Discover Financial Services Reports Q3 2024 Results with $870 Million Net Income

Discover Financial Services reported its financial results for the third quarter of 2024, revealing a net income of $870 million, or $3.32 per diluted share, a significant increase from the $586 million, or $2.21 per diluted share, reported in the same period last year. Total interest income rose to $5.1 billion, an 11% increase from $4.6 billion in the prior year, driven primarily by a higher average level of loan receivables and yield expansion. The company’s net interest income also increased by 10% to $3.7 billion, reflecting a growing loan portfolio and higher interest rates.

In terms of loan performance, total loans grew by $4.3 billion, or 4%, to $127 billion, with credit card loans specifically increasing by $3.1 billion, or 3%, to $100.5 billion. However, the net charge-off rate for credit card loans rose to 5.28%, up 125 basis points from the previous year, indicating a deterioration in credit quality. The delinquency rate for credit card loans over 30 days past due also increased to 3.84%, up 43 basis points from the end of 2023. The allowance for credit losses stood at approximately $8.5 billion, reflecting a slight increase from the previous quarter.

Strategically, Discover has made significant moves, including the ongoing sale of its private student loan portfolio, which was classified as held-for-sale as of June 30, 2024. The first closing of this sale resulted in a $70 million gain recognized in other income. Additionally, Discover announced a merger agreement with Capital One Financial Corporation, which is expected to create a combined entity valued at approximately $35.3 billion. This merger is subject to regulatory approvals and customary closing conditions.

Operationally, Discover's direct-to-consumer deposits increased by $9.1 billion, or 11%, to $90.3 billion, while payment services transaction volume rose by 9% to $100.5 billion. The company reported a total of 251 million shares of common stock outstanding as of December 13, 2024. The outlook for Discover remains cautious, with expectations of a decrease in total loans due to the private student loan portfolio sale, alongside an anticipated increase in net interest margin driven by higher card yields.

Looking ahead, Discover anticipates an increase in the total net charge-off rate, primarily due to the seasoning of recent vintages with higher delinquencies. The company remains committed to managing expenses while investing in compliance and risk management capabilities, as well as pursuing profitable long-term growth strategies.