover Investor Relations team will be available for your questions. Thank you for joining. You may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallDiscover Financial Services Q3 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Discover Financial Services Earnings HeadlinesDiscover Financial Services (NYSE:DFS) Price Target Lowered to $184.00 at TD SecuritiesApril 26 at 3:33 AM | americanbankingnews.comDiscover Financial Services Target of Unusually Large Options Trading (NYSE:DFS)April 26 at 1:09 AM | americanbankingnews.comTrump purposefully forcing markets to crash…Whether you agree with the plan or not doesn’t matter. It’s happening. The only question is – are you ready for it?April 26, 2025 | Porter & Company (Ad)Discover Financial Services (DFS) Gets a Hold from Evercore ISIApril 25 at 1:55 PM | markets.businessinsider.comDiscover Financial Services (NYSE:DFS) Q1 2025 Earnings Call TranscriptApril 25 at 8:55 AM | msn.comWhy Discover Financial Services Was Racing Higher This WeekApril 25 at 6:36 AM | fool.comSee More Discover Financial Services Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Discover Financial Services? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Discover Financial Services and other key companies, straight to your email. Email Address About Discover Financial ServicesDiscover Financial Services (NYSE:DFS), through its subsidiaries, provides digital banking products and services, and payment services in the United States. It operates in two segments, Digital Banking and Payment Services. The Digital Banking segment offers Discover-branded credit cards to individuals; personal loans, home loans, and other consumer lending; and direct-to-consumer deposit products comprising savings accounts, certificates of deposit, money market accounts, IRA certificates of deposit, IRA savings accounts and checking accounts, and sweep accounts. The Payment Services segment operates the PULSE to access automated teller machines, debit, and electronic funds transfer network; and Diners Club International, a payments network that issues Diners Club branded charge cards and/or provides card acceptance services, as well as offers payment transaction processing and settlement services. The company was incorporated in 1960 and is based in Riverwoods, Illinois.View Discover Financial Services ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Tesla Earnings Miss, But Musk Refocuses and Bulls ReactQualcomm’s Range Narrows Ahead of Earnings as Bulls Step In Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. Start Your 30-Day Trial MarketBeat All Access Features Best-in-Class Portfolio Monitoring Get personalized stock ideas. Compare portfolio to indices. Check stock news, ratings, SEC filings, and more. Stock Ideas and Recommendations See daily stock ideas from top analysts. Receive short-term trading ideas from MarketBeat. Identify trending stocks on social media. Advanced Stock Screeners and Research Tools Use our seven stock screeners to find suitable stocks. Stay informed with MarketBeat's real-time news. Export data to Excel for personal analysis. Sign in to your free account to enjoy these benefits In-depth profiles and analysis for 20,000 public companies. Real-time analyst ratings, insider transactions, earnings data, and more. Our daily ratings and market update email newsletter. Sign in to your free account to enjoy all that MarketBeat has to offer. Sign In Create Account Your Email Address: Email Address Required Your Password: Password Required Log In or Sign in with Facebook Sign in with Google Forgot your password? Your Email Address: Please enter your email address. Please enter a valid email address Choose a Password: Please enter your password. Your password must be at least 8 characters long and contain at least 1 number, 1 letter, and 1 special character. Create My Account (Free) or Sign in with Facebook Sign in with Google By creating a free account, you agree to our terms of service. This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.
There are 4 speakers on the call. Operator00:00:00Thank you, and welcome to this morning's call. By way of introduction, I'm Erin Stiebert, Senior Vice President of Financial Planning and Analysis and Investor Relations. Eric Wasserstrom has decided to pursue an opportunity outside the company. We appreciate his contributions to the Investor Relations and Corporate Strategy programs over the past 4 years and wish him well. I'm excited for this new opportunity and look forward to getting to know all of you over the coming months. Operator00:00:31I'll begin by referencing Slides 23 of our earnings presentation, which you can find in the Financials section of our Investor Relations website, investorrelations. Discover.com. Our discussion today contains certain forward looking statements that are subject to risks and uncertainties that may cause actual results to differ materially. Please refer to our notices regarding forward looking statements that appear in our Q3 2024 earnings press release and presentation as well as the risk factors