UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): January 27, 2016
DISCOVER FINANCIAL SERVICES
(Exact name of registrant as specified in its charter)
Commission File Number: 001-33378
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Delaware | | 36-2517428 |
(State or other jurisdiction of incorporation) | | (IRS Employer Identification No.) |
2500 Lake Cook Road, Riverwoods, Illinois 60015
(Address of principal executive offices, including zip code)
(224) 405-0900
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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o | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
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o | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
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o | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
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o | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Item 2.02. Results of Operations and Financial Condition.
On January 27, 2016, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended December 31, 2015. Copies of the press release, financial data supplement and financial results presentation containing this information are attached hereto as exhibits and incorporated herein by reference.
The information contained in Exhibit 99.1 and Exhibit 99.2 shall be deemed to be “filed” for purposes of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The information contained in Exhibit 99.3 is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be “filed” for purposes of Section 18 of the Exchange Act, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits
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Exhibit No. | | Description |
99.1 | | Press Release of the Company dated January 27, 2016 containing financial information for the quarter ended December 31, 2015 |
99.2 | | Financial Data Supplement of the Company for the quarter and year ended December 31, 2015 |
99.3 | | Financial Results Presentation of the Company for the quarter ended December 31, 2015 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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| | DISCOVER FINANCIAL SERVICES |
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Dated: January 27, 2016 | | By: | | /s/ D. Christopher Greene |
| | | | Name: D. Christopher Greene |
| | | | Title: Vice President, Deputy General Counsel and Assistant Secretary |
EXHIBIT INDEX
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Exhibit No. | | Description |
99.1 | | Press Release of the Company dated January 27, 2016 containing financial information for the quarter ended December 31, 2015 |
99.2 | | Financial Data Supplement of the Company for the quarter and year ended December 31, 2015 |
99.3 | | Financial Results Presentation of the Company for the quarter ended December 31, 2015 |
DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER NET INCOME OF $500 MILLION
OR $1.14 PER DILUTED SHARE
Riverwoods, IL, January 27, 2016 - Discover Financial Services (NYSE: DFS) today reported net income of $500 million or $1.14 per diluted share for the fourth quarter of 2015, as compared to $404 million or $0.87 per diluted share for the fourth quarter of 2014. The company's return on equity for the fourth quarter of 2015 was 18%.
Fourth Quarter Highlights
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• | Total loans grew $2.4 billion, or 3.5%, from the prior year to $72.4 billion. |
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• | Credit card loans grew $1.8 billion, or 3.1%, to $57.9 billion and Discover card sales volume increased 2.6% from the prior year or approximately 5% excluding gas purchases. |
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• | Total net charge-off rate excluding PCI loans decreased 7 basis points from the prior year to 2.11% and the total delinquency rate excluding PCI loans over 30 days past due increased 1 basis point from the prior year to 1.67%. |
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• | Reserve build was $126 million in the quarter, up $24 million from the prior year. |
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• | Payment Services transaction dollar volume for the segment was $45.9 billion, down 10% from the prior year. |
"We once again delivered a solid return on equity in the fourth quarter. While we achieved record annual originations in both Student Loans and Personal Loans, card loan growth was at the low end of our target range, slower than we'd like," said David Nelms, chairman and CEO of Discover. "We are taking steps to accelerate card loan growth in 2016 while staying disciplined on credit and continuing to execute on our Payments strategy."
Segment Results:
Direct Banking
Direct Banking pretax income of $767 million in the quarter increased $121 million, or 19%, from the prior year. The prior year results included two one-time items: a $178 million one-time charge related to the elimination of the credit card rewards forfeiture reserve and a $27 million charge related to a goodwill impairment associated with the Discover Home Loans unit that was subsequently closed.
Total loans ended the quarter at $72.4 billion, up 3.5% compared to the prior year. Credit card loans ended the quarter at $57.9 billion, up 3.1% from the prior year. Personal loans increased $483 million, or 9.6%, from the prior year and private student loans increased $253 million, or 3.0%, from the prior year. Excluding purchased student loans, private student loans grew $797 million, or 16.4%, from the prior year.
Net interest income increased $60 million, or 4%, from the prior year, driven by loan growth. Net interest margin was 9.75%, down 2 basis points from the prior year. Total yield was 11.60%, an increase of 7 basis points from the prior year primarily due to card portfolio mix. Interest expense as a percent of total loans increased 8 basis points from the prior year due to funding mix and higher rates.
Other income increased $122 million, or 43%, from the prior year despite the run-off in mortgage origination income and lower protection products revenue as the prior year other income included the one-time charge related to the elimination of the credit card rewards forfeiture reserve.
The delinquency rate for credit card loans over 30 days past due was 1.72%, down 1 basis point from the prior year and up 7 basis points from the prior quarter. Credit card net charge-off rate for the fourth quarter was 2.18%, down 8 basis points from the prior year and up 14 basis points from the prior quarter. The student loan net charge-off rate excluding purchased credit-impaired ("PCI") loans was 1.30%, down 10 basis points from the prior year. The personal loans net charge-off rate of 2.28% increased by 8 basis points from the prior year.
Provision for loan losses of $486 million increased $32 million from the prior year primarily due to a larger reserve build. The reserve build for the fourth quarter of 2015 was $128 million, versus a $101 million reserve build in the prior year.
Expenses increased $29 million, or 3%, from the prior year mostly driven by higher regulatory and compliance costs. Professional fees increased primarily due to $37 million in look back related anti-money laundering remediation expenses.
Employee compensation increased in part due to increased staffing driven in part by regulatory and compliance activities. The prior year expenses included the goodwill impairment charge related to the Discover Home Loans unit that was subsequently closed.
Payment Services
Payment Services pretax income was $21 million in the quarter, up $19 million from the prior year as the prior year included a $21 million charge from a fair value adjustment related to Diners Club Italy being classified as held-for-sale.
Payment Services transaction dollar volume was $45.9 billion, down 10% from the prior year. PULSE transaction dollar volume was down 14% year-over-year due to the loss of volume from a large debit issuer. Network Partners volume was up $1.0 billion, or 45%, from the prior year driven by AribaPay volume.
