RIVERWOODS, Ill.--(BUSINESS WIRE)--Jan. 23, 2014--
Discover Financial Services (NYSE: DFS) today reported net income of
$602 million or $1.23 per diluted share for the fourth quarter of 2013,
as compared to $539 million or $1.06 per diluted share for the fourth
quarter of 2012. The company's return on equity for the fourth quarter
of 2013 was 22%.
Fourth Quarter Highlights
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Revenue net of interest expense was up $113 million, or 6%, from the
prior year to $2.1 billion.
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Total loans grew $3.2 billion, or 5%, from the prior year to $65.8
billion.
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Credit card loans grew $2.0 billion, or 4%, to $53.1 billion and
Discover card sales volume increased 3% from the prior year.
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Net charge-off rate for credit card loans increased 4 basis points
from the prior quarter to 2.09% and delinquencies over 30 days past
due increased 5 basis points from the prior quarter to 1.72%.
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Payment Services pretax income was down $6 million from the prior year
to $26 million. Transaction dollar volume for the segment was $49.8
billion, down 1% from the prior year.
"The fourth quarter concluded a strong year for Discover, with record
net income for 2013," said David Nelms, chairman and CEO of Discover.
"Last year, we grew our card receivables faster than the industry and
further established ourselves as a leading direct bank and payments
company through expanded product offerings and new payments
partnerships."
Segment Results:
Direct Banking
Direct Banking pretax income of $911 million in the quarter was up $100
million, or 12%, from the prior year.
Total loans ended the quarter at $65.7 billion, up 5% compared to the
prior year. Credit card loans ended the quarter at $53.1 billion, up 4%
from the prior year. Private student loans increased $374 million, or
5%, from the prior year and personal loans increased $895 million, or
27%, from the prior year.
Revenue net of interest expense increased $115 million, up 6% from the
prior year due to loan growth and net interest margin expansion.
Net interest income increased $141 million, or 10%, from the prior year,
benefiting from loan growth, lower interest expense and higher loan
yield. Net interest margin was 9.82%, up 42 basis points from the prior
year. The increase in net interest margin from the prior year reflects
decreased funding costs and higher loan yield. Credit card yield was
12.08%, an increase of 6 basis points from the prior year. The increase
in credit card yield from the prior year reflects lower interest
charge-offs and a modestly higher portion of customers revolving
balances. Interest expense as a percent of total loans decreased 34
basis points from the prior year as the company continued to take
advantage of available low rate funding.
Other income decreased $26 million, or 5%, from the prior year due to
lower direct mortgage related income.
The delinquency rate for credit card loans over 30 days past due was
1.72%, an improvement of 7 basis points from the prior year, and an
increase of 5 basis points from the prior quarter. Credit card net
charge-off rate for the fourth quarter was 2.09%, down 22 basis points
from the prior year and up 4 basis points from the prior quarter. The
student loan net charge-off rate excluding PCI loans was 1.41%, up 41
basis points from the prior year and 8 basis points from the prior
quarter due to a larger portion of the portfolio entering repayment.
Strong growth in personal loans resulted in the net charge-off rate
decreasing by 47 basis points from the prior year and 1 basis point from
the prior quarter to 2.00%.
Provision for loan losses of $352 million decreased $18 million from the
prior year, driven by lower charge-offs and lower reserve additions. The
reserve addition for the fourth quarter of 2013 was $48 million. The
accounting treatment for higher expected losses on a portion of the PCI
student loans contributed $28 million to the reserve additions in the
quarter.
Expenses were up $33 million, or 4%, from the prior year primarily due
to higher information processing expense, increased headcount and higher
other expense, partially offset by lower professional fees.
Payment Services
Payment Services pretax income was $26 million in the quarter, down $6
million from the prior year. Revenue decreased $2 million from the prior
year primarily due to lower transaction processing revenue for PULSE.
Payment Services dollar volume was $49.8 billion for the fourth quarter
of 2013, down 1% from the prior year. PULSE transaction dollar volume
was flat year-over-year.
Dividends
The Board of Directors of the company declared a quarterly cash dividend
on its Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, in
the amount of $16.25 per share. The dividend equals $0.40625 per
depositary share, each representing 1/40th interest in a share of the
Series B Preferred Stock. The dividend will be payable on March 3, 2014,
to the holders of record at the close of business on February 14, 2014.
The Board of Directors also declared a quarterly cash dividend of $0.20
per share of common stock payable on February 20, 2014, to holders of
record at the close of business on February 6, 2014.
Share Repurchases
During the fourth quarter of 2013, the company repurchased approximately
7 million shares of common stock for $345 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 fourth quarter
results on Thursday, January 23, 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 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).