detailed in our annual report and other filings with the SEC. Our call today will include remarks from our Interim CEO, Michael Shepherd and John Green, our Chief Financial Officer. Operator00:01:22There will be no question and answer session following today's remarks. However, the Investor Relations team will be available for any inquiries. It is now my pleasure to turn the call over to Michael. Speaker 100:01:35Thank you, Erin. Good morning, and welcome to today's call. Discover's financial performance remains strong in the Q3 and we continue to advance our critical strategic priorities of driving business results, strengthening risk management and compliance and planning for the merger with Capital One. We've made significant progress on the execution of the sale of the private student loan portfolio, successfully completing the first of 4 closings. Additionally, earlier this month, we completed the sale of the second tranche. Speaker 100:02:10As we near the end of our student loan disposition journey, we look forward to realizing the benefits of a more focused business model. John will review the details of the sale a bit later in the call. Our risk management and compliance capabilities continue to advance. We are seeing improved results from new programs, which focus on reducing risk and preventing customer harm. Our organization is driven by our commitment to customers, communities and employees. Speaker 100:02:41And as part of our culture, we reinforce ethical decision making and customer service through strengthened governance and controls. Discover ranked number 2 in customer satisfaction among U. S. Credit card issuers by J. D. Speaker 100:02:56Power for the 5th consecutive year. We are glad to report that this marks an 18 year run of being ranked either 1st or second. We recently reached 2 important milestones in our community based facilities strategy. First, we celebrated the grand opening of our Whitehall, Ohio Customer Care and Community Center, marking a significant investment in the region. 2nd, we achieved 1,000 active jobs in the Chatham neighborhood of Chicago, fulfilling our 3 year commitment. Speaker 100:03:29We are proud to create valuable jobs and offer free access to state of the art facilities in the communities where we operate. Our employees are a key reason for our success and our award winning customer service. We are very pleased that employee engagement remains high, attrition is relatively low, and we continue to be recognized as a great place to work. Discover was ranked number 16 by Fortune for Best Large Workplaces in Financial Services and Insurance and was also recognized as a 2024 Best Place to Work for People with Disabilities. Shifting attention to our pending merger, Capital One continues to lead merger related activities with applications currently under regulatory review. Speaker 100:04:20Integration planning is advancing well. With that, I'll now ask John Green to review our Q3 2024 financial results. Speaker 200:04:30Thank you, Michael, and good morning, everyone. I'll start with our summary financial results on Slide 5. In the quarter, we reported net income of $965,000,000 which was up 41% from the prior year. Financial performance was strong driven by revenue growth from modestly higher loan balances, net interest margin expansion. We recognized a gain from the first closing of the private student loan portfolio sale and credit is performing in line with expectations with net charge offs plateauing. Speaker 200:05:05Let's review the details beginning on Slide 6. Our net interest margin ended the quarter at 11.38%, up 43 basis points from the prior year and up 21 basis points sequentially. On a quarter over quarter basis, margin expansion was primarily driven by a lower card promotional balance mix. Card receivables increased 3% year over year due to a lower payment rate, partially offset by a decrease in sales volume. The payment rate declined around 100 basis points from last year, was stable versus the prior quarter and is approximately 70 basis points above pre pandemic levels. Speaker 200:05:50Discover card sales were down 3% compared to the prior year. Sales were impacted by cautious consumer behavior and credit tightening actions, which began in 2022. We expect these dynamics to persist for the remainder of the year. Personal loans were up 9% from the prior year. We continue to see strong demand from consumers seeking debt consolidation. Speaker 200:06:16The average FICO for new personal loan accounts is above 750. Student loans were down 19% year over year as a result of the 1st student loan asset sale. We recognized a gain of $70,000,000 in the quarter. As Michael mentioned, shortly after the quarter ended, we completed the sale of the 2nd tranche. Approximately 55% of the portfolio has been sold to date. Speaker 200:06:45We expect to sell the remaining portions of the portfolio by mid November. Average consumer deposits were up 11% year over year and 1% sequentially. We are managing deposit balances to meet our liquidity needs and we have benefited from