Share Repurchases
During the fourth quarter of 2015, the company repurchased approximately 8 million shares of common stock for $435 million. Shares of common stock outstanding declined by 1.8% from the prior quarter.
Conference Call and Webcast Information
The company will host a conference call to discuss its fourth quarter results on Wednesday, January 27, 2016, 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 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.
Contacts:
Investors:
Bill Franklin, 224-405-1902
williamfranklin@discover.com
Media:
Jon Drummond, 224-405-1888
jondrummond@discover.com
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 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, 2014 and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 2015, June 30, 2015 and September 30, 2015, 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 | | | | | | Exhibit 99.2 | | |
EARNINGS SUMMARY | | | | | | | | |
(unaudited, in millions, except per share statistics) | | | | | | | | |
| Quarter Ended | | | | | | Twelve Months Ended | | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | | Dec 31, 2015 | | Dec 31, 2014 | | 2015 vs. 2014 | |
EARNINGS SUMMARY | | | | | | | |
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Interest Income |
| $2,061 |
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| $2,008 |
| |
| $1,947 |
| |
| $1,929 |
| |
| $1,974 |
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| $87 |
| | 4 | % | |
| $7,945 |
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| $7,596 |
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| $349 |
| 5 | % | |
Interest Expense | 329 |
| | 323 |
| | 311 |
| | 300 |
| | 302 |
| | 27 |
| | 9 | % | | 1,263 |
| | 1,134 |
| | 129 |
| 11 | % | |
Net Interest Income | 1,732 |
| | 1,685 |
| | 1,636 |
| | 1,629 |
| | 1,672 |
| | 60 |
| | 4 | % | | 6,682 |
| | 6,462 |
| | 220 |
| 3 | % | |
Discount/Interchange Revenue | 635 |
| | 614 |
| | 612 |
| | 536 |
| | 620 |
| | 15 |
| | 2 | % | | 2,397 |
| | 2,333 |
| | 64 |
| 3 | % | |
Rewards Cost | 372 |
| | 326 |
| | 314 |
| | 268 |
| | 517 |
| | (145 | ) | | (28 | %) | | 1,280 |
| | 1,354 |
| | (74 | ) | (5 | %) | |
Discount and Interchange Revenue, net | 263 |
| | 288 |
| | 298 |
| | 268 |
| | 103 |
| | 160 |
| | 155 | % | | 1,117 |
| | 979 |
| | 138 |
| 14 | % | |
Protection Products Revenue | 60 |
| | 62 |
| | 68 |
| | 71 |
| | 75 |
| | (15 | ) | | (20 | %) | | 261 |
| | 314 |
| | (53 | ) | (17 | %) | |
Loan Fee Income | 87 |
| | 87 |
| | 80 |
| | 81 |
| | 86 |
| | 1 |
| | 1 | % | | 335 |
| | 334 |
| | 1 |
| 0 | % | |
Transaction Processing Revenue | 38 |
| | 39 |
| | 40 |
| | 42 |
| | 46 |
| | (8 | ) | | (17 | %) | | 159 |
| | 182 |
| | (23 | ) | (13 | %) | |
Other Income | 25 |
| | 27 |
| | 53 |
| | 80 |
| | 55 |
| | (30 | ) | | (55 | %) | | 185 |
| | 206 |
| | (21 | ) | (10 | %) | |
Total Other Income | 473 |
| | 503 |
| | 539 |
| | 542 |
| | 365 |
| | 108 |
| | 30 | % | | 2,057 |
| | 2,015 |
| | 42 |
| 2 | % | |
| | | | | | | | | | | | | | | | | | | | | |
Revenue Net of Interest Expense | 2,205 |
| | 2,188 |
| | 2,175 |
| | 2,171 |
| | 2,037 |
| | 168 |
| | 8 | % | | 8,739 |
| | 8,477 |
| | 262 |
| 3 | % | |
| | | | | | | | | | | | | | | | | | | | | |
Provision for Loan Losses | 484 |
| | 332 |
| | 306 |
| | 390 |
| | 457 |
| | 27 |
| | 6 | % | | 1,512 |
| | 1,443 |
| | 69 |
| 5 | % | |
| | | | | | | | | | | | | | | | | | | | | |
Employee Compensation and Benefits | 333 |
| | 337 |
| | 326 |
| | 331 |
| | 314 |
| | 19 |
| | 6 | % | | 1,327 |
| | 1,242 |
| | 85 |
| 7 | % | |
Marketing and Business Development | 196 |
| | 168 |
| | 199 |
| | 182 |
| | 216 |
| | (20 | ) | | (9 | %) | | 745 |
| | 735 |
| | 10 |
| 1 | % | |
Information Processing & Communications | 87 |
| | 84 |
| | 90 |
| | 88 |
| | 88 |
| | (1 | ) | | (1 | %) | | 349 |
| | 346 |
| | 3 |
| 1 | % | |
Professional Fees | 170 |
| | 160 |
| | 153 |
| | 127 |
| | 128 |
| | 42 |
| | 33 | % | | 610 |
| | 450 |
| | 160 |
| 36 | % | |
Premises and Equipment | 24 |
| | 24 |
| | 23 |
| | 24 |
| | 24 |
| | 0 |
| | 0 | % | | 95 |
| | 92 |
| | 3 |
| 3 | % | |
Other Expense | 123 |
| | 109 |
| | 136 |
| | 121 |
| | 162 |
| | (39 | ) | | (24 | %) | | 489 |
| | 475 |
| | 14 |
| 3 | % | |
Total Other Expense | 933 |
| | 882 |
| | 927 |
| | 873 |
| | 932 |
| | 1 |
| | — | % | | 3,615 |
| | 3,340 |
| | 275 |
| 8 | % | |
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Income Before Income Taxes | 788 |
| | 974 |
| | 942 |
| | 908 |
| | 648 |
| | 140 |
| | 22 | % | | 3,612 |
| | 3,694 |
| | (82 | ) | (2 | %) | |
Tax Expense | 288 |
| | 362 |
| | 343 |
| | 322 |
| | 244 |
| | 44 |
| | 18 | % | | 1,315 |
| | 1,371 |
| | (56 | ) | (4 | %) | |
Net Income |
| $500 |
| |
| $612 |
| |
| $599 |
| |
| $586 |
| |
| $404 |
| |
| $96 |
| | 24 | % | |
| $2,297 |
| |
| $2,323 |
| |
| ($26 | ) | (1 | %) | |
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Net Income Allocated to Common Stockholders |
| $488 |
| |
| $599 |
| |
| $586 |
| |
| $573 |
| |
| $392 |
| |
| $96 |
| | 24 | % | |
| $2,246 |
| |
| $2,270 |
| |
| ($24 | ) | (1 | %) | |
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Effective Tax Rate | 36.5 | % | | 37.2 | % | | 36.4 | % | | 35.5 | % | | 37.7 | % | | | | | | 36.4 | % | | 37.1 | % | | | | |
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Net Interest Margin | 9.75 | % | | 9.62 | % | | 9.63 | % | | 9.69 | % | | 9.76 | % | | (1 | ) | | bps | | 9.68 | % | | 9.81 | % | | (13 | ) | bps | |
Operating Efficiency | 42.3 | % | | 40.3 | % | | 42.6 | % | | 40.2 | % | | 45.8 | % | | (345 | ) | | bps | | 41.4 | % | | 39.4 | % | | 200 |
| bps | |
ROE | 18 | % | | 22 | % | | 21 | % | | 21 | % | | 14 | % | | | | | | 21 | % | | 21 | % | | | | |
| | | | | | | | | | | | | | | | | | | | | |
Ending Common Shares Outstanding | 422 |
| | 430 |
| | 437 |
| | 445 |
| | 449 |
| | (27 | ) | | (6 | %) | | 422 |
| | 449 |
| | (27 | ) | (6 | %) | |
Weighted Average Common Shares Outstanding | 426 |
| | 433 |
| | 441 |
| | 448 |
| | 452 |
| | (26 | ) | | (6 | %) | | 437 |
| | 462 |
| | (25 | ) | (5 | %) | |
Weighted Average Common Shares Outstanding (fully diluted) | 426 |
| | 434 |
| | 442 |
| | 448 |
| | 453 |
| | (27 | ) | | (6 | %) | | 438 |
| | 463 |
| | (25 | ) | (5 | %) | |
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PER SHARE STATISTICS | |
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Basic EPS |
| $1.15 |
| |
| $1.38 |
| |
| $1.33 |
| |
| $1.28 |
| |
| $0.87 |
| |
| $0.28 |
| | 32 | % | |
| $5.14 |
| |
| $4.91 |
| |
| $0.23 |
| 5 | % | |
Diluted EPS |
| $1.14 |
| |
| $1.38 |
| |
| $1.33 |
| |
| $1.28 |
| |
| $0.87 |
| |
| $0.27 |
| | 31 | % | |
| $5.13 |
| |
| $4.90 |
| |
| $0.23 |
| 5 | % | |
Common Stock Price (period end) |
| $53.62 |
| |
| $51.99 |
| |
| $57.62 |
| |
| $56.35 |
| |
| $65.49 |
| |
| ($11.87 | ) | | (18 | %) | |
| $53.62 |
| |
| $65.49 |
| |
| ($11.87 | ) | (18 | %) | |
Book Value per share |
| $26.74 |
| |
| $26.32 |
| |
| $25.75 |
| |
| $25.22 |
| |
| $24.79 |
| |
| $1.95 |
| | 8 | % | |
| $26.74 |
| |
| $24.79 |
| |
| $1.95 |
| 8 | % | |
| | | | | | | | | | | | | | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | |
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DISCOVER FINANCIAL SERVICES | | | | | | | |
EARNINGS SUMMARY | | | | | | | |
(unaudited, in millions) | | | | | | | |
| Quarter Ended | | | | | | Twelve Months Ended | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | | Dec 31, 2015 | | Dec 31, 2014 | | 2015 vs. 2014 |
SEGMENT- INCOME BEFORE INCOME TAXES | | | | | | | | | | | | | | | | | | | | |
Direct Banking |
| $767 |
| |
| $950 |
| |
| $914 |
| |
| $881 |
| |
| $646 |
| |
| $121 |
| | 19 | % | |
| $3,512 |
| |
| $3,605 |
| |
| ($93 | ) | (3 | %) |
Payment Services | 21 |
| | 24 |
| | 28 |
| | 27 |
| | 2 |
| | 19 |
| | NM |
| | 100 |
| | 89 |
| | 11 |
| 12 | % |
Total |
| $788 |
| |
| $974 |
| |
| $942 |
| |
| $908 |
| |
| $648 |
| |
| $140 |
| | 22 | % | |
| $3,612 |
| |
| $3,694 |
| |
| ($82 | ) | (2 | %) |
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TRANSACTIONS PROCESSED ON NETWORKS | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Discover Network | 546 |
