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Discover Financial Services Reports Fourth Quarter 2024 Net Income of $1.3 Billion or $5.11 Per Diluted Share and Full Year Net Income of $4.5 Billion or $17.72 Per Diluted Share

1. DFS reported a net income of $1.3 billion, up 253% from 2023. 2. Total revenue net of interest increased 14%, driven by loan growth and margin expansion. 3. Total loans declined 6% year-over-year, impacting potential future growth. 4. Provision for credit losses decreased significantly, indicating financial stability improvements. 5. The proposed merger with Capital One could reshape future operational strategies.

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$200.9601/23 11:19 PM EDTLatest Updated
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FAQ

Why Bullish?

Strong earnings growth and declining credit losses indicate positive financial health. Similar cases show improved stock performance post-earnings boosts.

How important is it?

Robust earnings and reduced credit losses suggest improved operational management, crucial for investors.

Why Short Term?

Earnings results likely boost stock price in the immediate term. However, the market will also consider merger impacts.

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RIVERWOODS, Ill.--(BUSINESS WIRE)--Discover Financial Services (NYSE: DFS) Fourth Quarter 2024 Results 2024 2023 YOY Change Total loans, end of period (in billions) $121.1 $128.4 (6%) Total revenue net of interest expense (in millions) $4,759 $4,180 14% Total net charge-off rate 4.64% 4.11% 53 bps Net income (in millions) $1,291 $366 253% Diluted EPS $5.11 $1.45 252% Discover Financial Services (NYSE: DFS) today reported net income of $1.3 billion or $5.11 per diluted share for the fourth quarter of 2024, as compared to a net income of $366 million or $1.45 per diluted share for the fourth quarter of 2023. “Discover's fourth quarter results capped off a successful 2024 as loan growth, margin expansion, and credit improvement led to strong financial performance,” said Michael Shepherd, Discover’s Interim CEO and President. “It was a transformative year for our business as we announced our pending merger with Capital One, exited student lending, and enhanced our risk management and compliance programs. These actions position us well for the future." Segment Results Digital Banking Digital Banking pretax income of $1.6 billion for the quarter was $1.2 billion higher than the prior year period reflecting a lower provision for credit losses and increased revenue net of interest expense partially offset by increased operating expenses. Total loans ended the quarter at $121.1 billion, down 6% year-over-year, and down 5% sequentially. Average total loans were up 6% in 2024. Credit card loans ended the quarter at $102.8 billion, up 1% year-over-year, and Personal loans increased $462 million, or 5%. The private student loan sale was successfully completed. Net interest income for the quarter increased $162 million, or 5% year-over-year, driven by net interest margin expansion. Net interest margin was 11.96%, up 98 basis points versus the prior year benefiting from the student loan sale. Card yield was 16.22%, up 59 basis points from the prior year primarily driven by a lower promotional balance mix, partially offset by a lower prime rate and higher interest charge-offs. Interest expense as a percentage of total loans would have declined as a result of lower market interest rates, however, the rate increased 5 basis points from the prior year period due to the loan sale. Non-interest income increased $406 million, or 68% from the prior year period reflecting a $381 million gain from the loan sale. The total net charge-off rate was 4.64%, up 53 basis points from the prior year period and down 22 basis points from the prior quarter reflecting continued seasoning of recent vintages. The credit card net charge-off rate was 5.03%, up 35 basis points from the prior year period and down 25 basis points from the prior quarter. The 30+ day delinquency rate for credit card loans was 3.84%, down 3 basis points year-over-year and flat from the prior quarter. The Personal loan net charge-off rate of 4.24% was up 85 basis points from the prior year and up 23 basis points from the prior quarter. Provision for credit losses of $1.2 billion decreased $707 million from the prior year quarter driven by an $807 million favorable reserve change, partially offset by a $93 million increase in net charge-offs. Total operating expenses were up $76 million year-over-year, or 4%. Employee compensation increased due to higher wage and benefit rates and employee retention actions. Professional fees were up from merger and integration and loan sale costs. Information processing increased due to technology investments and a software write-off pertaining to our student loan infrastructure. Other expenses and marketing were both down driven by higher costs in the fourth quarter of 2023, which included customer remediation and timing of broad market advertising. Payment Services Payment Services pretax income of $74 million was up $20 million year-over-year, or 37% primarily due to volume growth and timing of incentives. Payment Services volume was $102 billion, up 4% from the prior year period. PULSE dollar volume was up 7% driven by increased