RIVERWOODS, Ill.--(BUSINESS WIRE)--Apr. 22, 2014--
Discover Financial Services (NYSE: DFS) today reported net income of
$631 million or $1.31 per diluted share for the first quarter of 2014,
as compared to $673 million or $1.33 per diluted share for the first
quarter of 2013. The company's return on equity for the first quarter of
2014 was 23%.
First Quarter Highlights
-
Revenue net of interest expense was up $86 million, or 4%, from the
prior year to $2.1 billion.
-
Total loans grew $3.5 billion, or 6%, from the prior year to $63.9
billion.
-
Credit card loans grew $2.2 billion, or 5%, to $50.9 billion and
Discover card sales volume increased 3% from the prior year.
-
Net charge-off rate for credit card loans decreased 4 basis points
from the prior year to 2.32% and the delinquency rate for loans over
30 days past due decreased 5 basis points to 1.72%.
-
Payment Services pretax income was down $19 million from the prior
year to $28 million. Transaction dollar volume for the segment was
$50.8 billion, up 4% from the prior year.
"Our results this quarter reflect a solid start for 2014 as we delivered
strong card loan growth that was near the top of our targeted range
while maintaining excellent credit performance and continuing to grow
other lending products as well,” said David Nelms, chairman and CEO of
Discover. “Additionally, we are increasing our return of capital to
shareholders through the recently announced dividend actions and the
continuation of share buybacks following our inaugural CCAR stress test.”
Segment Results:
Direct Banking
Direct Banking pretax income of $994 million in the quarter was down $39
million, or 4%, from the prior year.
Total loans ended the quarter at $63.8 billion, up 6% compared to the
prior year. Credit card loans ended the quarter at $50.9 billion, up 5%
from the prior year. Personal loans increased $915 million, or 27%, from
the prior year and private student loans increased $385 million, or 5%,
from the prior year. Excluding purchased student loans, private student
loans grew $900 million, or 26%, from the prior year.
Revenue net of interest expense increased $94 million, up 5% from the
prior year due to loan growth and net interest margin expansion.
Net interest income increased $153 million, or 11%, from the prior year,
benefiting from loan growth, lower interest expense and higher loan
yield. Net interest margin was 9.88%, up 49 basis points from the prior
year. The increase in net interest margin reflects decreased funding
costs and higher loan yield. Credit card yield was 12.14%, an increase
of 20 basis points from the prior year. The increase in credit card
yield reflects a modestly higher portion of customers revolving balances
and lower interest charge-offs. Interest expense as a percent of total
loans decreased 28 basis points from the prior year as the company
continued to take advantage of available low rate funding.
Other income decreased $59 million, or 12%, from the prior year due to
lower direct mortgage related income and higher rewards costs. The
increase in rewards was primarily related to a decrease in the rewards
forfeiture rate as well as higher standard and promotional rewards.
The delinquency rate for credit card loans over 30 days past due was
1.72%, an improvement of 5 basis points from the prior year and flat
compared to the prior quarter. Credit card net charge-off rate for the
first quarter was 2.32%, down 4 basis points from the prior year and up
23 basis points from the prior quarter. The student loan net charge-off
rate excluding PCI loans was 1.31%, up 49 basis points from the prior
year due to a larger portion of the portfolio entering repayment. The
personal loans net charge-off rate of 2.07% decreased by 23 basis points
from the prior year due primarily to strong growth.
Provision for loan losses of $270 million increased $111 million from
the prior year primarily due to a smaller reserve release. The reserve
release for the first quarter of 2014 was $59 million. The first quarter
of 2013 included a reserve release of $154 million.
Expenses increased $22 million, or 3%, from the prior year primarily due
to increased headcount, higher information processing expense and higher
other expense, partially offset by lower professional fees.
Payment Services
Payment Services pretax income was $28 million in the quarter, down $19
million from the prior year. Revenue decreased $8 million from the prior
year primarily due to lower transaction processing margins at PULSE.
Expenses increased $9 million from the prior year primarily due to
ongoing Diners Club costs in Europe.
Payment Services dollar volume was $50.8 billion for the first quarter
of 2014, up 4% from the prior year. PULSE transaction dollar volume was
up 5% year-over-year.
Share Repurchases
During the first quarter of 2014, the company repurchased approximately
5.5 million shares of common stock for $305 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 first quarter
results on Tuesday, April 22, 2014, at 4:00 p.m. Central time.
Interested parties can listen to the conference call via a live audio
webcast at http://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.