| | 519 |
| | 512 |
| | 456 |
| | 523 |
| | 23 |
| | 4 | % | | 2,033 |
| | 2,020 |
| | 13 |
| 1 | % |
PULSE Network | 905 |
| | 972 |
| | 989 |
| | 1,024 |
| | 1,085 |
| | (180 | ) | | (17 | %) | | 3,890 |
| | 4,283 |
| | (393 | ) | (9 | %) |
Total | 1,451 |
| | 1,491 |
| | 1,501 |
| | 1,480 |
| | 1,608 |
| | (157 | ) | | (10 | %) | | 5,923 |
| | 6,303 |
| | (380 | ) | (6 | %) |
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NETWORK VOLUME | |
| | |
| | |
| | |
| | |
| | |
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PULSE Network |
| $35,902 |
| |
| $36,267 |
| |
| $37,162 |
| |
| $40,814 |
| |
| $41,788 |
| |
| ($5,886 | ) | | (14 | %) | |
| $150,145 |
| |
| $165,851 |
| |
| ($15,706 | ) | (9 | %) |
Network Partners | 3,274 |
| | 3,206 |
| | 3,536 |
| | 2,949 |
| | 2,263 |
| | 1,011 |
| | 45 | % | | 12,965 |
| | 9,446 |
| | 3,519 |
| 37 | % |
Diners Club International 1 | 6,760 |
| | 6,560 |
| | 6,773 |
| | 6,474 |
| | 6,933 |
| | (173 | ) | | (2 | %) | | 26,567 |
| | 26,970 |
| | (403 | ) | (1 | %) |
Total Payment Services | 45,936 |
| | 46,033 |
| | 47,471 |
| | 50,237 |
| | 50,984 |
| | (5,048 | ) | | (10 | %) | | 189,677 |
| | 202,267 |
| | (12,590 | ) | (6 | %) |
Discover Network - Proprietary | 32,910 |
| | 31,408 |
| | 31,084 |
| | 27,324 |
| | 32,005 |
| | 905 |
| | 3 | % | | 122,726 |
| | 119,471 |
| | 3,255 |
| 3 | % |
Total |
| $78,846 |
| |
| $77,441 |
| |
| $78,555 |
| |
| $77,561 |
| |
| $82,989 |
| |
| ($4,143 | ) | | (5 | %) | |
| $312,403 |
| |
| $321,738 |
| |
| ($9,335 | ) | (3 | %) |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
1 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 of Financial Terms for definitions of financial terms | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES | |
BALANCE SHEET SUMMARY | |
(unaudited, in millions) | |
| Quarter Ended | | | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | |
BALANCE SHEET SUMMARY | | | | | | | | | | | | | | |
Assets | | | | | | | | | | | | | | |
Cash and Investment Securities |
| $12,755 |
| |
| $13,650 |
| |
| $14,050 |
| |
| $14,701 |
| |
| $11,339 |
| |
| $1,416 |
| | 12 | % | |
Total Loan Receivables | 72,385 |
| | 70,078 |
| | 69,028 |
| | 67,648 |
| | 69,969 |
| | 2,416 |
| | 3 | % | |
Allowance for Loan Losses | (1,869 | ) | | (1,743 | ) | | (1,735 | ) | | (1,776 | ) | | (1,746 | ) | | (123 | ) | | (7 | %) | |
Net Loan Receivables | 70,516 |
| | 68,335 |
| | 67,293 |
| | 65,872 |
| | 68,223 |
| | 2,293 |
| | 3 | % | |
Premises and Equipment, net | 693 |
| | 684 |
| | 688 |
| | 678 |
| | 670 |
| | 23 |
| | 3 | % | |
Goodwill and Intangible Assets, net | 423 |
| | 424 |
| | 425 |
| | 432 |
| | 433 |
| | (10 | ) | | (2 | %) | |
Other Assets | 2,549 |
| | 2,518 |
| | 2,455 |
| | 2,495 |
| | 2,461 |
| | 88 |
| | 4 | % | |
Total Assets |
| $86,936 |
| |
| $85,611 |
| |
| $84,911 |
| |
| $84,178 |
| |
| $83,126 |
| |
| $3,810 |
| | 5 | % | |
| | | | | | | | | | | | | | |
Liabilities & Stockholders' Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Direct to Consumer and Affinity Deposits |
| $30,866 |
| |
| $29,801 |
| |
| $29,498 |
| |
| $29,303 |
| |
| $28,766 |
| |
| $2,100 |
| | 7 | % | |
Brokered Deposits and Other Deposits | 16,728 |
| | 16,804 |
| | 16,818 |
| | 17,124 |
| | 17,323 |
| | (595 | ) | | (3 | %) | |
Deposits | 47,594 |
| | 46,605 |
| | 46,316 |
| | 46,427 |
| | 46,089 |
| | 1,505 |
| | 3 | % | |
Borrowings | 24,724 |
| | 23,800 |
| | 24,243 |
| | 23,090 |
| | 22,657 |
| | 2,067 |
| | 9 | % | |
Accrued Expenses and Other Liabilities | 3,343 |
| | 3,903 |
| | 3,089 |
| | 3,450 |
| | 3,246 |
| | 97 |
| | 3 | % | |
Total Liabilities | 75,661 |
| | 74,308 |
| | 73,648 |
| | 72,967 |
| | 71,992 |
| | 3,669 |
| | 5 | % | |
Total Equity | 11,275 |
| | 11,303 |
| | 11,263 |
| | 11,211 |
| | 11,134 |
| | 141 |
| | 1 | % | |
Total Liabilities and Stockholders' Equity |
| $86,936 |
| |
| $85,611 |
| |
| $84,911 |
| |
| $84,178 |
| |
| $83,126 |
| |
| $3,810 |
| | 5 | % | |
| | | | | | | | | | | | | | |
LIQUIDITY | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Liquidity Portfolio |
| $12,077 |
| |
| $12,354 |
| |
| $12,781 |
| |
| $14,162 |
| |
| $10,752 |
| |
| $1,325 |
| | 12 | % | |
Undrawn Credit Facilities 1 | 30,682 |
| | 31,008 |
| | 25,029 |
| | 24,340 |
| | 23,524 |
| | 7,158 |
| | 30 | % | |
Total Liquidity |
| $42,759 |
| |
| $43,362 |
| |
| $37,810 |
| |
| $38,502 |
| |
| $34,276 |
| |
| $8,483 |
| | 25 | % | |
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
1 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio |
| | | | | | | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES | |
BALANCE SHEET STATISTICS | |
(unaudited, in millions) | |
| Quarter Ended | | | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | |
BALANCE SHEET STATISTICS | |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Total Common Equity |
| $10,715 |
| |
| $10,743 |
| |
| $10,703 |
| |
| $10,651 |
| |
| $10,574 |
| |
| $141 |
| | 1 | % | |
Total Common Equity/Total Assets | 12.3 | % | | 12.5 | % | | 12.6 | % | | 12.7 | % | | 12.7 | % | | | | | |
Total Common Equity/Net Loans | 15.2 | % | | 15.7 | % | | 15.9 | % | | 16.2 | % | | 15.5 | % | | | | | |
| | | | | | | | | | | | | | |
Tangible Assets |
| $86,513 |
| |
| $85,187 |
| |
| $84,486 |
| |
| $83,746 |
| |
| $82,693 |
| |
| $3,820 |
| | 5 | % | |
Tangible Common Equity 1 |
| $10,292 |
| |
| $10,319 |
| |
| $10,278 |
| |
| $10,219 |
| |
| $10,141 |
| |
| $151 |
| | 1 | % | |
Tangible Common Equity/Tangible Assets 1 | 11.9 | % | | 12.1 | % | | 12.2 | % | | 12.2 | % | | 12.3 | % | | | | | |
Tangible Common Equity/Net Loans 1 | 14.6 | % | | 15.1 | % | | 15.3 | % | | 15.5 | % | | 14.9 | % | | | | | |
Tangible Common Equity per share 1 |
| $24.41 |
| |
| $24.02 |
| |
| $23.50 |
| |
| $22.99 |
| |
| $22.58 |
| |
| $1.83 |
| | 8 | % | |
| | | | | | | | | | | | | | |
REGULATORY CAPITAL RATIOS | Basel III Transition | | Basel I | | |
| | |
| |
Total Risk Based Capital Ratio 2 | 16.5 | % | | 17.1 | % | | 17.2 | % | | 17.6 | % | | 17.0 | % | | |
| | |
| |
Tier 1 Risk Based Capital Ratio 2 | 14.7 | % | | 15.2 | % | | 15.3 | % | | 15.6 | % | | 14.9 | % | | |
| | |
| |
Tier 1 Common Capital Ratio 2,3 | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 14.1 | % | | |
| | |
| |
Tier 1 Leverage Ratio 2 | 12.9 | % | | 13.1 | % | | 13.2 | % | | 13.3 | % | | 13.2 | % | | | | | |
Common Equity Tier 1 Capital Ratio 2 | 13.9 | % | | 14.4 | % | | 14.5 | % | | 14.8 | % | | N/A |
| | |
| | |
| |
| Basel III Fully Phased-in | | | | | |
Common Equity Tier 1 Capital Ratio 4 | 13.9 | % | | 14.3 | % | | 14.4 | % | | 14.7 | % | | 14.1 | % | | | | | |
| | | | | | | | | | | | | | |
RATIO OF EARNINGS TO FIXED CHARGES | | | | | | | | | | | | | | |
Ratio of Earnings to Fixed Charges 5 | 3.9 |
| | 4.0 |
| | 4.0 |
| | 4.1 |
| | 4.3 |
| | | | | |
| | | | | | | | | | | | | | |
1 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule |
| | | | | | | | | | | | | | |
2 As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. The Company reported under Basel I at December 31, 2014 |
| | | | | | | | | | | | | | |
3 Tier 1 Common Capital Ratio (under Basel I) is calculated using tier 1 common capital, a non-GAAP measure. The Company believes the tier 1 common capital ratio is meaningful to investors to assess the quality and composition of the Company’s capital. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule |
| | | | | | | | | | | | | | |
4 Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule |
|
5 Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense |
| | | | | | | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES |
AVERAGE BALANCE SHEET |
(unaudited, in millions) |
| Quarter Ended | | |
| | |
|
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 |
AVERAGE BALANCES | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash and Investment Securities |
| $12,881 |
| |
| $12,609 |
| |
| $13,219 |
| |
| $12,148 |
| |
| $11,886 |
| |
| $995 |
| | 8 | % |
Restricted Cash | 529 |
| | 703 |
| | 686 |
| | 605 |
| | 242 |
| | 287 |
| | 119 | % |
Credit Card Loans | 56,050 |
| | 55,281 |
| | 53,987 |
