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Discover Financial Services Reports Third Quarter Net Income Of $627 Million Or $1.21 Per Diluted Share

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 for the year ended November 30, 2011; “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company's Quarterly Reports on Form 10-Q for the quarters ended February 29, 2012 and May 31, 2012; and "Risk Factors" in the company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2012, which are filed with the SEC and available at the SEC's internet site ( http://www.sec.gov).

DISCOVER FINANCIAL SERVICES
(unaudited, in millions, except per share statistics)
  Quarter Ended

Aug 31, 2012

 

May 31, 2012

 

Aug 31, 2011

EARNINGS SUMMARY

Interest Income $1,695 $1,656 $1,599
Interest Expense 325   341   362  
Net Interest Income 1,370 1,315 1,237
 
Discount/Interchange Revenue 533 514 517
Rewards 268   248   234  
Discount and Interchange Revenue, net 265 266 283

Protection Products Revenue

104 101 108
Loan Fee Income 80 77 84
Transaction Processing Revenue 59 52 44
Other Income 86   37   33  
Total Other Income 594   533   552  
 
Revenue Net of Interest Expense 1,964 1,848 1,789
 
Provision for Loan Losses 126 232 100
 
Employee Compensation and Benefits 274 249 242
Marketing and Business Development 161 119 133
Information Processing & Communications 69 72 64
Professional Fees 107 110 106
Premises and Equipment 20 19 18
Other Expense 195   180   79  
Total Other Expense 826 749 642
     
Income Before Income Taxes 1,012 867 1,047
Tax Expense 385   330   398  
Net Income $627   $537   $649  
 
Net Income Allocated to Common Stockholders $621   $532   $642  
 
 

PER SHARE STATISTICS

Basic EPS $1.21 $1.01 $1.18
Diluted EPS $1.21 $1.00 $1.18
Common Stock Price (period end) $38.73 $33.11 $25.16
Book Value per share $18.02 $17.20 $14.88
 

SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $963 $820 $1,009
Payment Services 49   47   38  
Total $1,012   $867   $1,047  
 

BALANCE SHEET SUMMARY

Total Assets $73,909   $72,083   $65,726  
Total Liabilities 64,763 63,184 57,720
Total Equity 9,146   8,899   8,006  
Total Liabilities and Stockholders' Equity $73,909   $72,083   $65,726  
 

TOTAL LOAN RECEIVABLES STATISTICS

Ending Loans 1, 2 $59,157 $57,058 $54,082
Average Loans 1, 2 $57,721 $56,180 $53,013
 
Interest Yield 11.50 % 11.55 % 11.83 %
Net Principal Charge-off Rate 2.12 % 2.42 % 3.43 %
Net Principal Charge-off Rate excluding PCI Loans 3 2.32 % 2.66 % 3.63 %
Delinquency Rate (over 30 days) 3 1.71 % 1.81 % 2.35 %
Delinquency Rate (over 90 days) 3 0.81 % 0.91 % 1.17 %
Net Principal Charge-off Dollars $308 $342 $459
Net Interest and Fee Charge-off Dollars $92 $110 $151
Loans Delinquent Over 30 Days 3 $931 $941 $1,203
Loans Delinquent Over 90 Days 3 $441 $474 $599
 
Allowance for Loan Loss (period end) $1,687 $1,869 $2,273
Change in Loan Loss Reserves ($182 ) ($110 ) ($359 )
Reserve Rate 4 2.85 % 3.28 % 4.20 %
Reserve Rate Excluding PCI Loans 3, 4 3.11 % 3.59 % 4.44 %
 

CREDIT CARD LOANS STATISTICS

Ending Loans $48,124 $46,610 $46,178
Average Loans $47,067 $45,772 $45,343
 
Interest Yield 12.27 % 12.35 % 12.46 %
Net Principal Charge-off Rate 2.43 % 2.79 % 3.85 %
Delinquency Rate (over 30 days) 1.81 % 1.91 % 2.43 %
Delinquency Rate (over 90 days) 0.89 % 0.99 % 1.22 %
Net Principal Charge-off Dollars $287 $322 $440
Loans Delinquent Over 30 Days $870 $890 $1,121
Loans Delinquent Over 90 Days $427 $459 $565
 
Allowance for Loan Loss (period end) $1,522 $1,713 $2,154
Change in Loan Loss Reserves ($191 ) ($122 ) ($365 )
Reserve Rate 3.16 % 3.68 % 4.66 %
 
Total Discover Card Volume $29,763 $28,140 $28,455
Discover Card Sales Volume $27,202 $26,115 $26,271
 

NETWORK VOLUME

PULSE Network $40,990 $42,001 $35,109
Third-Party Issuers 2,231 2,189 1,984
Diners Club International 5 7,041   7,205   7,428  
Total Payment Services 50,262 51,395 44,521
Discover Network - Proprietary 28,085   26,985   27,133  
Total $78,347   $78,380   $71,654  
 
 
1 Total Loans includes mortgages and other loans.
 
2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables.
 
3 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the company is recognizing interest income on a pool of loans, it is all considered to be performing.
 
4 The Reserve Rate includes federal student loans held for sale.
 
5 Volume is derived from data provided by licensees 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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