discover financial services reports second quarter net income of $644 million or $1.35 per diluted...
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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Discover Financial Services Reports Second Quarter Net
Income of $644 Million or $1.35 Per Diluted Share
RIVERWOODS, Ill.--(BUSINESS WIRE)--Discover Financial Services (NYSE: DFS) today reported netincome of
$644 million or $1.35 per diluted share for the second quarter of 2014,
as compared to $602 million or $1.20 per diluted share for the second
quarter of 2013. The company's return on equity for the second quarter
of 2014 was 23%.
Second Quarter Highlights
Revenue net of interest expense was up $131 million, or 6%, from the
prior year to $2.2 billion.
Total loans grew $4.2 billion, or 7%, from the prior year to $65.9
billion.
Credit card loans grew $3.0 billion, or 6%, to $52.7 billion and
Discover card sales volume increased 6% from the prior year.
Net charge-off rate for credit card loans decreased 1 basis point from
the prior year to 2.33% and the delinquency rate for loans over 30
days past due increased 5 basis points to 1.63%.
Payment Services pretax income was $31 million. Transaction dollar
volume for the segment was $50.9 billion, up 3% from the prior year.
"Our record earnings per share this quarter reflect outstanding
fundamental performance in our Direct Banking segment in terms of loan
growth and credit performance," said David Nelms, chairman and CEO of
Discover. "Our continued focus on gaining wallet share with existing
customers and acquiring new accounts with Discover IT drove strong card
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receivables and sales growth of 6%."
Segment Results:
Direct Banking
Direct Banking pretax income of $984 million in the quarter was down $18
million, or 2%, from the prior year.
Total loans ended the quarter at $65.8 billion, up 7% compared to the
prior year. Credit card loans ended the quarter at $52.7 billion, up 6%
from the prior year. Personal loans increased $949 million, or 26%, from
the prior year and private student loans increased $370 million, or 5%,
from the prior year. Excluding purchased student loans, private student
loans grew $889 million, or 26%, from the prior year.
Revenue net of interest expense increased $131 million, up 7% from the
prior year due to loan growth and net interest margin expansion.
Net interest income increased $159 million, or 11%, from the prior year,
benefiting from loan growth, lower interest expense and higher loan
yield. Net interest margin was 9.85%, up 41 basis points from the prior
year. The increase in net interest margin reflects decreased funding
costs and higher loan yield. Credit card yield was 12.10%, an increase
of 13 basis points from the prior year. The increase in credit card
yield reflects a higher portion of customers revolving balances and
lower interest charge-offs. Interest expense as a percent of total loans
decreased 25 basis points from the prior year as the company continued
to take advantage of available low rate funding.
Other income decreased $28 million, or 5%, from the prior year due to
lower direct mortgage related income and lower protection product
revenue, which were somewhat offset by higher interchange revenue.
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The delinquency rate for credit card loans over 30 days past due was
1.63%, up 5 basis points from the prior year and down 9 basis points
compared to the prior quarter. Credit card net charge-off rate for the
second quarter was 2.33%, down 1 basis point from the prior year and up
1 basis point from the prior quarter. The student loan net charge-off
rate excluding PCI loans was 1.30%, down 28 basis points from the prior
year. The personal loans net charge-off rate of 1.95% decreased by 29
basis points from the prior year.
Provision for loan losses of $360 million increased $135 million from
the prior year primarily due to an increase in loan loss reserves. The
reserve build for the second quarter of 2014 was $23 million. The second
quarter of 2013 included a reserve release of $93 million.
Expenses increased $14 million, or 2%, from the prior year primarily due
to increased headcount and higher professional fees, partially offset by
lower marketing expense.
Payment Services
Payment Services pretax income was $31 million in the quarter, up $52
million from the prior year. The second quarter of 2013 had total pretax
charges of $55 million, including a $15 million increase in loan loss
provisions, related to supporting Diners Club International franchises
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in Europe.
Payment Services dollar volume was $50.9 billion for the second quarter
of 2014, up 3% from the prior year. PULSE transaction dollar volume was
up 4% year-over-year.
Share Repurchases
During the second quarter of 2014, the company repurchased approximately
3 million shares of common stock for $177 million. Shares of common
stock outstanding declined by 1% from the prior quarter.
Conference Call and Webcast Information
The company will host a conference call to discuss its second quarter
results on Tuesday, July 22, 2014, at 4:00 p.m. Central time. Interested
parties can listen to the conference call via a live audio webcast athttp://investorrelations.discoverfinancial.com.