the student loan sale. We anticipate a through the cycle beta of around 70%. Looking at other revenue on Slide 7. Speaker 200:07:14Non interest income increased $76,000,000 or 11%. Other income increased due to the gain from the loan sale. Loan fee revenue was up $20,000,000 driven by higher instances. Our rewards rate was 144 basis points in the period, an increase of 2 basis points versus the prior year quarter and up 12 basis points sequentially. The increases were driven by changes in the promotional categories. Speaker 200:07:42During the Q3 of 2024, consumers enjoyed higher rewards with grocery and Walmart spend earning 5%. Moving to expenses on Slide 8. Total operating expenses were up $238,000,000 or 16% year over year. Looking at our major expense categories, compensation costs increased $128,000,000 or 22%, primarily due to higher wage rates and employee retention awards. Information processing increased as a result of technology investments and accelerated student loan software depreciation. Speaker 200:08:23And professional fees were up $42,000,000 or 15%, driven by higher recovery fees and merger and integration costs. We recognized $43,000,000 of merger and integration planning costs in the quarter, dollars 65,000,000 year to date and anticipate about $125,000,000 for the full year 2024 spread across multiple expense categories. We expect total risk management and compliance expense of approximately $550,000,000 in 20.24, excluding card misclassification costs. Moving to credit performance on Slide 9. Total net charge offs were 4.86%, 134 basis points higher than the prior year and up 3 basis points from the prior quarter. Speaker 200:09:17Adjusting for the impact of reclassifying private student loans to held for sale, the total net charge off rate would have declined 20 basis points. In card, net charge offs declined 27 basis points from the prior quarter, outperforming seasonality. 30 plus day delinquency formation increased in line with seasonal trends. The 2023 card vintage continues to perform in line with the 2022 vintage and remains highly profitable. An early look at the 2024 vintage suggests improvements compared to 20222023. Speaker 200:09:59Personal loan net charge offs and delinquencies ticked up modestly, but are well within historical norms and vintages are meeting profitability targets. We continue to see a stable yet cautious consumer. The labor markets remain strong and wages are growing. However, households are contending with inflation and the impacts on everyday living expenses. Spend per card member is returning to a more normal level. Speaker 200:10:26Slower, stable spending indicates that households have adjusted spending patterns to manage their budgets, which is beneficial from a credit standpoint. Turning to the allowance for credit losses on Slide 10. Our credit reserve balance increased $31,000,000 from the prior quarter as a result of loan growth. The reserve rate was 7.18%, down 4 basis points from the prior quarter, driven by our credit performance and modest improvements in the forecast for household net worth and debt service burden. Our economic outlook assumes year Looking at Slide 11. Speaker 200:11:20Our common equity Tier 1 ratio for the period was 12.7%, up 80 basis points supported by core earnings and the student loan sale. We declared a quarterly cash dividend of $0.70 per share of common stock. Before we discuss or revise you of 2024, I would like to provide a brief regulatory update. As part of its review of the joint proxy statement and prospectus, the staff of the SEC has indicated that they disagree with certain aspects of Discover's accounting approach for the card misclassification matter. We are working diligently to resolve their comments, which largely focus on the allocation of previously incurred card misclassification charges between revenue and expense. Speaker 200:12:10We do not anticipate resolution of this matter to have an impact to cumulative historical earnings, capital or our counterparty restitution plan liability. Including on Slide 12, we have revised our 2024 outlook to reflect our latest view. We are updating our loan growth expectations to down lowtomidsingledigits. This change is driven by a higher than anticipated payment rate and slightly lower card sales. Excluding the student loan sale, loans are estimated to grow low single digits. Speaker 200:12:49We are tightening our net interest margin range to 11.2% to 11.4%. Our operating expense guidance is unchanged. We are tightening our range of net charge offs to 4.9% to 5%, reflecting our improved credit performance. Our capital management expectations have not changed. In summary, we continue to deliver strong financial results, prudently manage our business and prepare for our merger with Capital One. Speaker 200:13:22This concludes our remarks. I'll turn the call back over to the operator. Speaker 300:13:28Thank you. Today's call has ended. The Discover Investor Relations team will be available for your questions. Thank you for joining. You may now disconnect.Read morePowered by