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DISCOVER FINANCIAL SERVICES
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(unaudited, in millions, except per share statistics)
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Quarter Ended
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Dec 31, 2013
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Sep 30, 2013
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Dec 31, 2012
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EARNINGS SUMMARY
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Interest Income
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$1,842
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$1,787
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$1,740
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Interest Expense
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273
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278
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312
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Net Interest Income
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1,569
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1,509
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1,428
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Discount/Interchange Revenue
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574
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550
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559
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Rewards Cost
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295
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274
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318
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Discount and Interchange Revenue, net
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279
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276
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241
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Protection Products Revenue
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84
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90
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98
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Loan Fee Income
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85
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78
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83
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Transaction Processing Revenue
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46
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46
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55
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Other Income
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66
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63
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111
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Total Other Income
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560
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553
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588
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Revenue Net of Interest Expense
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2,129
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2,062
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2,016
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Provision for Loan Losses
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354
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333
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370
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Employee Compensation and Benefits
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297
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292
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280
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Marketing and Business Development
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189
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174
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187
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Information Processing & Communications
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89
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81
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77
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Professional Fees
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108
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97
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115
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Premises and Equipment
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22
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21
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22
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Other Expense
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133
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118
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122
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Total Other Expense
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838
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783
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803
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Income Before Income Taxes
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937
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946
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843
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Tax Expense
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335
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353
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304
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Net Income
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$602
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$593
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$539
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Net Income Allocated to Common Stockholders
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$588
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$579
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$530
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PER SHARE STATISTICS
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Basic EPS
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$1.24
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$1.20
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$1.06
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Diluted EPS
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$1.23
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$1.20
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$1.06
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Common Stock Price (period end)
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$55.95
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$50.54
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$38.55
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Book Value per share
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$22.89
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$22.14
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$19.83
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SEGMENT- INCOME BEFORE INCOME TAXES
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Direct Banking
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$911
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$918
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$811
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Payment Services
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26
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28
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32
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Total
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$937
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$946
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$843
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BALANCE SHEET SUMMARY
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Total Assets
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$79,340
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$75,544
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$73,491
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Total Liabilities
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68,531
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64,942
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63,618
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Total Equity
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10,809
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10,602
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9,873
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Total Liabilities and Stockholders' Equity
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$79,340
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$75,544
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$73,491
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TOTAL LOAN RECEIVABLES
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Ending Loans 1, 2
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$65,771
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$62,738
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$62,598
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Average Loans 1, 2
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$63,443
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$62,110
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$60,477
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Interest Yield
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11.38%
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11.29%
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11.29%
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Gross Principal Charge Off Rate
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2.63%
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2.66%
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2.93%
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Gross Principal Charge-off Rate excluding PCI Loans 3
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2.82%
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2.86%
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3.19%
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Net Principal Charge-off Rate
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1.90%
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1.86%
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2.06%
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Net Principal Charge-off Rate excluding PCI Loans 3
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2.03%
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2.00%
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2.24%
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Delinquency Rate (over 30 days) excluding PCI Loans 3
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1.64%
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1.60%
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1.69%
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Delinquency Rate (over 90 days) excluding PCI Loans 3
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0.77%
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0.72%
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0.82%
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Gross Principal Charge-off Dollars
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$421
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$416
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$446
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Net Principal Charge-off Dollars
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$304
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$291
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$313
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Net Interest and Fee Charge-off Dollars
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$82
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$79
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$90
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Loans Delinquent Over 30 Days 3
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$1,010
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$933
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$981
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Loans Delinquent Over 90 Days 3
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$475
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$421
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$478
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Allowance for Loan Loss (period end)
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$1,648
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$1,598
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$1,788
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Change in Loan Loss Reserves
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$50
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$42
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$57
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Reserve Rate
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2.51%
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2.55%
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2.86%
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Reserve Rate Excluding PCI Loans 3
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2.63%
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2.73%
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3.09%
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CREDIT CARD LOANS
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Ending Loans
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$53,150
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$50,360
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$51,135
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Average Loans
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$50,957
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$50,017
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$49,173
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Interest Yield
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12.08%
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12.00%
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12.02%
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Gross Principal Charge Off Rate
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2.98%
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3.02%
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3.37%
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Net Principal Charge-off Rate
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2.09%
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2.05%
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2.31%
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Delinquency Rate (over 30 days)
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1.72%
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1.67%
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1.79%
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Delinquency Rate (over 90 days)
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0.84%
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0.78%
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0.90%
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Gross Principal Charge-off Dollars
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$384
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$381
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$417
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Net Principal Charge-off Dollars
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$269
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$258
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$286
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Loans Delinquent Over 30 Days
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$912
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$843
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$917
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Loans Delinquent Over 90 Days
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$447
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$395
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$460
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Allowance for Loan Loss (period end)
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$1,406
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$1,393
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$1,613
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Change in Loan Loss Reserves
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$13
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$33
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$48
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Reserve Rate
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2.65%
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2.77%
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3.15%
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Total Discover Card Volume
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$31,755
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$30,275
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$31,085
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Discover Card Sales Volume
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$29,530
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$27,989
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$28,728
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NETWORK VOLUME
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PULSE Network
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$40,368
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$39,458
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$40,441
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Network Partners
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2,613
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2,507
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2,456
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Diners Club International 4
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6,826
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6,549
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7,204
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Total Payment Services
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49,807
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48,514
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50,101
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Discover Network - Proprietary
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30,622
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28,880
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29,746
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Total
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$80,429
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$77,394
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$79,847
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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]