| | 54,038 |
| | 54,169 |
| | 1,881 |
| | 3 | % |
Private Student Loans | 8,732 |
| | 8,580 |
| | 8,597 |
| | 8,721 |
| | 8,478 |
| | 254 |
| | 3 | % |
Personal Loans | 5,488 |
| | 5,307 |
| | 5,131 |
| | 5,047 |
| | 4,954 |
| | 534 |
| | 11 | % |
Other Loans | 233 |
| | 294 |
| | 385 |
| | 342 |
| | 329 |
| | (96 | ) | | (29 | %) |
Total Loans | 70,503 |
| | 69,462 |
| | 68,100 |
| | 68,148 |
| | 67,930 |
| | 2,573 |
| | 4 | % |
Total Interest Earning Assets | 83,913 |
| | 82,774 |
| | 82,005 |
| | 80,901 |
| | 80,058 |
| | 3,855 |
| | 5 | % |
Allowance for Loan Losses | (1,794 | ) | | (1,776 | ) | | (1,807 | ) | | (1,753 | ) | | (1,676 | ) | | (118 | ) | | (7 | %) |
Other Assets | 4,499 |
| | 4,474 |
| | 4,466 |
| | 4,439 |
| | 4,303 |
| | 196 |
| | 5 | % |
Total Assets |
| $86,618 |
| |
| $85,472 |
| |
| $84,664 |
| |
| $83,587 |
| |
| $82,685 |
| |
| $3,933 |
| | 5 | % |
| | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Direct to Consumer and Affinity Deposits |
| $30,126 |
| |
| $29,477 |
| |
| $29,194 |
| |
| $28,891 |
| |
| $28,828 |
| |
| $1,298 |
| | 5 | % |
Brokered Deposits and Other Deposits | 16,570 |
| | 16,923 |
| | 16,904 |
| | 17,096 |
| | 16,755 |
| | (185 | ) | | (1 | %) |
Total Interest-bearing Deposits | 46,696 |
| | 46,400 |
| | 46,098 |
| | 45,987 |
| | 45,583 |
| | 1,113 |
| | 2 | % |
Short-term Borrowings | — |
| | 60 |
| | 153 |
| | 126 |
| | 107 |
| | (107 | ) | | (100 | %) |
Securitized Borrowings | 16,658 |
| | 16,479 |
| | 17,351 |
| | 17,220 |
| | 17,219 |
| | (561 | ) | | (3 | %) |
Other Long-term Borrowings | 7,946 |
| | 7,446 |
| | 6,028 |
| | 5,307 |
| | 4,950 |
| | 2,996 |
| | 61 | % |
Total Interest-bearing Liabilities | 71,300 |
| | 70,385 |
| | 69,630 |
| | 68,640 |
| | 67,859 |
| | 3,441 |
| | 5 | % |
Other Liabilities & Stockholders' Equity | 15,318 |
| | 15,087 |
| | 15,034 |
| | 14,947 |
| | 14,826 |
| | 492 |
| | 3 | % |
Total Liabilities and Stockholders' Equity |
| $86,618 |
| |
| $85,472 |
| |
| $84,664 |
| |
| $83,587 |
| |
| $82,685 |
| |
| $3,933 |
| | 5 | % |
| | | | | | | | | | | | | |
AVERAGE RATES | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Assets | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Cash and Investment Securities | 0.61 | % | | 0.55 | % | | 0.59 | % | | 0.62 | % | | 0.72 | % | | (11 | ) | | bps |
Restricted Cash | 0.16 | % | | 0.15 | % | | 0.13 | % | | 0.11 | % | | 0.10 | % | | 6 |
| | bps |
Credit Card Loans | 12.20 | % | | 12.03 | % | | 12.04 | % | | 12.05 | % | | 12.08 | % | | 12 |
| | bps |
Private Student Loans | 6.88 | % | | 6.88 | % | | 6.91 | % | | 6.95 | % | | 6.85 | % | | 3 |
| | bps |
Personal Loans | 11.79 | % | | 12.08 | % | | 12.12 | % | | 12.19 | % | | 12.25 | % | | (46 | ) | | bps |
Other Loans | 4.88 | % | | 4.44 | % | | 4.62 | % | | 4.23 | % | | 3.78 | % | | 110 |
| | bps |
Total Loans | 11.49 | % | | 11.37 | % | | 11.35 | % | | 11.37 | % | | 11.40 | % | | 9 |
| | bps |
Total Interest Earning Assets | 9.75 | % | | 9.62 | % | | 9.52 | % | | 9.67 | % | | 9.78 | % | | (3 | ) | | bps |
| | | | | | | | | | | | | |
Liabilities and Stockholders' Equity | |
| | |
| | |
| | |
| | |
| | |
| | |
|
Direct to Consumer and Affinity Deposits | 1.21 | % | | 1.23 | % | | 1.23 | % | | 1.25 | % | | 1.26 | % | | (5 | ) | | bps |
Brokered Deposits and Other Deposits | 1.59 | % | | 1.55 | % | | 1.55 | % | | 1.50 | % | | 1.53 | % | | 6 |
| | bps |
Total Interest-bearing Deposits | 1.35 | % | | 1.34 | % | | 1.35 | % | | 1.34 | % | | 1.36 | % | | (1 | ) | | bps |
Short-term Borrowings | — | % | | 1.49 | % | | 1.37 | % | | 1.43 | % | | 1.54 | % | | (154 | ) | | bps |
Securitized Borrowings | 1.99 | % | | 1.98 | % | | 1.91 | % | | 1.89 | % | | 1.88 | % | | 11 |
| | bps |
Other Long-term Borrowings | 4.30 | % | | 4.42 | % | | 4.90 | % | | 5.11 | % | | 5.09 | % | | (79 | ) | | bps |
Total Interest-bearing Liabilities | 1.83 | % | | 1.82 | % | | 1.80 | % | | 1.77 | % | | 1.77 | % | | 6 |
| | bps |
| | | | | | | | | | | | | |
Net Interest Margin | 9.75 | % | | 9.62 | % | | 9.63 | % | | 9.69 | % | | 9.76 | % | | (1 | ) | | bps |
Net Yield on Interest-earning Assets | 8.19 | % | | 8.08 | % | | 8.00 | % | | 8.17 | % | | 8.28 | % | | (9 | ) | | bps |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES | | | | | | | |
LOAN STATISTICS | | | | | | | |
(unaudited, in millions) | | | | | | | |
| Quarter Ended | | |
| | |
| | Twelve Months Ended | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | | Dec 31, 2015 | | Dec 31, 2014 | | 2015 vs. 2014 |
TOTAL LOAN RECEIVABLES | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Ending Loans 1, 2 |
| $72,385 |
| |
| $70,078 |
| |
| $69,028 |
| |
| $67,648 |
| |
| $69,969 |
| |
| $2,416 |
| | 3 | % | |
| $72,385 |
| |
| $69,969 |
| |
| $2,416 |
| 3 | % |
Average Loans 1, 2 |
| $70,503 |
| |
| $69,462 |
| |
| $68,100 |
| |
| $68,148 |
| |
| $67,930 |
| |
| $2,573 |
| | 4 | % | |
| $69,061 |
| |
| $65,853 |
| |
| $3,208 |
| 5 | % |
| | | | | | | | | | | | | | | | | | | | |
Interest Yield | 11.49 | % | | 11.37 | % | | 11.35 | % | | 11.37 | % | | 11.40 | % | | 9 |
| | bps | | 11.40 | % | | 11.40 | % | | — |
| bps |
Gross Principal Charge-off Rate | 2.65 | % | | 2.51 | % | | 2.76 | % | | 2.82 | % | | 2.70 | % | | (5 | ) | | bps | | 2.69 | % | | 2.74 | % | | (5 | ) | bps |
Gross Principal Charge-off Rate excluding PCI Loans 3 | 2.78 | % | | 2.64 | % | | 2.91 | % | | 2.98 | % | | 2.86 | % | | (8 | ) | | bps | | 2.82 | % | | 2.91 | % | | (9 | ) | bps |
Net Principal Charge-off Rate | 2.02 | % | | 1.85 | % | | 2.05 | % | | 2.14 | % | | 2.06 | % | | (4 | ) | | bps | | 2.01 | % | | 2.04 | % | | (3 | ) | bps |
Net Principal Charge-off Rate excluding PCI Loans 3 | 2.11 | % | | 1.94 | % | | 2.16 | % | | 2.26 | % | | 2.18 | % | | (7 | ) | | bps | | 2.12 | % | | 2.17 | % | | (5 | ) | bps |
Delinquency Rate (over 30 days) excluding PCI Loans 3 | 1.67 | % | | 1.60 | % | | 1.49 | % | | 1.57 | % | | 1.66 | % | | 1 |
| | bps | | 1.67 | % | | 1.66 | % | | 1 |
| bps |
Delinquency Rate (over 90 days) excluding PCI Loans 3 | 0.76 | % | | 0.72 | % | | 0.69 | % | | 0.78 | % | | 0.78 | % | | (2 | ) | | bps | | 0.76 | % | | 0.78 | % | | (2 | ) | bps |
Gross Principal Charge-off Dollars |
| $472 |
| |
| $440 |
| |
| $469 |
| |
| $474 |
| |
| $463 |
| |
| $9 |
| | 2 | % | |
| $1,855 |
| |
| $1,806 |
| |
| $49 |
| 3 | % |
Net Principal Charge-off Dollars |
| $358 |
| |
| $324 |
| |
| $347 |
| |
| $360 |
| |
| $355 |
| |
| $3 |
| | 1 | % | |
| $1,389 |
| |
| $1,345 |
| |
| $44 |
| 3 | % |
Net Interest and Fee Charge-off Dollars |
| $86 |
| |
| $81 |
| |
| $87 |
| |
| $95 |
| |
| $91 |
| |
| ($5 | ) | | (5 | %) | |
| $349 |
| |
| $352 |
| |
| ($2 | ) | (1 | %) |
Loans Delinquent Over 30 Days 3 |
| $1,153 |
| |
| $1,070 |
| |
| $980 |
| |
| $1,006 |
| |
| $1,100 |
| |
| $53 |
| | 5 | % | |
| $1,153 |
| |
| $1,100 |
| |
| $53 |
| 5 | % |
Loans Delinquent Over 90 Days 3 |
| $530 |
| |
| $481 |
| |
| $450 |
| |
| $500 |
| |
| $517 |
| |
| $13 |
| | 3 | % | |
| $530 |
| |
| $517 |
| |
| $13 |
| 3 | % |
| | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Loss (period end) |
| $1,869 |
| |
| $1,743 |
| |
| $1,735 |
| |
| $1,776 |
| |
| $1,746 |
| |
| $123 |
| | 7 | % | |
| $1,869 |
| |
| $1,746 |
| |
| $123 |
| 7 | % |
Change in Loan Loss Reserves |
| $126 |
| |
| $8 |
| |
| ($41 | ) | |
| $30 |
| |
| $102 |
| |
| $24 |
| | 24 | % | |
| $123 |
| |
| $98 |
| |
| $25 |
| 26 | % |
Reserve Rate | 2.58 | % | | 2.49 | % | | 2.51 | % | | 2.63 | % | | 2.50 | % | | 8 |
| | bps | | 2.58 | % | | 2.50 | % | | 8 |
| bps |
Reserve Rate Excluding PCI Loans 3 | 2.65 | % | | 2.57 | % | | 2.60 | % | | 2.72 | % | | 2.59 | % | | 6 |
| | bps | | 2.65 | % | | 2.59 | % | | 6 |
| bps |
| | | | | | | | | | | | | | | | | | | | |
CREDIT CARD LOANS | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Ending Loans |
| $57,896 |
| |
| $55,655 |
| |
| $54,949 |
| |
| $53,499 |
| |
| $56,128 |
| |
| $1,768 |
| | 3 | % | |
| $57,896 |
| |
| $56,128 |
| |
| $1,768 |
| 3 | % |
Average Loans |
| $56,050 |
| |
| $55,281 |
| |
| $53,987 |
| |
| $54,038 |
| |
| $54,169 |
| |
| $1,881 |
| | 3 | % | |
| $54,846 |
| |
| $52,600 |
| |
| $2,246 |
| 4 | % |
