Core Viewpoint - Discover Financial has reported strong third-quarter results driven by interest income growth, despite facing higher expenses [2][3]. Financial Performance - Adjusted earnings per share for Q3 2024 were $3.69, exceeding the Zacks Consensus Estimate of $3.28, and reflecting a 42% year-over-year increase [3]. - Revenues, net of interest expenses, rose 10% year-over-year to $4.45 billion, surpassing the consensus mark by 2.2% [3]. - Interest income reached $5.11 billion, an 11% increase year-over-year, beating the model estimate of $4.99 billion [5]. - Total operating expenses increased 16% year-over-year to $1.69 billion, higher than the estimate of $1.59 billion [6]. - Net income surged 41% year-over-year to $965 million [7]. Segment Performance - Digital Banking segment reported a pretax income of $1.2 billion, a 50% increase year-over-year, driven by lower provisions for credit losses [8]. - Total loans grew 4% year-over-year to $127 billion, with personal loans increasing by 9% [9]. - Payment Services segment's pretax income was $84 million, slightly down from the prior year [10]. Financial Position - As of September 30, 2024, total assets were $151.59 billion, with a liquidity portfolio of $24.80 billion [12]. - Borrowings decreased from $21.33 billion at the end of 2023 to $18.18 billion [13]. - Total equity rose from $14.83 billion at the end of 2023 to $17.26 billion [13]. Capital Deployment - Share repurchases are currently paused due to a merger with Capital One Financial Corporation, valued at $35.3 billion [14]. - A quarterly cash dividend of 70 cents per share has been declared, expected to remain at this level [14]. Guidance - Loan growth is anticipated to be in the low to mid-single digits, with a net interest margin forecasted between 11.2% and 11.4% [15]. - Operating expenses are expected to rise mid-single digits from $6 billion in 2023, excluding merger-related costs [15]. Market Outlook - Recent estimates for Discover have shown an upward trend, indicating positive market sentiment [16][18]. - The stock has an aggregate VGM Score of A, reflecting strong performance across growth, momentum, and value metrics [17].

Group 1 - The Retirement Forum aims to provide actionable ideas, a high-yield safe retirement portfolio, and macroeconomic outlooks to help maximize capital and income [1] - Discover Financial Services (NYSE: DFS) is primarily known for its credit cards and has a market capitalization of over $35 billion, operating its own payment processing network [1] - The Value Portfolio focuses on building retirement portfolios using a fact-based research strategy, which includes extensive analysis of 10Ks, analyst commentary, market reports, and investor presentations [1]

Merger and Integration Progress - Capital One continues to lead merger-related activities with applications under regulatory review and integration planning advancing well [1] - Discover Financial Services' third-quarter earnings results indicate the acquisition by Capital One is on track [1] Consumer Behavior and Spending Trends - Payments volumes decreased by 4% to $55.2 billion, reflecting a slowdown in Discover card sales [1] - PULSE volumes increased by 14% to $82.6 billion, driven by higher debit transaction volumes [1] - Card receivables grew 3% year over year due to a lower payment rate, offset by decreased sales volume [1] - Payment rates declined 1% from last year but remain 0.7% above pre-pandemic levels [1] - Consumers exhibit cautious behavior, with slower and stable spending patterns as households adjust to inflation and manage budgets [2] Debt Consolidation and Credit Performance - Personal loans increased 9% year over year, driven by strong demand for debt consolidation [3] - Total company-wide charge-offs were 4.9%, up 1.3% year over year [3] - Credit card net charge-off rate was 5.28%, with 30+ day delinquency rate at 3.84%, up 0.43% year over year [3] - Personal loan net charge-off rate rose to 4.01%, up 1.4 basis points from the prior year [3] - The company tightened its net charge-off expectations to 4.9%-5%, down from the previous range of 4.9%-5.2% [3] - Loan growth is expected to decline by low- to mid-single-digit percentages, revised from low-single-digit percentage points [3] Market Reaction - Discover shares rose 2% in intraday trading following the earnings call [4]

