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Discover Financial Services Reports Second Quarter Net Income Of $602 Million Or $1.20 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, 2012 and under “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2013, 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
Jun 30, 2013 Mar 31, 2013 Jun 30, 2012

EARNINGS SUMMARY

Interest Income $1,727 $1,708 $1,646
Interest Expense 297   298   332  
Net Interest Income 1,430 1,410 1,314
 
Discount/Interchange Revenue 546 492 519
Rewards 238   229   246  
Discount and Interchange Revenue, net 308 263 273
Protection Products Revenue 88 88 102
Loan Fee Income 76 81 78
Transaction Processing Revenue 47 53 56
Other Income 92   97   43  
Total Other Income 611   582   552  
 
Revenue Net of Interest Expense 2,041 1,992 1,866
 
Provision for Loan Losses 240 159 262
 
Employee Compensation and Benefits 285 290 253
Marketing and Business Development 185 169 121
Information Processing & Communications 85 78 71
Professional Fees 101 104 108
Premises and Equipment 20 19 19
Other Expense 144   93   186  
Total Other Expense 820 753 758
     
Income Before Income Taxes 981 1,080 846
Tax Expense 379   407   321  
Net Income $602   $673   $525  
 
Net Income Allocated to Common Stockholders $588   $659   $520  
 
 

PER SHARE STATISTICS

Basic EPS $1.20 $1.33 $0.99
Diluted EPS $1.20 $1.33 $0.99
Common Stock Price (period end) $47.64 $44.84 $34.58
Book Value per share $21.52 $20.90 $17.36
 

SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $1,002 $1,033 $796
Payment Services (21 ) 47   50  
Total $981   $1,080   $846  
 

BALANCE SHEET SUMMARY

Total Assets $74,944   $76,139   $73,238  
Total Liabilities 64,496 65,840 64,298
Total Equity 10,448   10,299   8,940  
Total Liabilities and Stockholders' Equity $74,944   $76,139   $73,238  
 

TOTAL LOAN RECEIVABLES

Ending Loans 1, 2

$61,703 $60,384 $58,051
Average Loans 1, 2 $60,793 $60,903 $56,929
 
Interest Yield 11.24 % 11.22 % 11.45 %
Net Principal Charge-off Rate 2.10 % 2.08 % 2.37 %
Net Principal Charge-off Rate excluding PCI Loans 3 2.27 % 2.25 % 2.60 %
Delinquency Rate (over 30 days) excluding PCI Loans 3 1.50 % 1.68 % 1.75 %
Delinquency Rate (over 90 days) excluding PCI Loans 3 0.73 % 0.84 % 0.87 %
Net Principal Charge-off Dollars $318 $313 $335
Net Interest and Fee Charge-off Dollars $85 $93 $104
Loans Delinquent Over 30 Days 3 $861 $940 $929
Loans Delinquent Over 90 Days 3 $419 $469 $460
 
Allowance for Loan Loss (period end) $1,556 $1,634 $1,898
Change in Loan Loss Reserves ($78 ) ($154 ) ($73 )
Reserve Rate 2.52 % 2.71 % 3.27 %
Reserve Rate Excluding PCI Loans 3 2.72 % 2.93 % 3.57 %
 

CREDIT CARD LOANS

Ending Loans $49,791 $48,655 $47,451
Average Loans $49,002 $49,267 $46,484
 
Interest Yield 11.97 % 11.94 % 12.21 %
Net Principal Charge-off Rate 2.34 % 2.36 % 2.72 %
Delinquency Rate (over 30 days) 1.58 % 1.77 % 1.85 %
Delinquency Rate (over 90 days) 0.80 % 0.91 % 0.94 %
Net Principal Charge-off Dollars $286 $287 $314
Loans Delinquent Over 30 Days $789 $862 $879
Loans Delinquent Over 90 Days $398 $442 $445
 
Allowance for Loan Loss (period end) $1,360 $1,453 $1,739
Change in Loan Loss Reserves ($93 ) ($160 ) ($83 )
Reserve Rate 2.73 % 2.99 % 3.66 %
 
Total Discover Card Volume $29,684 $26,880 $28,579
Discover Card Sales Volume $27,574 $24,864 $26,411
 

NETWORK VOLUME

PULSE Network $40,060 $39,919 $41,207
Network Partners 2,442 2,246 2,195
Diners Club International 4 6,848   6,644   7,184  
Total Payment Services 49,350 48,809 50,586
Discover Network - Proprietary 28,551   25,738   27,279  
Total $77,901   $74,547   $77,865  
 
 
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 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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