| | | | | | | | | | | | | | | | | | | | |
Interest Yield | 12.20 | % | | 12.03 | % | | 12.04 | % | | 12.05 | % | | 12.08 | % | | 12 |
| | bps | | 12.08 | % | | 12.09 | % | | (1 | ) | bps |
Gross Principal Charge-off Rate | 2.94 | % | | 2.83 | % | | 3.14 | % | | 3.21 | % | | 3.03 | % | | (9 | ) | | bps | | 3.03 | % | | 3.11 | % | | (8 | ) | bps |
Net Principal Charge-off Rate | 2.18 | % | | 2.04 | % | | 2.28 | % | | 2.40 | % | | 2.26 | % | | (8 | ) | | bps | | 2.22 | % | | 2.27 | % | | (5 | ) | bps |
Delinquency Rate (over 30 days) | 1.72 | % | | 1.65 | % | | 1.55 | % | | 1.64 | % | | 1.73 | % | | (1 | ) | | bps | | 1.72 | % | | 1.73 | % | | (1 | ) | bps |
Delinquency Rate (over 90 days) | 0.85 | % | | 0.78 | % | | 0.75 | % | | 0.86 | % | | 0.85 | % | | — |
| | bps | | 0.85 | % | | 0.85 | % | | — |
| bps |
Gross Principal Charge-off Dollars |
| $415 |
| |
| $394 |
| |
| $423 |
| |
| $428 |
| |
| $413 |
| |
| $2 |
| | 0 | % | |
| $1,660 |
| |
| $1,636 |
| |
| $24 |
| 1 | % |
Net Principal Charge-off Dollars |
| $309 |
| |
| $285 |
| |
| $307 |
| |
| $319 |
| |
| $309 |
| |
| $— |
| | 0 | % | |
| $1,220 |
| |
| $1,191 |
| |
| $29 |
| 2 | % |
Loans Delinquent Over 30 Days |
| $995 |
| |
| $919 |
| |
| $850 |
| |
| $879 |
| |
| $971 |
| |
| $24 |
| | 2 | % | |
| $995 |
| |
| $971 |
| |
| $24 |
| 2 | % |
Loans Delinquent Over 90 Days |
| $490 |
| |
| $437 |
| |
| $414 |
| |
| $458 |
| |
| $480 |
| |
| $10 |
| | 2 | % | |
| $490 |
| |
| $480 |
| |
| $10 |
| 2 | % |
| | | | | | | | | | | | | | | | | | | | |
Allowance for Loan Loss (period end) |
| $1,554 |
| |
| $1,459 |
| |
| $1,441 |
| |
| $1,492 |
| |
| $1,474 |
| |
| $80 |
| | 5 | % | |
| $1,554 |
| |
| $1,474 |
| |
| $80 |
| 5 | % |
Change in Loan Loss Reserves |
| $95 |
| |
| $18 |
| |
| ($51 | ) | |
| $18 |
| |
| $86 |
| |
| $9 |
| | 10 | % | |
| $80 |
| |
| $68 |
| |
| $12 |
| 18 | % |
Reserve Rate | 2.68 | % | | 2.62 | % | | 2.62 | % | | 2.79 | % | | 2.63 | % | | 5 |
| | bps | | 2.68 | % | | 2.63 | % | | 5 |
| bps |
| | | | | | | | | | | | | | | | | | | | |
Total Discover Card Volume |
| $33,830 |
| |
| $32,971 |
| |
| $32,299 |
| |
| $28,725 |
| |
| $33,211 |
| |
| $619 |
| | 2 | % | |
| $127,825 |
| |
| $125,111 |
| |
| $2,714 |
| 2 | % |
Discover Card Sales Volume |
| $31,672 |
| |
| $30,374 |
| |
| $30,017 |
| |
| $26,379 |
| |
| $30,871 |
| |
| $801 |
| | 3 | % | |
| $118,442 |
| |
| $115,518 |
| |
| $2,924 |
| 3 | % |
Rewards Rate | 1.18 | % | | 1.07 | % | | 1.05 | % | | 1.02 | % | | 1.67 | % | | (49 | ) | | bps | | 1.08 | % | | 1.17 | % | | (9 | ) | bps |
1 Total Loans includes mortgages and other loans |
| | | | | | | |
2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables | | | | | | | |
| | | | | | | |
3 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing | | | | | | | |
| | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES | | | | | | | |
LOAN STATISTICS | | | | | | | |
(unaudited, in millions) | | | | | | | |
| Quarter Ended | | |
| | |
| | Twelve Months Ended | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | | Dec 31, 2015 | | Dec 31, 2014 | | 2015 vs. 2014 |
PRIVATE STUDENT LOANS | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Ending Loans |
| $8,763 |
| |
| $8,769 |
| |
| $8,520 |
| |
| $8,696 |
| |
| $8,510 |
| |
| $253 |
| | 3 | % | |
| $8,763 |
| |
| $8,510 |
| |
| $253 |
| 3 | % |
Ending PCI Loans 1 |
| $3,116 |
| |
| $3,249 |
| |
| $3,381 |
| |
| $3,519 |
| |
| $3,660 |
| |
| ($544 | ) | | (15 | %) | |
| $3,116 |
| |
| $3,660 |
| |
| ($544 | ) | (15 | %) |
| | | | | | | | | | | | | | | | | | | | |
Interest Yield | 6.88 | % | | 6.88 | % | | 6.91 | % | | 6.95 | % | | 6.85 | % | | 3 |
| | bps | | 6.90 | % | | 6.84 | % | | 6 |
| bps |
Net Principal Charge-off Rate | 0.82 | % | | 0.57 | % | | 0.61 | % | | 0.61 | % | | 0.79 | % | | 3 |
| | bps | | 0.65 | % | | 0.69 | % | | (4 | ) | bps |
Net Principal Charge-off Rate excluding PCI Loans 2 | 1.30 | % | | 0.94 | % | | 1.02 | % | | 1.03 | % | | 1.40 | % | | (10 | ) | | bps | | 1.07 | % | | 1.29 | % | | (22 | ) | bps |
Delinquency Rate (over 30 days) excluding PCI Loans 2 | 1.91 | % | | 1.88 | % | | 1.78 | % | | 1.66 | % | | 1.80 | % | | 11 |
| | bps | | 1.91 | % | | 1.80 | % | | 11 |
| bps |
| | | | | | | | | | | | | | | | | | | | |
Reserve Rate | 1.63 | % | | 1.48 | % | | 1.68 | % | | 1.63 | % | | 1.59 | % | | 4 |
| | bps | | 1.63 | % | | 1.59 | % | | 4 |
| bps |
Reserve Rate excluding PCI Loans 2 | 1.88 | % | | 1.84 | % | | 2.23 | % | | 2.18 | % | | 2.20 | % | | (32 | ) | | bps | | 1.88 | % | | 2.20 | % | | (32 | ) | bps |
| | | | | | | | | | | | | | | | | | | | |
PERSONAL LOANS | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Ending Loans |
| $5,490 |
| |
| $5,425 |
| |
| $5,183 |
| |
| $5,065 |
| |
| $5,007 |
| |
| $483 |
| | 10 | % | |
| $5,490 |
| |
| $5,007 |
| |
| $483 |
| 10 | % |
| | | | | | | | | | | | | | | | | | | | |
Interest Yield | 11.79 | % | | 12.08 | % | | 12.12 | % | | 12.19 | % | | 12.25 | % | | (46 | ) | | bps | | 12.04 | % | | 12.36 | % | | (32 | ) | bps |
Net Principal Charge-off Rate | 2.28 | % | | 1.99 | % | | 2.10 | % | | 2.22 | % | | 2.20 | % | | 8 |
| | bps | | 2.15 | % | | 2.04 | % | | 11 |
| bps |
Delinquency Rate (over 30 days) | 0.89 | % | | 0.80 | % | | 0.71 | % | | 0.76 | % | | 0.79 | % | | 10 |
| | bps | | 0.89 | % | | 0.79 | % | | 10 |
| bps |
| | | | | | | | | | | | | | | | | | | | |
Reserve Rate | 2.82 | % | | 2.49 | % | | 2.54 | % | | 2.43 | % | | 2.40 | % | | 42 |
| | bps | | 2.82 | % | | 2.40 | % | | 42 |
| bps |
| | | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | |
1 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 | | | | | | | |
| | | | | | | |
2 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 | | | | | | | |
| | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES | | | | | | | |
SEGMENT RESULTS | | | | | | | |
(unaudited, in millions) | | | | | | | |
| Quarter Ended | | | | | | Twelve Months Ended | | | |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 | | Dec 31, 2015 vs. Dec 31, 2014 | | Dec 31, 2015 | | Dec 31, 2014 | | 2015 vs. 2014 |
DIRECT BANKING | | | | | | | | | | | | | | | | | | | | |
Interest Income |
| $2,061 |
| |
| $2,008 |
| |
| $1,947 |
| |
| $1,929 |
| |
| $1,974 |
| |
| $87 |
| | 4 | % | |
| $7,945 |
| |
| $7,596 |
| |
| $349 |
| 5 | % |
Interest Expense | 329 |
| | 323 |
| | 311 |
| | 300 |
| | 302 |
| | 27 |
| | 9 | % | | 1,263 |
| | 1,134 |
| | 129 |
| 11 | % |
Net Interest Income | 1,732 |
| | 1,685 |
| | 1,636 |
| | 1,629 |
| | 1,672 |
| | 60 |
| | 4 | % | | 6,682 |
| | 6,462 |
| | 220 |
| 3 | % |
Other Income | 408 |
| | 435 |
| | 468 |
| | 468 |
| | 286 |
| | 122 |
| | 43 | % | | 1,779 |
| | 1,700 |
| | 79 |
| 5 | % |
Revenue Net of Interest Expense | 2,140 |
| | 2,120 |
| | 2,104 |
| | 2,097 |
| | 1,958 |
| | 182 |
| | 9 | % | | 8,461 |
| | 8,162 |
| | 299 |
| 4 | % |
Provision for Loan Losses | 486 |
| | 332 |
| | 306 |
| | 388 |
| | 454 |
| | 32 |
| | 7 | % | | 1,512 |
| | 1,440 |
| | 72 |
| 5 | % |
Total Other Expense | 887 |
| | 838 |
| | 884 |
| | 828 |
| | 858 |
| | 29 |
| | 3 | % | | 3,437 |
| | 3,117 |
| | 320 |
| 10 | % |
Income Before Income Taxes |
| $767 |
| |
| $950 |
| |
| $914 |
| |
| $881 |
| |
| $646 |
| |
| $121 |
| | 19 | % | |
| $3,512 |
| |
| $3,605 |
| |
| ($93 | ) | (3 | %) |
| | | | | | | | | | | | | | | | | | | | |
Net Interest Margin | 9.75 | % | | 9.63 | % | | 9.63 | % | | 9.70 | % | | 9.77 | % | | (2 | ) | | bps | | 9.68 | % | | 9.82 | % | | (14 | ) | bps |
Pretax Return on Loan Receivables | 4.32 | % | | 5.43 | % | | 5.38 | % | | 5.24 | % | | 3.78 | % | | 54 |
| | bps | | 5.09 | % | | 5.48 | % | | (39 | ) | bps |
| | | | | | | | | | | | | | | | | | | | |
PAYMENT SERVICES | |
| | |
| | |
| | |
| | |
| | |
| | |
| | | | | | | |
Interest Income |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| |
| $— |
| | NM |
| |
| $— |
| |
| $— |
| |
| $— |
| NM |
|
Interest Expense | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | NM |
| | — |
| | — |
| | — |
| NM |
|
Net Interest Income | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | NM |
| | — |
| | — |
| | — |
| NM |
|
Other Income | 65 |
| | 68 |
| | 71 |
| | 74 |