About Discover
Discover Financial Services (NYSE: DFS) is a direct banking and payment
services company with one of the most recognized brands in U.S.
financial services. Since its inception in 1986, the company has become
one of the largest card issuers in the United States. The company issues
the Discover card, America's cash rewards pioneer, and offers home
loans, private student loans, personal loans, home equity loans,
checking and savings accounts, certificates of deposit and money market
accounts through its direct banking business. It operates the Discover
Network, with millions of merchant and cash access locations; PULSE, one
of the nation's leading ATM/debit networks; and Diners Club
International, a global payments network with acceptance in more than
185 countries and territories. For more information, visit www.discover.com/company.
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A financial summary follows. Financial, statistical, and business
related information, as well as information regarding business and
segment trends, is included in the financial supplement filed as Exhibit
99.2 to the company's Current Report on Form 8-K filed today with the
Securities and Exchange Commission ("SEC"). Both the earnings release
and the financial supplement are available online at the SEC's website (http://www.sec.gov)
and the company's website (http://investorrelations.discoverfinancial.com).
This press release contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, which speak to our expected business and financial
performance, among other matters, contain words such as "believe,"
"expect," "anticipate," "intend," "plan," "aim," "will," "may,"
"should," "could," "would," "likely," and similar expressions. Such
statements are based upon the current beliefs and expectations of the
company's management and are subject to significant risks and
uncertainties. Actual results may differ materially from those set forth
in the forward-looking statements. These forward-looking statements
speak only as of the date of this press release, and there is no
undertaking to update or revise them as more information becomes
available.
The following factors, among others, could cause actual results to
differ materially from those set forth in the forward-looking
statements: changes in economic variables, such as the availability of
consumer credit, the housing market, energy costs, the number and size
of personal bankruptcy filings, the rate of unemployment, the levels of
consumer confidence and consumer debt, and investor sentiment; the
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impact of current, pending and future legislation, regulation,
supervisory guidance, and regulatory and legal actions, including, but
not limited to, those related to financial regulatory reform, consumer
financial services practices, anti-corruption, and funding, capital and
liquidity; the actions and initiatives of current and potential
competitors; the company's ability to manage its expenses; the company's
ability to successfully achieve full card acceptance across its networks
and maintain relationships with network participants; the company's
ability to sustain and grow its private student loan portfolio and
mortgage loan products; losses as a result of mortgage loan repurchase
and indemnification obligations to secondary market purchasers; the
company's ability to manage its credit risk, market risk, liquidity
risk, operational risk, legal and compliance risk, and strategic risk;
the availability and cost of funding and capital; access to deposit,
securitization, equity, debt and credit markets; the impact of rating
agency actions; the level and volatility of equity prices, commodity
prices and interest rates, currency values, investments, other market
fluctuations and other market indices; losses in the company's
investment portfolio; limits on the company's ability to pay dividends
and repurchase its common stock; limits on the company's ability to
receive payments from its subsidiaries; fraudulent activities or
material security breaches of key systems; the company's ability to
increase or sustain Discover card usage or attract new customers; the
company's ability to maintain relationships with current merchants; the
effect of political, economic and market conditions, geopolitical events
and unforeseen or catastrophic events; the company's ability to
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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introduce new products or services; the company's ability to manage its
relationships with third-party vendors; the company's ability to
maintain current technology and integrate new and acquired systems; the
company's ability to collect amounts for disputed transactions from
merchants and merchant acquirers; the company's ability to attract and
retain employees; the company's ability to protect its reputation and
its intellectual property; difficulty obtaining regulatory approval for,
financing, closing, transitioning, integrating or managing the expenses
of acquisitions of or investments in new businesses, products or
technologies; and new lawsuits, investigations or similar matters or
unanticipated developments related to current matters. The company
routinely evaluates and may pursue acquisitions of or investments in
businesses, products, technologies, loan portfolios or deposits, which
may involve payment in cash or the company's debt or equity securities.
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 December 31, 2013 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, 2014, which are filed with the SEC and available
at the SEC's internet site (http://www.sec.gov).