debit transaction volume. Diners Club volume was up 9% year-over-year reflecting strength in Israel and the Asia Pacific region, and Network Partners volume decreased 30% from the prior year due to lower AribaPay volume. Dividend Declaration The Board of Directors of Discover Financial Services declared a semi-annual cash dividend on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series C, in the amount of $2,750 per share. The dividend equals $27.50 per depositary share, each representing 1/100th interest in a share of the Series C Preferred Stock. The dividend will be payable on April 30, 2025, to the holders of record at the close of business on April 15, 2025. The Board of Directors of Discover Financial Services declared a semi-annual cash dividend on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series D, in the amount of $3,062.50 per share. The dividend equals $30.625 per depositary share, each representing 1/100th interest in a share of the Series D Preferred Stock. The dividend will be payable on March 24, 2025, to the holders of record at the close of business on March 7, 2025. The Board of Directors declared a quarterly cash dividend of $0.70 per share of common stock payable on March 6, 2025, to the holders of record at the close of business on February 20, 2025. Conference Call and Webcast Information The company will host a conference call to discuss its fourth quarter results on Thursday, January 23, 2025, 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 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). Forward Looking Statements 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; risks related to the proposed merger with Capital One Financial Corporation (“Capital One”) including, among others, (i) failure to complete the merger with Capital One or unexpected delays related to the merger or the inability of the parties to obtain regulatory approvals or satisfy other closing conditions required to complete the merger, (ii) regulatory approvals resulting in the imposition of conditions that could adversely affect the combined company or the expected benefits of the transaction, (iii) diversion of management’s attention from ongoing business operations and opportunities, (iv) cost and revenue synergies from the merger may not be fully realized or may take longer than anticipated to be realized, (v) the integration of each party’s management, personnel and operations will not be successfully achieved or may be materially delayed or will be more costly or difficult than expected, (vi) deposit attrition, customer or employee loss and/or revenue loss as a result of the announcement of the proposed merger, (vii) expenses related to the proposed merger being greater than expected, and (viii) shareholder litigation that could prevent or delay the closing of the proposed merger or otherwise negatively impact our business and operations; 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 our card and personal loan growth; our 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; our ability to manage our 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 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 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, investments in or divestitures from 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/A for the year ended December 31, 2023, 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. Important Information About the Transaction and Where to Find It Capital One has filed a registration statement on Form S-4 (No. 333-278812) with the SEC, which became effective on January 6, 2025, to register the shares of Capital One’s common stock that will be issued to Discover stockholders in connection with the proposed transaction. The registration statement includes a joint proxy statement of Capital One and Discover that also constitutes a prospectus of Capital One. The definitive joint proxy statement/prospectus has been sent to the stockholders of each of Discover and Capital One in connection with the proposed transaction. INVESTORS AND SECURITY HOLDERS ARE URGED TO READ THE REGISTRATION STATEMENT AND JOINT PROXY STATEMENT/PROSPECTUS (AND ANY OTHER DOCUMENTS FILED WITH THE SEC IN CONNECTION WITH THE TRANSACTION OR INCORPORATED BY REFERENCE INTO THE JOINT PROXY STATEMENT/PROSPECTUS) BECAUSE SUCH DOCUMENTS CONTAIN IMPORTANT INFORMATION REGARDING THE PROPOSED TRANSACTION AND RELATED MATTERS. Investors and security holders may obtain free copies of these documents and other documents filed with the SEC by Discover or Capital One through the website maintained by the SEC at http://www.sec.gov or by contacting the investor relations department of Discover or Capital One at: Before making any voting or investment decision, investors and security holders of Discover and Capital One are urged to read carefully the entire registration statement and joint proxy statement/prospectus, because they contain important information about the proposed transaction. Free copies of these documents may be obtained as described above. Participants in Solicitation Discover, Capital One and certain of their directors and executive officers may be deemed participants in the solicitation of proxies from the stockholders of each of Discover and Capital One in connection with the transaction. Information regarding the