| | 79 |
| | (14 | ) | | (18 | %) | | 278 |
| | 315 |
| | (37 | ) | (12 | %) |
Revenue Net of Interest Expense | 65 |
| | 68 |
| | 71 |
| | 74 |
| | 79 |
| | (14 | ) | | (18 | %) | | 278 |
| | 315 |
| | (37 | ) | (12 | %) |
Provision for Loan Losses | (2 | ) | | — |
| | — |
| | 2 |
| | 3 |
| | (5 | ) | | (167%) |
| | — |
| | 3 |
| | (3 | ) | (100 | %) |
Total Other Expense | 46 |
| | 44 |
| | 43 |
| | 45 |
| | 74 |
| | (28 | ) | | (38 | %) | | 178 |
| | 223 |
| | (45 | ) | (20 | %) |
Income Before Income Taxes |
| $21 |
| |
| $24 |
| |
| $28 |
| |
| $27 |
| |
| $2 |
| |
| $19 |
| | NM |
| |
| $100 |
| |
| $89 |
| |
| $11 |
| 12 | % |
| | | | | | | | | | | | | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | |
| | |
| | |
| | |
| | |
| | | | | | | |
|
|
DISCOVER FINANCIAL SERVICES |
GLOSSARY OF FINANCIAL TERMS |
|
Book Value per share represents total equity divided by ending common shares outstanding |
|
Common Equity Tier 1 Capital Ratio (Basel III transition) represents common equity tier 1 capital divided by risk weighted assets calculated under Basel III rules subject to transition provisions |
|
Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) represents fully phased-in common equity tier 1 capital divided by risk weighted assets under fully phased-in Basel III rules. The Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule |
|
Delinquency Rate (Over 30 Days) represents loans delinquent over thirty days divided by ending loans (total or respective loans, as appropriate) |
|
Delinquency Rate (Over 90 Days) represents loans delinquent over ninety days divided |
|
Discover card sales volume represents Discover card activity related to net sales |
|
Discover card volume represents Discover card activity related to net sales, balance transfers, cash advances and other activity |
|
Discover Network proprietary volume represents gross proprietary sales volume on the Discover Network |
|
Delinquency Rate (Over 90 Days) represents loans delinquent over ninety days divided by ending loans (total or respective loans, as appropriate) |
|
Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding |
|
Effective Tax Rate represents tax expense divided by income before income taxes |
|
Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period |
|
Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period |
|
Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments |
|
Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities |
|
Net Interest Margin represents net interest income (annualized) divided by average total loans for the period. |
|
Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period |
|
Operating Efficiency represents total other expense divided by revenue net of interest expense |
|
Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period |
|
Proprietary Network Volume represents gross proprietary sales volume on the Discover Network |
|
Ratio of Earnings to Fixed Charges represents income before income tax expense and fixed charges divided by fixed charges for the reporting period. Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense for the reporting period |
|
Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. Under Basel I, to be considered "well-capitalized," total risk-based, tier 1 risk-based, and tier 1 leverage ratios of 10%, 6% and 5% respectively must be maintained. Under Basel III, to be considered "well-capitalized," total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 10%, 8%, 5%, and 6.5% respectively must be maintained. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Prior to January 1, 2015 regulatory capital ratios are calculated under Basel I. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III. Tier 1 Common Capital Ratio calculated under Basel I represents tier 1 common capital, a non-GAAP measure, divided by risk-weighted assets. For corresponding reconciliation of tier 1 common capital (Basel I) to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule |
|
Reserve Rate represents the allowance for loan losses divided by total loans |
|
Return on Equity represents net income (annualized) divided by average total equity for the reporting period |
|
Rewards Rate represents rewards cost divided by Discover Card sales volume |
|
Tangible Assets represents total assets less goodwill and intangibles |
|
Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule |
|
Tangible Common Equity/Net Loans, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end) |
|
Tangible Common Equity per Share, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding |
|
Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles |
|
Total Volume represents the transaction dollar volume from the PULSE network, Network Partners, Diners Club and proprietary Discover Network |
|
Undrawn Credit Facilities represents asset-backed conduit funding facilities and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio) |
|
| | | | | | | | | | | | | | | | | | | |
DISCOVER FINANCIAL SERVICES |
RECONCILIATION OF GAAP TO NON-GAAP DATA |
(unaudited, in millions) |
| Quarter Ended |
| Dec 31, 2015 | | Sep 30, 2015 | | Jun 30, 2015 | | Mar 31, 2015 | | Dec 31, 2014 |
GAAP total common equity |
| $10,715 |
| |
| $10,743 |
| |
| $10,703 |
| |
| $10,651 |
| |
| $10,574 |
|
Less: Goodwill | (255 | ) | | (255 | ) | | (255 | ) | | (257 | ) | | (257 | ) |
Less: Intangibles | (168 | ) | | (169 | ) | | (170 | ) | | (175 | ) | | (176 | ) |
Tangible common equity 1 |
| $10,292 |
| |
| $10,319 |
| |
| $10,278 |
| |
| $10,219 |
| |
| $10,141 |
|
Effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital | | |
|
| |
|
| |
|
| | 138 |
|
Total tier 1 common capital (Basel I) 2 |
|
| |
|
| |
|
| |
|
| |
| $10,279 |
|
Add: Adjustments related to capital components 3 |
|
| |
|
| |
|
| |
|
| | 26 |
|
Common equity Tier 1 capital (Basel III fully phased-in) |
| |
|
| |
|
| |
|
| |
| $10,305 |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Common equity Tier 1 capital (Basel III transition) |
| $10,566 |
| |
| $10,612 |
| |
| $10,552 |
| |
| $10,497 |
| | |
Adjustments related to capital components during transition 4 | (82 | ) | | (82 | ) | | (83 | ) | | (87 | ) | | |
Common equity Tier 1 capital (Basel III fully phased-in) |
| $10,484 |
| |
| $10,530 |
| |
| $10,469 |
| |
| $10,410 |
| | |
| | | | | | | | | |
Risk weighted assets (Basel I) | N/A |
| | N/A |
| | N/A |
| | N/A |
| |
| $72,889 |
|
Risk weighted assets (Basel III transition) |
| $75,787 |
| |
| $73,526 |
| |
| $72,658 |
| |
| $70,868 |
| | N/A |
|
Risk weighted assets (Basel III fully phased-in) 5 |
| $75,685 |
| |
| $73,423 |
| |
| $72,555 |
| |
| $70,762 |
| |
| $73,315 |
|
|
|
| |
|
| |
|
| |
|
| |
|
|
Tier 1 common capital ratio (Basel I) 6,7 | N/A |
| | N/A |
| | N/A |
| | N/A |
| | 14.1 | % |
Common equity Tier 1 capital ratio (Basel III transition) 6 | 13.9 | % | | 14.4 | % | | 14.5 | % | | 14.8 | % | | N/A |
|
Common equity Tier 1 capital ratio (Basel III fully phased-in) 6,8 | 13.9 | % | | 14.3 | % | | 14.4 | % | | 14.7 | % | | 14.1 | % |
| | | | | | | | | |
GAAP book value per share |
| $26.74 |
| |
| $26.32 |
| |
| $25.75 |
| |
| $25.22 |
| |
| $24.79 |
|
Less: Goodwill | (0.60 | ) | | (0.60 | ) | | (0.58 | ) | | (0.58 | ) | | (0.57 | ) |
Less: Intangibles | (0.40 | ) | | (0.40 | ) | | (0.39 | ) | | (0.39 | ) | | (0.39 | ) |
Less: Preferred Stock | (1.33 | ) | | (1.30 | ) | | (1.28 | ) | | (1.26 | ) | | (1.25 | ) |
Tangible common equity per share |
| $24.41 |
| |
| $24.02 |
| |
| $23.50 |
| |
| $22.99 |
| |
| $22.58 |
|
| | | | | | | | | |
1 Tangible common equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles. A reconciliation of TCE to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use TCE and definitions may vary, so users of this information are advised to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the Company |
|
