Discover Financial's Q3 Earnings Beat on Interest Income Spike

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]