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
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
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, which is 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
|
|
|
|
Mar 31, 2014
|
|
|
Dec 31, 2013
|
|
|
Mar 31, 2013
|
EARNINGS SUMMARY
|
|
|
|
|
|
|
|
|
|
Interest Income
|
|
|
$1,833
|
|
|
|
$1,842
|
|
|
|
$1,708
|
|
Interest Expense
|
|
|
270
|
|
|
|
273
|
|
|
|
298
|
|
Net Interest Income
|
|
|
1,563
|
|
|
|
1,569
|
|
|
|
1,410
|
|
|
|
|
|
|
|
|
|
|
|
Discount/Interchange Revenue
|
|
|
519
|
|
|
|
574
|
|
|
|
492
|
|
Rewards Cost
|
|
|
265
|
|
|
|
295
|
|
|
|
229
|
|
Discount and Interchange Revenue, net
|
|
|
254
|
|
|
|
279
|
|
|
|
263
|
|
Protection Products Revenue
|
|
|
83
|
|
|
|
84
|
|
|
|
88
|
|
Loan Fee Income
|
|
|
83
|
|
|
|
85
|
|
|
|
81
|
|
Transaction Processing Revenue
|
|
|
44
|
|
|
|
46
|
|
|
|
53
|
|
Other Income
|
|
|
51
|
|
|
|
66
|
|
|
|
97
|
|
Total Other Income
|
|
|
515
|
|
|
|
560
|
|
|
|
582
|
|
|
|
|
|
|
|
|
|
|
|
Revenue Net of Interest Expense
|
|
|
2,078
|
|
|
|
2,129
|
|
|
|
1,992
|
|
|
|
|
|
|
|
|
|
|
|
Provision for Loan Losses
|
|
|
272
|
|
|
|
354
|
|
|
|
159
|
|
|
|
|
|
|
|
|
|
|
|
Employee Compensation and Benefits
|
|
|
307
|
|
|
|
297
|
|
|
|
290
|
|
Marketing and Business Development
|
|
|
169
|
|
|
|
189
|
|
|
|
169
|
|
Information Processing & Communications
|
|
|
84
|
|
|
|
89
|
|
|
|
78
|
|
Professional Fees
|
|
|
99
|
|
|
|
108
|
|
|
|
104
|
|
Premises and Equipment
|
|
|
23
|
|
|
|
22
|
|
|
|
19
|
|
Other Expense
|
|
|
102
|
|
|
|
133
|
|
|
|
93
|
|
Total Other Expense
|
|
|
784
|
|
|
|
838
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Taxes
|
|
|
1,022
|
|
|
|
937
|
|
|
|
1,080
|
|
Tax Expense
|
|
|
391
|
|
|
|
335
|
|
|
|
407
|
|
Net Income
|
|
|
$631
|
|
|
|
$602
|
|
|
|
$673
|
|
|
|
|
|
|
|
|
|
|
|
Net Income Allocated to Common Stockholders
|
|
|
$618
|
|
|
|
$588
|
|
|
|
$659
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE STATISTICS
|
|
|
|
|
|
|
|
|
|
Basic EPS
|
|
|
$1.31
|
|
|
|
$1.24
|
|
|
|
$1.33
|
|
Diluted EPS
|
|
|
$1.31
|
|
|
|
$1.23
|
|
|
|
$1.33
|
|
Common Stock Price (period end)
|
|
|
$58.19
|
|
|
|
$55.95
|
|
|
|
$44.84
|
|
Book Value per share
|
|
|
$23.53
|
|
|
|
$22.89
|
|
|
|
$20.90
|
|
|
|
|
|
|
|
|
|
|
|
SEGMENT- INCOME BEFORE INCOME TAXES
|
|
|
|
|
|
|
|
|
|
Direct Banking
|
|
|
$994
|
|
|
|
$911
|
|
|
|
$1,033
|
|
Payment Services
|
|
|
28
|
|
|
|
26
|
|
|
|
47
|
|
Total
|
|
|
$1,022
|
|
|
|
$937
|
|
|
|
$1,080
|
|
|
|
|
|
|
|
|
|
|
|
BALANCE SHEET SUMMARY
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
$79,584
|
|
|
|
$79,340
|
|
|
|
$76,139
|
|
Total Liabilities
|
|
|
68,563
|
|
|
|
68,531
|
|
|
|
65,840
|
|
Total Equity
|
|
|
11,021
|
|
|
|
10,809
|
|
|
|
10,299
|
|
Total Liabilities and Stockholders' Equity
|
|
|
$79,584
|
|
|
|
$79,340
|
|
|
|
$76,139
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL LOAN RECEIVABLES
|
|
|
|
|
|
|
|
|
|
Ending Loans 1, 2
|
|
|
$63,852
|
|
|
|
$65,771
|
|
|
|
$60,384
|
|
Average Loans 1, 2
|
|
|
$64,227
|
|
|
|
$63,443
|
|
|
|
$60,903
|
|
|
|
|
|
|
|
|
|
|
|
Interest Yield
|
|
|
11.44
|
%
|
|
|
11.38
|
%
|
|
|
11.22
|
%
|
Gross Principal Charge-off Rate
|
|
|
2.82
|
%
|
|
|
2.63
|
%
|
|
|
3.00
|
%
|
Gross Principal Charge-off Rate excluding PCI Loans 3
|
|
|
3.01
|
%
|
|
|
2.82
|
%
|
|
|
3.24
|
%
|
Net Principal Charge-off Rate
|
|
|
2.08
|
%
|
|
|
1.90
|
%
|
|
|
2.08
|
%
|
Net Principal Charge-off Rate excluding PCI Loans 3
|
|
|
2.22
|
