Discover Financials Q1 Triumph: Revenue Surges, 26% NII Growth, $2.7B Share Buyback, And 17% Dividend Hike

Discover Financial Services DFS reported Q1 revenues (net of interest expense) of $3.75 billion, up 29% Y/Y, beating the consensus of $3.67 billion.

• Net interest income (NII) rose 26% Y/Y to $3.13 billion, led by higher average receivables and expansion in net interest margin.
• Total operating expenses were up 23% Y/Y to $1.38 billion, on higher expenses for employee compensation, marketing and professional fees.
• Digital Banking business pre-tax income declined Y/Y to $1.2 billion owing to a higher provision for credit losses and increased operating expenses.
• Payment Services segment volumes rose 10% Y/Y to $85.1 billion, with volumes in PULSE dollar up 9% Y/Y and Diners Club up 28% Y/Y.
• EPS declined 15% Y/Y to $3.58 and missed the consensus of $3.91.  
• Provision for credit losses rose to $1.10 billion from $154 million a year ago due to a reserve build of $385 million, and an increase in net-charge offs of $382 million.
• The total net charge-off rate rose 111 basis points Y/Y to 2.72%, reflecting credit normalization across the portfolio.
• Total loans were up 21% Y/Y to $112.7 billion, with credit card loans rising 22% Y/Y, personal loans increasing 21% Y/Y and private student loans rising 2% Y/Y. 
• Share Repurchase: DFS repurchased around $1.2 billion of shares in Q1 and authorized a new $2.7 billion share repurchase program that spans five quarters through June 2024 and replaces the previous program.
• Dividend: The company's Board of Directors raised quarterly dividends by 17% to $0.70 per share. They also declared a quarterly dividend of $0.70 per share, payable on June 8, 2023, to shareholders of record as on May 25, 2023.
• "While there was stress across some segments of the banking system, our strong funding and capital generative business model enabled us to invest for growth while sustaining significant capital return to shareholders. We believe these factors create a compelling position for Discover in 2023 and beyond." said Roger Hochschild, CEO and President.

Price Action: DFS shares were down 1.38% at $104.30 during early trading on Wednesday.

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