2 Tier 1 common capital (under Basel I), a non-GAAP financial measure, represents common equity and the effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital, less goodwill and intangibles. A reconciliation of tier 1 common capital to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use tier 1 common capital and definitions may vary, so users of this information are advised to exercise caution in comparing tier 1 common capital of different companies. Tier 1 common capital is included to support the tier 1 common capital ratio which is meaningful to investors to assess the quality and composition of the Company’s capital |
| | | | | | | | | |
3 Adjustments related to capital components for fully phased-in Basel III include deferred tax liabilities related to intangible assets and deduction for deferred tax assets |
| | | | | | | | | |
4 Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion |
| | | | | | | | | |
5 Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets include higher risk weighting for past due loans and unfunded commitments |
| | | | | | | | | |
6 As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. The Company reported under Basel I at December 31, 2014 |
| | | | | | | | | |
7 Tier 1 common capital ratio is calculated using tier 1 common capital (Basel I), a non-GAAP measure, divided by risk weighted assets (Basel I) |
| | | | | | | | | |
8 Common equity tier 1 capital ratio (Basel III fully phased-in) is calculated using common equity tier 1 capital (Basel III fully phased-in), a non-GAAP measure, divided by risk weighted assets (Basel III fully phased-in) |
| | | | | | | | | |
Note: See Glossary of Financial Terms for definitions of financial terms | | | | | | | | | |
January 27, 2016 ©2016 DISCOVER FINANCIAL SERVICES 4Q15 Financial Results Exhibit 99.3
Notice The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as well as information regarding business and segment trends, see the earnings release and financial supplement included as exhibits to the Company’s Current Report on Form 8-K filed today and available on the Company’s website (www.discover.com) and the SEC’s website (www.sec.gov). The information provided herein includes certain non-GAAP financial measures. The reconciliations of such measures to the comparable GAAP figures are included at the end of this presentation, which is available on the Company’s website and the SEC’s website. The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "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, 2014 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, 2015, June 30, 2015 and September 30, 2015, which are filed with the SEC and available at the SEC's website (www.sec.gov). The Company does not undertake to update or revise forward-looking statements as more information becomes available. 2
B / (W) ($MM, except per share data) 4Q15 4Q14 $ Δ % Δ Revenue Net of Interest Expense $2,205 $2,037 $168 8% Provision for Loan Losses 484 457 (27) (6%) Operating Expense 933 932 (1) —% Direct Banking 767 646 121 19% Payment Services 21 2 19 NM Total Pre-Tax Income 788 648 140 22% Pre-tax, Pre-Provision Income (1) 1,272 1,105 167 15% Income Tax Expense 288 244 (44) (18%) Net Income $500 $404 $96 24% Diluted EPS $1.14 $0.87 $0.27 31% ROE 18% 14% 4Q15 Summary Financial Results • Diluted EPS of $1.14, up 31% YOY • Revenue net of interest expense of $2.2Bn, up $168MM, but down $10MM excluding the 2014 charge for the elimination of the rewards redemption forfeiture reserve • Provision for loan losses increased $27MM, or 6% due to a larger reserve build versus the prior year • Expenses were relatively flat as the current period included higher professional fees related to regulatory and compliance costs and the prior year had one-time charges in other expenses 3 Note(s) 1. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company’s performance; see appendix for a reconciliation
4Q14 4Q15 80 70 60 50 40 30 20 10 0 $70.0 $56.1 $8.5 $5.0 $72.4 $57.9 $8.8 $5.5 4Q14 4Q15 50 40 30 20 10 0 $32.0 $41.8 $6.9 $2.3 $32.9 $35.9 $6.8 $3.3 4Q15 Loan and Volume Growth 4 Volume ($Bn)Ending Loans ($Bn) Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment Total +3.5% Card +3.1% Student +3.0% Personal +9.6% PULSE -14.1% Diners(1) -2.5% Network Partners +44.7% Proprietary +2.8% Total Network Volume down 5% YOY
B / (W) ($MM, except per share data) 2015 2014 $ Δ % Δ Revenue Net of Interest Expense $8,739 $8,477 $262 3% Provision for Loan Losses 1,512 1,443 (69) (5%) Operating Expense 3,615 3,340 (275) (8%) Direct Banking 3,512 3,605 (93) (3%) Payment Services 100 89 11 12% Total Pre-Tax Income 3,612 3,694 (82) (2%) Pre-tax, Pre-Provision Income(1) 5,124 5,137 (13) —% Income Tax Expense 1,315 1,371 56 4% Net Income $2,297 $2,323 ($26) (1%) Diluted EPS $5.13 $4.90 $0.23 5% ROE 21% 21% 2015 Summary Financial Results • Revenue net of interest expense increased $262MM, or 3% • Provision for loan losses higher by $69MM, or 5% due to loan growth and seasoning • Expenses increased $275MM, or 8%, primarily due to higher professional fees and employee compensation related to AML/BSA remediation and other compliance enhancements • Diluted EPS of $5.13, up 5% YOY 5 Note(s) 1. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company’s performance; see appendix for a reconciliation
2015 Accomplishments • Generated solid loan growth with strong credit performance ◦ 3.5% growth YOY in ending total receivables ◦ 2.1% total net charge-off rate for 2015, down 5bps YOY(1) • Delivered record level of originations in direct consumer banking products ◦ $1.3Bn student loan originations and outstanding commitments ◦ $3.0Bn personal loan originations • Increased network acceptance and partners • Strong returns and significant capital deployment ◦ Full year return on equity of 21% ◦ Returned $2.1Bn in capital with a 94% payout ratio and repurchased 6% of our stock 6 Note(s) 1. Total net charge-off rate excluding PCI loans
Vision - to be the leading U.S. direct bank & payments partner 2016 Key Focus Areas: • Grow loans and revenue • Operating expense leverage • Leverage payments assets • Enhance controls and risk management • Optimize capital deployment 7
4Q15 Revenue Detail • Net interest income of $1.7Bn, up 4% YOY due primarily to loan growth • Discount and interchange revenue of $635MM, up 2% YOY driven primarily by an increase in card sales • Rewards rate increased 8bps YOY on an adjusted basis due to promotional activity Protection products revenue of $60MM, down 20% YOY due to the continuing impact from suspending new product sales in 4Q12 • Payment Services revenue was down primarily due to lower transaction processing revenue at Pulse and the sale of the Diners club Italy licensee Note(s) 1. Rewards cost divided by Discover card sales volume 2. 4Q14 rewards cost adjusted for one-time pre-tax rewards charge of $178 million related to cashback credit card rewards program changes which eliminated the forfeiture reserve; see appendix for a reconciliation. Management believes adjusted rewards rate, which is a non-GAAP measure, provides investors with a useful metric to evaluate the ongoing operating performance of the Company 8 B / (W) ($MM) 4Q15 4Q14 $ Δ % Δ Interest Income $2,061 $1,974 $87 4% Interest Expense 329 302 (27) (9%) Net Interest Income 1,732 1,672 60 4% Discount/Interchange Revenue 635 620 15 2% Rewards Cost 372 517 145 28% Net Discount/Interchange Revenue 263 103 160 155% Protection Products Revenue 60 75 (15) (20%) Loan Fee Income 87 86 1 1% Transaction Processing Revenue 38 46 (8) (17%) Other Income 25 55 (30) (55%) Total Non-Interest Income 473 365 108 30% Revenue Net of Interest Expense $2,205 $2,037 $168 8% Direct Banking $2,140 $1,958 $182 9% Payment Services 65 79 (14) (18%) Revenue Net of Interest Expense $2,205 $2,037 $168 8% Change ($MM) 4Q15 4Q14 QOQ YOY Discover Card Sales Volume $31,672 $30,871 4% 3% Rewards Rate(1) 1.18% 1.67% 11 bps -49 bps Adjusted Rewards Rate(2) 1.18% 1.10% 11 bps 8 bps