DISCOVER FINANCIAL SERVICES
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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(unaudited, in millions, except per share statistics)
Quarter Ended
Jun 30,
Mar 31,
Jun 30,
2014
2014
2013
EARNINGS SUMMARY
Interest Income
$1,863
$1,833
$1,727
Interest Expense
274
270
297
Net Interest Income
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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1,589
1,563
1,430
Discount/Interchange Revenue
595
519
546
Rewards Cost
268
265
238
Discount and Interchange Revenue, net
327
254
308
Protection Products Revenue
78
83
88
Loan Fee Income
80
83
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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76
Transaction Processing Revenue
46
44
47
Other Income
52
51
92
Total Other Income
583
515
611
Revenue Net of Interest Expense
2,172
2,078
2,041
Provision for Loan Losses
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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360
272
240
Employee Compensation and Benefits
301
307
285
Marketing and Business Development
168
169
185
Information Processing & Communications
87
84
85
Professional Fees
112
99
101
Premises and Equipment
22
23
20
Other Expense
107
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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102
144
Total Other Expense
797
784
820
Income Before Income Taxes
1,015
1,022
981
Tax Expense
371
391
379
Net Income
$644
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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$631
$602
Net Income Allocated to Common Stockholders
$630
$618
$588
PER SHARE STATISTICS
Basic EPS
$1.35
$1.31
$1.20
Diluted EPS
$1.35
$1.31
$1.20
Common Stock Price (period end)
$61.98
$58.19
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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$47.64
Book Value per share
$24.46
$23.53
$21.52
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking
$984
$994
$1,002
Payment Services
31
28
(21
)
Total
$1,015
$1,022
$981
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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BALANCE SHEET SUMMARY
Total Assets
$78,937
$79,584
$74,944
Total Liabilities
67,556
68,563
64,496
Total Equity
11,381
11,021
10,448
Total Liabilities and Stockholders' Equity
$78,937
$79,584
$74,944
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TOTAL LOAN RECEIVABLES
Ending Loans 1, 2
$65,875
$63,852
$61,703
Average Loans 1, 2
$64,728
$64,227
$60,793
Interest Yield
11.42
%
11.44
%
11.24
%
Gross Principal Charge-off Rate
2.82
%
2.82
%
2.99
%
Gross Principal Charge-off Rate excluding PCI Loans 3
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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3.01
%
3.01
%
3.23
%
Net Principal Charge-off Rate
2.08
%
2.08
%
2.10
%
Net Principal Charge-off Rate excluding PCI Loans 3
2.22
%
2.22
%
2.27
%
Delinquency Rate (over 30 days) excluding PCI Loans 3
1.56
%
1.65
%
1.50
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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%
Delinquency Rate (over 90 days) excluding PCI Loans 3
0.73
%
0.80
%
0.73
%
Gross Principal Charge-off Dollars
$455
$447
$453
Net Principal Charge-off Dollars
$337
$329
$318
Net Interest and Fee Charge-off Dollars
$87
$89
$85
Loans Delinquent Over 30 Days 3
$964
$985
$861
Loans Delinquent Over 90 Days 3
$451
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$478
$419
Allowance for Loan Loss (period end)
$1,614
$1,591
$1,556
Change in Loan Loss Reserves
$23
($57
)
($78
)
Reserve Rate
2.45
%
2.49
%
2.52
%
Reserve Rate Excluding PCI Loans 3
2.56
%
2.61
%
2.72
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%
CREDIT CARD LOANS
Ending Loans
$52,742
$50,879
$49,791
Average Loans
$51,718
$51,347
$49,002
Interest Yield
12.10
%
12.14
%
11.97
%
Gross Principal Charge-off Rate
3.22
%
3.22
%
3.41
%
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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Net Principal Charge-off Rate
2.33
%
2.32
%
2.34
%
Delinquency Rate (over 30 days)
1.63
%
1.72
%
1.58
%
Delinquency Rate (over 90 days)
0.80
%
0.87
%
0.80
%
Gross Principal Charge-off Dollars
$415
$408
$417
Net Principal Charge-off Dollars
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$300
$294
$286
Loans Delinquent Over 30 Days
$860
$876
$789
Loans Delinquent Over 90 Days
$420
$442
$398
Allowance for Loan Loss (period end)
$1,359
$1,342
$1,360
Change in Loan Loss Reserves
$17
($64
)
($93
)
Reserve Rate
2.58
%
2.64
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%
2.73
%
Total Discover Card Volume
$31,732
$28,077
$29,684
Discover Card Sales Volume
$29,341
$25,697
$27,574
NETWORK VOLUME
PULSE Network
$41,500
$41,927
$40,060
Network Partners
2,617
2,381
2,442
Diners Club International 4
6,733
6,527
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8/10/2019 Discover Financial Services Reports Second Quarter Net Income of $644 Million or $1.35 Per Diluted Share
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6,848
Total Payment Services
50,850
50,835
49,350
Discover Network - Proprietary
30,342
26,547
28,551
Total
$81,192
$77,382
$77,901
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
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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).