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TheStreet Open House

Discover Financial Services Reports Fourth Quarter Net Income Of $551 Million Or $1.07 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, May 31, 2012 and August 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
Nov 30, 2012 Aug 31, 2012 Nov 30, 2011

EARNINGS SUMMARY

Interest Income $1,706 $1,695 $1,620
Interest Expense 312 325 360
Net Interest Income 1,394 1,370 1,260
 
Discount/Interchange Revenue 521 533 489
Rewards 281 268 215
Discount and Interchange Revenue, net 240 265 274
Protection Products Revenue 99 104 107
Loan Fee Income 83 80 87
Transaction Processing Revenue 54 59 48
Other Income 128 86 30
Total Other Income 604 594 546
 
Revenue Net of Interest Expense 1,998 1,964 1,806
 
Provision for Loan Losses 338 126 319
 
Employee Compensation and Benefits 278 274 229
Marketing and Business Development 192 161 144
Information Processing & Communications 78 69 69
Professional Fees 115 107 114
Premises and Equipment 20 20 18
Other Expense 117 195 95
Total Other Expense 800 826 669

 

   
Income Before Income Taxes 860 1,012 818
Tax Expense 309 385 305
Net Income $551 $627 $513
 
Net Income Allocated to Common Stockholders $541 $621 $508
 
 

PER SHARE STATISTICS

Basic EPS $1.08 $1.21 $0.95
Diluted EPS $1.07 $1.21 $0.95
Common Stock Price (period end) $41.61 $38.73 $23.82
Book Value per share $19.55 $18.02 $15.59
 

SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $827 $963 $776
Payment Services 33 49 42
Total $860 $1,012 $818
 

BALANCE SHEET SUMMARY

Total Assets $75,238 $73,909 $68,784
Total Liabilities 65,506 64,763 60,542
Total Equity 9,732 9,146 8,242
Total Liabilities and Stockholders' Equity $75,238 $73,909 $68,784
 

TOTAL LOAN RECEIVABLES STATISTICS

Ending Loans 1, 2, 3

$61,017 $59,157 $57,337
Average Loans 1, 2 $59,343 $57,721 $55,539
 
Interest Yield 11.39% 11.50% 11.56%
Net Principal Charge-off Rate 2.03% 2.12% 2.81%

Net Principal Charge-off Rate excluding PCI Loans 4

2.21% 2.32% 3.05%

Delinquency Rate (over 30 days) 4

1.75% 1.71% 2.30%

Delinquency Rate (over 90 days) 4

0.83% 0.81% 1.14%
Net Principal Charge-off Dollars $300 $308 $387
Net Interest and Fee Charge-off Dollars $88 $92 $128

Loans Delinquent Over 30 Days 4

$983 $931 $1,200

Loans Delinquent Over 90 Days 4

$468 $441 $596
 
Allowance for Loan Loss (period end) $1,725 $1,687 $2,205
Change in Loan Loss Reserves $38 ($182) ($68)

Reserve Rate 5

2.83% 2.85% 3.85%

Reserve Rate Excluding PCI Loans 4, 5

3.07% 3.11% 4.23%
 

CREDIT CARD LOANS STATISTICS

Ending Loans 3

$49,642 $48,124 $46,639
Average Loans $48,122 $47,067 $45,756
 
Interest Yield 12.16% 12.27% 12.36%
Net Principal Charge-off Rate 2.29% 2.43% 3.24%
Delinquency Rate (over 30 days) 1.86% 1.81% 2.39%
Delinquency Rate (over 90 days) 0.91% 0.89% 1.20%
Net Principal Charge-off Dollars $274 $287 $370
Loans Delinquent Over 30 Days $925 $870 $1,117
Loans Delinquent Over 90 Days $451 $427 $560
 
Allowance for Loan Loss (period end) $1,554 $1,522 $2,070
Change in Loan Loss Reserves $32 ($191) ($84)
Reserve Rate 3.13% 3.16% 4.44%
 
Total Discover Card Volume $28,940 $29,763 $26,946
Discover Card Sales Volume $26,533 $27,202 $25,033
 

NETWORK VOLUME

PULSE Network $39,376 $40,990 $33,911

Network Partners 6

2,297 2,231 1,939

Diners Club International 7

7,298 7,041 7,469
Total Payment Services 48,971 50,262 43,319
Discover Network - Proprietary 27,462 28,085 25,926
Total $76,433 $78,347 $69,245
 
 
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 Effective November 30, 2012 the Company began including confirmed card transactions as part of loans in process, which resulted in a $365 million increase to ending card receivables for the fourth quarter. Comparable periods (shown above) have not been adjusted to reflect this change.

 

4 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.

 

5 The Reserve Rate includes federal student loans held for sale.

 

6 Network Partners was formerly referred to as Third-Party Issuers. The reference has been changed to better reflect the nature of the volume included. The composition, however, has not changed.

 

7 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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