Core Insights - Discover Financial Services (DFS) reported strong third-quarter results driven by interest income growth, lower provision for credit losses, and margin expansion, despite higher expenses [1][2] Financial Performance - Adjusted earnings per share for Q3 2024 were $3.69, exceeding the Zacks Consensus Estimate of $3.28, and reflecting a 42% year-over-year increase [1] - Revenues, net of interest expenses, increased by 10% year over year to $4.45 billion, surpassing the consensus mark by 2.2% [1] - Net income surged 41% year over year to $965 million [3] Operational Metrics - Interest income rose 11% year over year to $5.11 billion, beating the model estimate of $4.99 billion [2] - Interest expense increased by 13% year over year to $1.46 billion, above the model estimate of $1.42 billion [2] - Non-interest income grew 11% year over year to $798 million but missed the Zacks Consensus Estimate by 3.3% [2] - Total operating expenses escalated 16% year over year to $1.69 billion, higher than the estimate of $1.59 billion [2] - Operating efficiency deteriorated by 200 basis points year over year to 38% [2] Segment Performance - Digital Banking segment reported a pretax income of $1.2 billion, a 50% increase year over year, driven by lower provision for credit losses and growing revenues [4] - Total loans rose 4% year over year to $127 billion, with personal loans increasing by 9% [4] - Payment Services segment's pretax income was $84 million, slightly down from $85 million in the prior year [5] - Payment Services volume increased by 9% year over year to $100.47 billion [5] Financial Position - Total assets as of September 30, 2024, were $151.59 billion, slightly up from $151.52 billion at the end of 2023 [7] - Liquidity portfolio amounted to $24.80 billion, higher than $23.25 billion at the end of 2023 [7] - Total liabilities decreased to $134.33 billion from $136.69 billion at the end of 2023 [7] - Total equity rose to $17.26 billion from $14.83 billion at the end of 2023 [7] Capital Deployment - Share repurchases are currently paused due to the merger with Capital One Financial Corporation, valued at $35.3 billion [8] - A quarterly cash dividend of 70 cents per share has been declared, expected to remain at this level [8] 2024 Guidance - Loan growth is expected to be in the low to mid-single digits [9] - Net interest margin is forecasted to be between 11.2% and 11.4% [9] - Operating expenses are estimated to rise in the mid-single digits from $6 billion in 2023 [9] - Average net charge-off rate is projected to be between 4.9% and 5% [9]

Company Overview - Discover Financial Services is a digital banking and payment services company based in Riverwoods, IL, offering credit cards, personal and home loans, and deposit products [8] - The company became a bank holding company in March 2009 under the Bank Holding Company Act and a financial holding company under the Gramm-Leach-Bliley Act [8] Zacks Rank and Style Scores - Discover is currently rated 3 (Hold) on the Zacks Rank, with a VGM Score of A, indicating a solid overall performance [8][9] - The Value Style Score for Discover is also A, attributed to its attractive valuation metrics, including a forward P/E ratio of 11.21, which is appealing to value investors [8] Earnings Estimates - In the last 60 days, five analysts have revised their earnings estimates upwards for Discover, with the Zacks Consensus Estimate increasing by $0.53 to $13.16 per share for fiscal 2024 [8] - Discover has an average earnings surprise of 2.3%, suggesting a positive trend in earnings performance [8] Investment Consideration - With a strong Zacks Rank and top-tier Value and VGM Style Scores, Discover is recommended for investors looking for potential opportunities [9]

