RIVERWOODS, Ill.--(BUSINESS WIRE)--
Discover Financial Services (NYSE: DFS) today reported net income of
$616 million or $1.47 per diluted share for the second quarter of 2016,
as compared to $599 million or $1.33 per diluted share for the second
quarter of 2015. Net income included a non-recurring tax benefit of $44
million which contributed $0.11 to diluted earnings per share.
Second Quarter Highlights
-
Total loans grew $2.9 billion, or 4%, from the prior year to $71.9
billion.
-
Credit card loans grew $2.3 billion, or 4%, to $57.2 billion and
Discover card sales volume increased 2% from the prior year.
-
Total net charge-off rate excluding PCI loans increased 11 basis
points from the prior year to 2.27% and the total delinquency rate
over 30 days past due excluding PCI loans increased 11 basis points
from the prior year to 1.60%.
-
Direct to consumer and affinity deposits grew $4.6 billion, or 16%,
from the prior year to $34.1 billion.
-
Payment Services transaction dollar volume for the segment was $44.8
billion, down 6% from the prior year.
-
Income tax expense includes a one-time benefit of $44 million related
to the resolution of certain tax matters.
“During the second quarter, we achieved loan growth within our target
range and delivered strong profitability,” said David Nelms, chairman
and CEO of Discover. “We also announced plans to increase our dividend
and share repurchases, which we expect will result in one of the highest
total yields among CCAR banks over the next four quarters.”
Segment Results:
Direct Banking
Direct Banking pretax income of $868 million in the quarter decreased
$46 million from the prior year as higher net interest income and lower
operating expenses were offset by higher provision for loan losses and
lower other income.
Total loans ended the quarter at $71.9 billion, up 4% compared to the
prior year. Credit card loans ended the quarter at $57.2 billion, up 4%
from the prior year. Personal loans increased $525 million, or 10%, from
the prior year. Relative to the prior year, private student loans
increased $205 million, or 2%, and grew $752 million, or 15%, excluding
purchased student loans.
Net interest income increased $115 million, or 7%, from the prior year,
driven by loan growth and higher net interest margin. Net interest
margin was 9.95%, up 32 basis points from the prior year. Card yield was
12.42%, an increase of 38 basis points from the prior year due to
portfolio mix and the prime rate increase. Interest expense as a percent
of total loans increased 9 basis points from the prior year primarily
due to higher market rates and funding mix.
Other income decreased $72 million, or 15%, from the prior year driven
primarily by increased promotional rewards and the lack of mortgage
origination revenue, as the prior year included $28 million in income
related to the now discontinued mortgage operation. In addition,
protection products revenue was lower by $9 million.
The delinquency rate for credit card loans over 30 days past due was
1.63%, up 8 basis points from the prior year and down 5 basis points
from the prior quarter. Credit card net charge-off rate for the second
quarter was 2.39%, up 11 basis points from the prior year and 5 basis
points from the prior quarter. The personal loans net charge-off rate of
2.38% increased by 28 basis points from the prior year. The student loan
net charge-off rate excluding purchased credit-impaired ("PCI") loans
was 1.10%, up 8 basis points from the prior year.
Provision for loan losses of $411 million increased $105 million from
the prior year primarily due to a reserve build. The reserve build for
the second quarter of 2016 was $27 million, driven primarily by loan
growth, while the second quarter of 2015 included a $41 million reserve
release.
Expenses decreased $16 million, or 2%, from the prior year mostly driven
by the closure of the mortgage origination business, partially offset by
higher regulatory and compliance costs. The prior year included $62
million in expenses related to the mortgage origination business that
was subsequently closed. Employee compensation increased mostly due to
higher staffing levels driven in part by regulatory and compliance
activities as well as higher salaries. Professional fees were slightly
lower than the prior year, primarily due to a $7 million decrease in
look back related anti-money laundering remediation expenses to $12
million.
Payment Services
Payment Services pretax income was $30 million in the quarter, up $2
million from the prior year as lower revenues were more than offset by
expense reductions.
Payment Services transaction dollar volume was $44.8 billion, down 6%
from the prior year. PULSE transaction dollar volume was down 9%
year-over-year due to the loss of volume from a large debit issuer.
Diners Club International volume was up $0.4 billion, or 6%, from the
prior year driven by growth in Asia.
