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TheStreet Open House

Discover Financial Services Reports Fourth Quarter Net Income Of $602 Million Or $1.23 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 quarters ended March 31, 2013, June 30, 2013 and September 30, 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
Dec 31, 2013 Sep 30, 2013 Dec 31, 2012

EARNINGS SUMMARY

Interest Income $1,842 $1,787 $1,740
Interest Expense 273 278 312
Net Interest Income 1,569 1,509 1,428
 
Discount/Interchange Revenue 574 550 559
Rewards Cost 295 274 318
Discount and Interchange Revenue, net 279 276 241
Protection Products Revenue 84 90 98
Loan Fee Income 85 78 83
Transaction Processing Revenue 46 46 55
Other Income 66 63 111
Total Other Income 560 553 588
 
Revenue Net of Interest Expense 2,129 2,062 2,016
 
Provision for Loan Losses 354 333 370
 
Employee Compensation and Benefits 297 292 280
Marketing and Business Development 189 174 187
Information Processing & Communications 89 81 77
Professional Fees 108 97 115
Premises and Equipment 22 21 22
Other Expense 133 118 122
Total Other Expense 838 783 803
     
Income Before Income Taxes 937 946 843
Tax Expense 335 353 304
Net Income $602 $593 $539
 
Net Income Allocated to Common Stockholders $588 $579 $530
 
 

PER SHARE STATISTICS

Basic EPS $1.24 $1.20 $1.06
Diluted EPS $1.23 $1.20 $1.06
Common Stock Price (period end) $55.95 $50.54 $38.55
Book Value per share $22.89 $22.14 $19.83
 

SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $911 $918 $811
Payment Services 26 28 32
Total $937 $946 $843
 

BALANCE SHEET SUMMARY

Total Assets $79,340 $75,544 $73,491
Total Liabilities 68,531 64,942 63,618
Total Equity 10,809 10,602 9,873
Total Liabilities and Stockholders' Equity $79,340 $75,544 $73,491
 

TOTAL LOAN RECEIVABLES

Ending Loans 1, 2 $65,771 $62,738 $62,598
Average Loans 1, 2 $63,443 $62,110 $60,477
 
Interest Yield 11.38% 11.29% 11.29%
Gross Principal Charge Off Rate 2.63% 2.66% 2.93%
Gross Principal Charge-off Rate excluding PCI Loans 3 2.82% 2.86% 3.19%
Net Principal Charge-off Rate 1.90% 1.86% 2.06%
Net Principal Charge-off Rate excluding PCI Loans 3 2.03% 2.00% 2.24%
Delinquency Rate (over 30 days) excluding PCI Loans 3 1.64% 1.60% 1.69%
Delinquency Rate (over 90 days) excluding PCI Loans 3 0.77% 0.72% 0.82%
Gross Principal Charge-off Dollars $421 $416 $446
Net Principal Charge-off Dollars $304 $291 $313
Net Interest and Fee Charge-off Dollars $82 $79 $90
Loans Delinquent Over 30 Days 3 $1,010 $933 $981
Loans Delinquent Over 90 Days 3 $475 $421 $478
 
Allowance for Loan Loss (period end) $1,648 $1,598 $1,788
Change in Loan Loss Reserves $50 $42 $57
Reserve Rate 2.51% 2.55% 2.86%
Reserve Rate Excluding PCI Loans 3 2.63% 2.73% 3.09%
 

CREDIT CARD LOANS

Ending Loans $53,150 $50,360 $51,135
Average Loans $50,957 $50,017 $49,173
 
Interest Yield 12.08% 12.00% 12.02%
Gross Principal Charge Off Rate 2.98% 3.02% 3.37%
Net Principal Charge-off Rate 2.09% 2.05% 2.31%
Delinquency Rate (over 30 days) 1.72% 1.67% 1.79%
Delinquency Rate (over 90 days) 0.84% 0.78% 0.90%
Gross Principal Charge-off Dollars $384 $381 $417
Net Principal Charge-off Dollars $269 $258 $286
Loans Delinquent Over 30 Days $912 $843 $917
Loans Delinquent Over 90 Days $447 $395 $460
 
Allowance for Loan Loss (period end) $1,406 $1,393 $1,613
Change in Loan Loss Reserves $13 $33 $48
Reserve Rate 2.65% 2.77% 3.15%
 
Total Discover Card Volume $31,755 $30,275 $31,085
Discover Card Sales Volume $29,530 $27,989 $28,728
 

NETWORK VOLUME

PULSE Network $40,368 $39,458 $40,441
Network Partners 2,613 2,507 2,456
Diners Club International 4 6,826 6,549 7,204
Total Payment Services 49,807 48,514 50,101
Discover Network - Proprietary 30,622 28,880 29,746
Total $80,429 $77,394 $79,847
 
 
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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