Financial Data and Key Metrics Changes - The company reported net income of $965 million, a 41% increase from the prior year [8] - Net interest margin ended at 11.38%, up 43 basis points year-over-year and 21 basis points sequentially [9] - Total operating expenses increased by $238 million or 16% year-over-year [12] - Total net charge-offs were 4.86%, up 134 basis points from the prior year [13] Business Line Data and Key Metrics Changes - Card receivables increased by 3% year-over-year, while Discover card sales decreased by 3% [9] - Personal loans rose by 9% from the prior year, driven by strong demand for debt consolidation [10] - Student loans decreased by 19% year-over-year due to the first asset sale, with a recognized gain of $70 million [10] Market Data and Key Metrics Changes - Average consumer deposits increased by 11% year-over-year and 1% sequentially [10] - The payment rate declined around 100 basis points from last year but remained stable compared to the prior quarter [9] Company Strategy and Development Direction - The company is focused on driving business results, strengthening risk management, and planning for the merger with Capital One [5] - Significant progress has been made in the sale of the private student loan portfolio, with 55% sold to date [5][10] - The company aims to create valuable jobs and enhance community engagement through its facilities strategy [7] Management's Comments on Operating Environment and Future Outlook - Management noted cautious consumer behavior and credit tightening actions impacting sales, which are expected to persist [9] - The economic outlook assumes year-end 2024 unemployment at 4.4% and GDP growth in the 1% to 3% range [15] - The company revised its 2024 loan growth expectations to low- to mid-single-digits due to higher-than-anticipated payment rates [17] Other Important Information - Discover ranked 2 in customer satisfaction among U.S. credit card issuers for the fifth consecutive year [6] - The company declared a quarterly cash dividend of $0.70 per share of common stock [15] - The SEC is reviewing certain aspects of the company's accounting approach related to card misclassification [16] Summary of Q&A Session Questions and Answers - There was no formal question-and-answer session following the remarks, but the Investor Relations team is available for inquiries [4]

-- | --- | --- | |-----------------------------------|-------| | | | | | | | | | | | | | | | | | | | ©2024 DISCOVER FINANCIAL SERVICES | | Notice The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as we ...

Core Insights - Discover (DFS) reported $4.45 billion in revenue for Q3 2024, a year-over-year increase of 10.1% and an EPS of $3.69 compared to $2.59 a year ago, exceeding both revenue and EPS consensus estimates [1] Financial Performance Metrics - Credit Card Loans - Discover Card Sales Volume was $53.38 billion, below the estimated $54.39 billion [2] - Net Interest Margin stood at 11.4%, slightly above the average estimate of 11.3% [2] - Operating Efficiency was reported at 38%, exceeding the average estimate of 36.2% [2] - Net Principal Charge-off Rate was 4.9%, matching the average estimate [2] - Total Discover Card Volume reached $56.59 billion, below the estimated $58.03 billion [2] - Total Payment Services Network Volume was $100.47 billion, slightly above the average estimate of $99.85 billion [2] - Diners Club International Network Volume was $10.39 billion, exceeding the estimated $10.08 billion [2] - Network Partners Volume was $7.51 billion, below the average estimate of $9.59 billion [2] - PULSE Network Volume was $82.57 billion, above the estimated $80.67 billion [2] - Transactions Processed on Discover Network totaled 954 million, below the estimated 990.33 million [2] - Tier 1 Risk Based Capital Ratio was 13.5%, above the average estimate of 13.3% [2] - Total Transactions Processed on Networks was 3.38 billion, matching the estimated figure [2] Stock Performance - Discover shares returned +7% over the past month, outperforming the Zacks S&P 500 composite's +3.5% change [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market [3]

Discover (DFS) came out with quarterly earnings of $3.69 per share, beating the Zacks Consensus Estimate of $3.28 per share. This compares to earnings of $2.59 per share a year ago. These figures are adjusted for non-recurring items.This quarterly report represents an earnings surprise of 12.50%. A quarter ago, it was expected that this credit card issuer and lender would post earnings of $3.06 per share when it actually produced earnings of $6.06, delivering a surprise of 98.04%.Over the last four quarters ...

Earnings Estimate Revisions - Discover Financial Services (DFS) is seeing favorable earnings estimate revisions, which is a precursor to an earnings beat [1] - The Most Accurate Estimate for the current quarter is $3.44 per share, compared to the Zacks Consensus Estimate of $3.29 per share, indicating a Zacks Earnings ESP of +4.84% [1] Zacks Earnings ESP and Market Performance - A positive Zacks Earnings ESP has historically been powerful in producing positive earnings surprises and outperforming the market [2] - Stocks with a positive Earnings ESP and a Zacks Rank 3 (Hold) or better show a positive surprise nearly 70% of the time and have returned over 28% on average in annual returns [2] Investment Consideration - Given DFS has a Zacks Rank 3 and a positive Earnings ESP, it may be a stock to consider ahead of earnings [2] - Recent earnings estimate revisions suggest potential positive outcomes for Discover Financial in the upcoming report [2]