%
|
|
|
2.03
|
%
|
|
|
2.25
|
%
|
Delinquency Rate (over 30 days) excluding PCI Loans 3
|
|
|
1.65
|
%
|
|
|
1.64
|
%
|
|
|
1.68
|
%
|
Delinquency Rate (over 90 days) excluding PCI Loans 3
|
|
|
0.80
|
%
|
|
|
0.77
|
%
|
|
|
0.84
|
%
|
Gross Principal Charge-off Dollars
|
|
|
$447
|
|
|
|
$421
|
|
|
|
$449
|
|
Net Principal Charge-off Dollars
|
|
|
$329
|
|
|
|
$304
|
|
|
|
$313
|
|
Net Interest and Fee Charge-off Dollars
|
|
|
$89
|
|
|
|
$82
|
|
|
|
$93
|
|
Loans Delinquent Over 30 Days 3
|
|
|
$985
|
|
|
|
$1,010
|
|
|
|
$940
|
|
Loans Delinquent Over 90 Days 3
|
|
|
$478
|
|
|
|
$475
|
|
|
|
$469
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Loss (period end)
|
|
|
$1,591
|
|
|
|
$1,648
|
|
|
|
$1,634
|
|
Change in Loan Loss Reserves
|
|
|
($57
|
)
|
|
|
$50
|
|
|
|
($154
|
)
|
Reserve Rate
|
|
|
2.49
|
%
|
|
|
2.51
|
%
|
|
|
2.71
|
%
|
Reserve Rate Excluding PCI Loans 3
|
|
|
2.61
|
%
|
|
|
2.63
|
%
|
|
|
2.93
|
%
|
|
|
|
|
|
|
|
|
|
|
CREDIT CARD LOANS
|
|
|
|
|
|
|
|
|
|
Ending Loans
|
|
|
$50,879
|
|
|
|
$53,150
|
|
|
|
$48,655
|
|
Average Loans
|
|
|
$51,347
|
|
|
|
$50,957
|
|
|
|
$49,267
|
|
|
|
|
|
|
|
|
|
|
|
Interest Yield
|
|
|
12.14
|
%
|
|
|
12.08
|
%
|
|
|
11.94
|
%
|
Gross Principal Charge-off Rate
|
|
|
3.22
|
%
|
|
|
2.98
|
%
|
|
|
3.48
|
%
|
Net Principal Charge-off Rate
|
|
|
2.32
|
%
|
|
|
2.09
|
%
|
|
|
2.36
|
%
|
Delinquency Rate (over 30 days)
|
|
|
1.72
|
%
|
|
|
1.72
|
%
|
|
|
1.77
|
%
|
Delinquency Rate (over 90 days)
|
|
|
0.87
|
%
|
|
|
0.84
|
%
|
|
|
0.91
|
%
|
Gross Principal Charge-off Dollars
|
|
|
$408
|
|
|
|
$384
|
|
|
|
$422
|
|
Net Principal Charge-off Dollars
|
|
|
$294
|
|
|
|
$269
|
|
|
|
$287
|
|
Loans Delinquent Over 30 Days
|
|
|
$876
|
|
|
|
$912
|
|
|
|
$862
|
|
Loans Delinquent Over 90 Days
|
|
|
$442
|
|
|
|
$447
|
|
|
|
$442
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Loan Loss (period end)
|
|
|
$1,342
|
|
|
|
$1,406
|
|
|
|
$1,453
|
|
Change in Loan Loss Reserves
|
|
|
($64
|
)
|
|
|
$13
|
|
|
|
($160
|
)
|
Reserve Rate
|
|
|
2.64
|
%
|
|
|
2.65
|
%
|
|
|
2.99
|
%
|
|
|
|
|
|
|
|
|
|
|
Total Discover Card Volume
|
|
|
$28,077
|
|
|
|
$31,755
|
|
|
|
$26,880
|
|
Discover Card Sales Volume
|
|
|
$25,697
|
|
|
|
$29,530
|
|
|
|
$24,864
|
|
|
|
|
|
|
|
|
|
|
|
NETWORK VOLUME
|
|
|
|
|
|
|
|
|
|
PULSE Network
|
|
|
$41,927
|
|
|
|
$40,368
|
|
|
|
$39,919
|
|
Network Partners
|
|
|
2,381
|
|
|
|
2,613
|
|
|
|
2,246
|
|
Diners Club International 4
|
|
|
6,527
|
|
|
|
6,826
|
|
|
|
6,644
|
|
Total Payment Services
|
|
|
50,835
|
|
|
|
49,807
|
|
|
|
48,809
|
|
Discover Network - Proprietary
|
|
|
26,547
|
|
|
|
30,622
|
|
|
|
25,738
|
|
Total
|
|
|
$77,382
|
|
|
|
$80,429
|
|
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$74,547
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1 Total Loans includes mortgages and other loans.
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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.
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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.
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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.
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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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Source: Discover Financial Services
Discover Financial Services
Investors:
Bill
Franklin, 224-405-1902
[email protected]
or
Media:
Jon
Drummond, 224-405-1888
[email protected]