Share Repurchases
During the second quarter of 2016, the company repurchased approximately
7.8 million shares of common stock for $425 million. Shares of common
stock outstanding declined by 1.9% 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 19, 2016, at 4:00 p.m. Central time. Interested
parties can listen to the conference call via a live audio webcast at https://investorrelations.discover.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 private
student loans, personal loans, home equity loans, checking and savings
accounts and certificates of deposit 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 (https://investorrelations.discover.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 card acceptance across its networks and
maintain relationships with network participants; the company's ability
to sustain and grow its non-card products; difficulty obtaining
regulatory approval for, financing, closing, transitioning, integrating
or managing the expenses of acquisitions of or investments in new
businesses, products or technologies; the company's ability to manage
its credit risk, market risk, liquidity risk, operational risk,
compliance and legal 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 remain organizationally effective; the
company's ability to increase or sustain Discover card usage or attract
new customers; the company's ability to maintain relationships with
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; 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, 2015 and
"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, 2016, 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
|
|
(unaudited, in millions, except per share statistics)
|
|
|
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Quarter Ended
|
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|
|
Jun 30,
|
|
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Mar 31,
|
|
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Jun 30,
|
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|
|
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2016
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2016
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2015
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EARNINGS SUMMARY
|
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|
|
|
|
|
|
|
|
Interest Income
|
|
|
$2,090
|
|
|
$2,084
|
|
|
$1,947
|
|
Interest Expense
|
|
|
339
|
|
|
334
|
|
|
311
|
|
Net Interest Income
|
|
|
1,751
|
|
|
1,750
|
|
|
1,636
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount/Interchange Revenue
|
|
|
636
|
|
|
565
|
|
|
612
|
|
Rewards Cost
|
|
|
371
|
|
|
292
|
|
|
314
|
|
Discount and Interchange Revenue, net
|
|
|
265
|
|
|
273
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|
|
298
|
|
Protection Products Revenue
|
|
|
59
|
|
|
61
|
|
|
68
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Loan Fee Income
|
|
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79
|
|
|
80
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|
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80
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Transaction Processing Revenue
|
|
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39
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|
36
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40
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Other Income
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23
|
|
|
24
|
|
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53
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Total Other Income
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465
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474
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539
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|
|
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|
|
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Revenue Net of Interest Expense
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2,216
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2,224
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2,175
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|
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|
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Provision for Loan Losses
|
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412
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|
424
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306
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|
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|
|
|
|
|
|
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Employee Compensation and Benefits
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340
|
|
|
345
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|
326
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Marketing and Business Development
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198
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|
162
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|
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199
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Information Processing & Communications
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89
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|
88
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|
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90
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Professional Fees
|
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150
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|
160
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|
153
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Premises and Equipment
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23
|
|
|
24
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|
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23
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Other Expense
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106
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|
|
107
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|
|
136
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Total Other Expense
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906
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886
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927
|
|
|
|
|
|
|
|
|
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Income Before Income Taxes
|
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898
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|
914
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|
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942
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Tax Expense
|
|
|
282
|
|
|
339
|
|
|
343
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Net Income
|
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$616
|
|
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$575
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$599
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|
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|
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Net Income Allocated to Common Stockholders
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$602
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|
|
$562
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$586
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|
|
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PER SHARE STATISTICS
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Basic EPS
|
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$1.47
|
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$1.35
|
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$1.33
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Diluted EPS
|
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$1.47
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|
|
$1.35
|
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$1.33
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Common Stock Price (period end)
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$53.59
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$50.92
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$57.62
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Book Value per share
|
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$28.03
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$27.32
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$25.75
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SEGMENT- INCOME BEFORE INCOME TAXES
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Direct Banking
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$868
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$882
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$914
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Payment Services
|
|
|
30
|
|
|
32
|
|
|
28
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Total
|
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$898
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|
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$914
|
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$942
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BALANCE SHEET SUMMARY
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Total Assets
|