directors and executive officers of Discover and Capital One and other persons who may be deemed participants in the solicitation of the stockholders of Discover or of Capital One in connection with the transaction are included in the joint proxy statement/prospectus related to the proposed transaction, which was filed by Capital One with the SEC. Information about the directors and executive officers of Discover and their ownership of Discover common stock can also be found in Discover’s definitive proxy statement in connection with its 2024 annual meeting of stockholders, as filed with the SEC on March 15, 2024, as supplemented by Discover’s proxy statement supplement, as filed with the SEC on April 2, 2024, and other documents subsequently filed by Discover with the SEC. Information about the directors and executive officers of Capital One and their ownership of Capital One common stock can also be found in Capital One’s definitive proxy statement in connection with its 2024 annual meeting of stockholders, as filed with the SEC on March 20, 2024, and other documents subsequently filed by Capital One with the SEC. Additional information regarding the interests of such participants will be included in the joint proxy statement/prospectus and other relevant documents regarding the proposed transaction filed with the SEC when they become available. DISCOVER FINANCIAL SERVICES (unaudited, in millions, except per share statistics) Quarter Ended Dec 31,2024 Sep 30,2024 Dec 31,2023 EARNINGS SUMMARY Interest Income $4,989 $5,112 $4,868 Interest Expense 1,359 1,457 1,400 Net Interest Income 3,630 3,655 3,468   Discount/Interchange Revenue 1,157 1,142 1,142 Rewards Cost 758 779 788 Discount and Interchange Revenue, net 399 363 354 Protection Products Revenue 43 42 43 Loan Fee Income 200 214 217 Transaction Processing Revenue 83 84 82 Other Income 404 95 16 Total Non-Interest Income 1,129 798 712   Revenue Net of Interest Expense 4,759 4,453 4,180   Provision for Credit Losses 1,202 1,473 1,909   Employee Compensation and Benefits 792 703 646 Marketing and Business Development 299 263 372 Information Processing & Communications 208 197 170 Professional Fees 363 323 312 Premises and Equipment 25 25 25 Other Expense 168 277 263 Total Operating Expense 1,855 1,788 1,788   Income/(Loss) Before Income Taxes 1,702 1,192 483 Tax Expense 411 322 117 Net Income/(Loss) $1,291 $870 $366   Net Income/(Loss) Allocated to Common Stockholders $1,284 $834 $364     PER SHARE STATISTICS Basic EPS $5.11 $3.32 $1.45 Diluted EPS $5.11 $3.32 $1.45 Common Stock Price (period end) $173.23 $140.29 $112.40 Book Value per share $71.32 $68.11 $56.92   BALANCE SHEET SUMMARY Total Assets $147,640 $151,615 $151,713 Total Liabilities 129,714 134,506 137,478 Total Equity 17,926 17,109 14,235 Total Liabilities and Stockholders' Equity $147,640 $151,615 $151,713   TOTAL LOAN RECEIVABLES Ending Loans 1 $121,118 $126,993 $128,409 Average Loans 1 $120,764 $127,707 $125,387   Interest Yield 1 15.37% 15.06% 14.61% Gross Principal Charge-off Rate 2 5.77% 5.91% 4.82% Net Principal Charge-off Rate 2 4.64% 4.86% 4.11% Delinquency Rate (30 or more days) 2 3.48% 3.46% 3.45% Delinquency Rate (90 or more days) 2 1.71% 1.65% 1.59% Gross Principal Charge-off Dollars 2 $1,730 $1,756 $1,521 Net Principal Charge-off Dollars 2 $1,391 $1,442 $1,298 Net Interest and Fee Charge-off Dollars 2 $334 $335 $279 Loans Delinquent 30 or more days 2 $4,216 $4,105 $4,427 Loans Delinquent 90 or more days 2 $2,071 $1,960 $2,045   Allowance for Credit Losses (period end) $8,323 $8,512 $9,283 Reserve Change Build/(Release) 3, 4 ($189) $31 $618 Reserve Rate 2 6.87% 7.18% 7.23%   CREDIT CARD LOANS Ending Loans $102,786 $100,489 $102,259 Average Loans $101,059 $100,290 $99,610   Interest Yield 16.22% 16.23% 15.63% Gross Principal Charge-off Rate 6.28% 6.46% 5.50% Net Principal Charge-off Rate 5.03% 5.28% 4.68% Delinquency Rate (30 or more days) 3.84% 3.84% 3.87% Delinquency Rate (90 or more days) 1.93% 1.87% 1.87% Gross Principal Charge-off Dollars $1,596 $1,629 $1,380 Net Principal Charge-off Dollars $1,278 $1,332 $1,175 Loans Delinquent 30 or more days $3,944 $3,857 $3,955 Loans Delinquent 90 or more days $1,980 $1,883 $1,917   Allowance for Credit Losses (period end) $7,403 $7,586 $7,619 Reserve Change Build/(Release) 4 ($183) ($5) $549 Reserve Rate 7.20% 7.55% 7.45%   Total Discover Card Volume $58,306 $56,593 $60,917 Discover Card Sales Volume $55,252 $53,380 $57,145 Rewards Rate 1.35% 1.44% 1.37%   SEGMENT- INCOME/(LOSS) BEFORE INCOME TAXES Digital Banking $1,628 $1,108 $429 Payment Services 74 84 54 Total $1,702 $1,192 $483   NETWORK VOLUME PULSE Network $84,900 $82,573 $79,194 Network Partners 6,081 7,512 8,736 Diners Club International 5 11,435 10,388 10,468 Total Payment Services 102,416 100,473 98,398 Discover Network - Proprietary 57,120 55,184 58,419 Total $159,536 $155,657 $156,817   1 Total Loans includes private student loans, home equity and other loans 2 Excludes loans classified as held-for-sale as of June 30, 2024 3 Includes the adjustment to eliminate the allowance for credit losses upon classifying the private student loan portfolio as held-for-sale as of June 30, 2024 4 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 5 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).

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