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$87,511
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$88,093
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$84,773
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Total Liabilities
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76,114
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76,777
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73,510
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Total Equity
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11,397
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11,316
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11,263
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Total Liabilities and Stockholders' Equity
|
|
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$87,511
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|
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$88,093
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$84,773
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TOTAL LOAN RECEIVABLES
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Ending Loans 1, 2
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$71,924
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$70,320
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$69,028
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Average Loans 1, 2
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$70,810
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$70,837
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$68,100
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Interest Yield
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11.72%
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11.69%
|
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11.35%
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Gross Principal Charge-off Rate
|
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2.87%
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2.80%
|
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2.76%
|
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Gross Principal Charge-off Rate excluding PCI Loans 3
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2.99%
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2.92%
|
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2.91%
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Net Principal Charge-off Rate
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2.18%
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2.11%
|
|
|
2.05%
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Net Principal Charge-off Rate excluding PCI Loans 3
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2.27%
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2.21%
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2.16%
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Delinquency Rate (over 30 days) excluding PCI Loans 3
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1.60%
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1.64%
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1.49%
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Delinquency Rate (over 90 days) excluding PCI Loans 3
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0.71%
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0.79%
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0.69%
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Gross Principal Charge-off Dollars
|
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$505
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$493
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|
|
$469
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Net Principal Charge-off Dollars
|
|
|
$384
|
|
|
$372
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|
|
$347
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Net Interest and Fee Charge-off Dollars
|
|
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$84
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|
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$86
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|
|
$87
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Loans Delinquent Over 30 Days 3
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$1,104
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|
$1,105
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|
$980
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Loans Delinquent Over 90 Days 3
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$491
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$531
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$450
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|
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|
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|
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Allowance for Loan Loss (period end)
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$1,949
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|
|
$1,921
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|
|
$1,735
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Change in Loan Loss Reserves
|
|
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$28
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|
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$52
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($41)
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Reserve Rate
|
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2.71%
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2.73%
|
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2.51%
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Reserve Rate excluding PCI Loans 3
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2.77%
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2.80%
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2.60%
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CREDIT CARD LOANS
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Ending Loans
|
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|
$57,219
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$55,620
|
|
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$54,949
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Average Loans
|
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$56,124
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$56,124
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|
$53,987
|
|
|
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|
|
|
|
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Interest Yield
|
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12.42%
|
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12.42%
|
|
|
12.04%
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Gross Principal Charge-off Rate
|
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|
3.21%
|
|
|
3.15%
|
|
|
3.14%
|
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Net Principal Charge-off Rate
|
|
|
2.39%
|
|
|
2.34%
|
|
|
2.28%
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Delinquency Rate (over 30 days)
|
|
|
1.63%
|
|
|
1.68%
|
|
|
1.55%
|
|
Delinquency Rate (over 90 days)
|
|
|
0.78%
|
|
|
0.86%
|
|
|
0.75%
|
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Gross Principal Charge-off Dollars
|
|
|
$448
|
|
|
$439
|
|
|
$423
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Net Principal Charge-off Dollars
|
|
|
$334
|
|
|
$326
|
|
|
$307
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Loans Delinquent Over 30 Days
|
|
|
$933
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|
|
$934
|
|
|
$850
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Loans Delinquent Over 90 Days
|
|
|
$444
|
|
|
$480
|
|
|
$414
|
|
|
|
|
|
|
|
|
|
|
|
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Allowance for Loan Loss (period end)
|
|
|
$1,603
|
|
|
$1,590
|
|
|
$1,441
|
|
Change in Loan Loss Reserves
|
|
|
$13
|
|
|
$36
|
|
|
($51)
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Reserve Rate
|
|
|
2.80%
|
|
|
2.86%
|
|
|
2.62%
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Discover Card Volume
|
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|
$33,409
|
|
|
$30,004
|
|
|
$32,299
|
|
Discover Card Sales Volume
|
|
|
$30,702
|
|
|
$27,552
|
|
|
$30,017
|
|
Rewards Rate
|
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|
1.21%
|
|
|
1.06%
|
|
|
1.05%
|
|
|
|
|
|
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|
|
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NETWORK VOLUME
|
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|
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PULSE Network
|
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|
$33,856
|
|
|
$34,680
|
|
|
$37,162
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|
Network Partners
|
|
|
3,713
|
|
|
3,572
|
|
|
3,536
|
|
Diners Club International 4
|
|
|
7,198
|
|
|
6,738
|
|
|
6,773
|
|
Total Payment Services
|
|
|
44,767
|
|
|
44,990
|
|
|
47,471
|
|
Discover Network - Proprietary
|
|
|
31,780
|
|
|
28,576
|
|
|
31,084
|
|
Total
|
|
|
$76,547
|
|
|
$73,566
|
|
|
$78,555
|
|
|
|
|
|
|
|
|
|
|
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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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View source version on businesswire.com: http://www.businesswire.com/news/home/20160719006509/en/
Source: Discover Financial Services