4Q15 Net Interest Margin 9 • Total interest yield of 11.49% increased 9bps YOY and credit card yield of 12.20% increased 12bps YOY • Personal loan yield of 11.79% declined 46bps, the majority of this decline was driven by a one-time adjustment(1) • Funding costs on interest-bearing liabilities increased 6bps YOY to 1.83% as a result of funding mix and higher rates • Net interest margin (NIM) on receivables decreased 1bp YOY due to higher funding costs Change (%) 4Q15 QOQ YOY Total Interest Yield 11.49% 12 bps 9 bps NIM on Receivables 9.75% 13 bps -1 bp NIM on Interest-Earning Assets 8.19% 11 bps -9 bps 4Q15 4Q14 ($MM) Average Balance Rate Average Balance Rate Credit Card $56,050 12.20% $54,169 12.08% Private Student 8,732 6.88% 8,478 6.85% Personal 5,488 11.79% 4,954 12.25% Other Loans 233 4.88% 329 3.78% Total Loans 70,503 11.49% 67,930 11.40% Other Interest-Earning Assets 13,410 0.59% 12,128 0.71% Total Interest-Earning Assets $83,913 9.75% $80,058 9.78% Direct to Consumer and Affinity $30,126 1.21% $28,828 1.26% Brokered Deposits and Other 16,570 1.59% 16,755 1.53% Interest Bearing Deposits 46,696 1.35% 45,583 1.36% Borrowings 24,604 2.73% 22,276 2.59% Total Interest-Bearing Liabilities $71,300 1.83% $67,859 1.77% Note(s) 1. Adjustment to the amortization of deferred loan origination cost
B / (W) ($MM) 4Q15 4Q14 $ Δ % Δ Employee Compensation and Benefits $333 $314 ($19) (6%) Marketing and Business Development 196 216 20 9% Information Processing & Communications 87 88 1 1% Professional Fees 170 128 (42) (33%) Premises and Equipment 24 24 0 0% Other Expense 123 162 39 24% Total Operating Expense $933 $932 ($1) —% Direct Banking $887 $858 ($29) (3%) Payment Services 46 74 28 38% Total Operating Expense $933 $932 ($1) —% Operating Efficiency (1) 42.3% 45.8% 345 bps Adjusted Operating Efficiency (2) 40.6% 39.9% -73 bps 4Q15 Operating Expense Detail 10 • Employee compensation and benefits of $333MM, up 6% YOY largely due to increased staffing in part driven by regulatory and compliance hiring • Marketing and business development expense of $196MM, down 9% YOY due to reduced promotional activities • Professional fees of $170MM, up 33% YOY primarily due to $37MM in look back related anti-money laundering remediation expenses as well as higher technology and compliance investments • Prior year other expense included $48MM in one-time charges related to Discover Home Loans and Diners Club Italy Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense 2. 4Q15 operating efficiency ratio adjusted for $37 million in look back related anti-money laundering remediation expenses. 4Q14 operating efficiency adjusted for $178 million cashback credit card rewards program changes which eliminated the forfeiture reserve, $27 million impairment of goodwill realized with the acquisition of the Discover Home Loans platform and a $21 million fair value adjustment resulting from classifying Diners Club Italy as held-for-sale; see appendix for a reconciliation. Management believes adjusted operating efficiency, which is a non-GAAP measure, provides investors with a useful metric to evaluate the ongoing operating performance of the Company
4Q15 Provision for Loan Losses and Credit Quality 11 • Provision for loan losses of $484MM, up $27MM YOY due to a larger reserve build • Card net charge-off rate of 2.18% decreased 8bps YOY • Card 30+ day delinquency rate of 1.72% decreased 1bp YOY • Student loan net charge-off rate excluding PCI loans of 1.30%, down 10bps YOY • Personal loan net charge-off rate of 2.28%, up 8bps YOY Note(s) 1. Excludes PCI loans which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing B / (W) ($MM) 4Q15 4Q14 $ Δ % Δ Net Principal Charge-Off $358 $355 ($3) (1%) Reserve Changes build/(release) 126 102 (24) (24%) Total Provision for Loan Loss $484 $457 ($27) (6%) Change (%) 4Q15 QOQ YOY Credit Card Loans Gross Principal Charge-Off Rate 2.94% 11 bps -9 bps Net Principal Charge-Off Rate 2.18% 14 bps -8 bps 30-Day Delinquency Rate (1) 1.72% 7 bps -1 bps Reserve Rate 2.68% 6 bps 5 bps Private Student Loans Net Principal Charge-Off Rate (excl. PCI Loans)(1) 1.30% 36 bps -10 bps 30-Day Delinquency Rate (excl. PCI Loans)(1) 1.91% 3 bps 11 bps Reserve Rate (excl. PCI Loans)(1) 1.88% 4 bps -32 bps Personal Loans Net Principal Charge-Off Rate 2.28% 29 bps 8 bps 30-Day Delinquency Rate 0.89% 9 bps 10 bps Reserve Rate 2.82% 33 bps 42 bps Total Loans Gross Principal Charge-Off Rate (excl. PCI Loans)(1) 2.78% 14 bps -8 bps Net Principal Charge-Off Rate (excl. PCI Loans)(1) 2.11% 17 bps -7 bps 30-Day Delinquency Rate (excl. PCI Loans)(1) 1.67% 7 bps 1 bps Reserve Rate (excl. PCI Loans)(1) 2.65% 8 bps 6 bps
Capital Position 12 Note(s) 1. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. The Company reported under Basel I at December 31, 2014 2. Tier 1 Common Capital Ratio (under Basel I) is calculated using tier 1 common capital, a non-GAAP measure. The Company believes the tier 1 common capital ratio is meaningful to investors to assess the quality and composition of the Company’s capital. See appendix for a reconciliation 3. Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assets calculated under Basel III transition rules see appendix Capital Ratios • Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) of 13.9%, down 40bps sequentially due to loan growth and capital deployment Basel III Transition Basel I 4Q15 3Q15 4Q14 Total Risk Based Capital Ratio (1) 16.5% 17.1% 17.0% Tier 1 Risk Based Capital Ratio (1) 14.7% 15.2% 14.9% Tier 1 Common Capital Ratio(1,2) N/A N/A 14.1% Tier 1 Leverage Ratio (1) 12.9% 13.1% 13.2% Common Equity Tier 1 Capital Ratio(1) 13.9% 14.4% N/A Basel III Fully Phased-in Common Equity Tier 1 Capital Ratio (3) 13.9% 14.3% 14.1%
Key long-term targets 13 Note(s) 1. Total net charge-off rate excluding PCI loans
2016 Guidance 14 Note(s) 1. Items impacting non-interest non-interchange revenue include lower other revenue due to exiting the mortgage origination business (~$74MM in 2015) and expected lower protection products revenue (~$40MM) due to suspended sales in 4Q12 2. Total net charge-off rate excluding PCI loans
Thoughts for the year ahead • Generating strong returns on equity • Payments volume expected to stabilize by year end • Near-term focus on remediation of AML / BSA consent order while reducing overall expenses in 2016 • Disciplined approach to accelerating total loan growth • Capital position allows for both continued reinvestment in the business and strong payouts 15
Appendix
Reconciliation of GAAP to Non-GAAP Data Note(s) 1. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company's reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company's performance 2. Adjusted rewards rate is calculated using adjusted rewards cost, a non-GAAP measure, divided by Discover card sales volume. Management believes this information provides investors with a useful metric to evaluate the ongoing operating performance of the company 3. Adjusted operating efficiency is calculated using adjusted operating expense, a non-GAAP measure, divided by adjusted revenue net of interest expense, a non-GAAP measure. Management believes this information provides investors with a useful metric to evaluate the ongoing operating performance of the Company 17 Quarter Ended Year Ended (unaudited, in millions) Dec 31, 2015 Dec 31, 2014 Dec 31, 2015 Dec 31, 2014 Provision for loan losses $484 $457 $1,512 $1,443 Income before income taxes 788 648 3,612 3,694 Pre-tax, pre-provision income (1) $1,272 $1,105 $5,124 $5,137 Rewards cost $372 $517 Excluding Rewards charge for program enhancements — (178) Adjusted rewards cost $372 $339 Discover card sales volume $31,672 $30,871 Adjusted rewards rate (2) 1.18% 1.10% Revenue net of interest expense $2,205 $2,037 Excluding the elimination of the credit card rewards program — 178 Adjusted revenue net of interest expense $2,205 $2,215 Total operating expense $933 $932 Excluding Discover Home Loans goodwill impairment — 27 Excluding Diners Club Italy held-for-sale fair value adjustment — 21 Excluding 4Q15 look back related anti-money laundering remediation expenses 37 — Adjusted operating expense $896 $884 Adjusted operating efficiency (3) 40.6% 39.9%
Reconciliation of GAAP to Non-GAAP Data (cont'd) Quarter Ended (unaudited, in millions) Dec 31, 2015 Sep 30, 2015 Dec 31, 2014 Note(s) 1. Tangible common equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles. A reconciliation of TCE to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use TCE and definitions may vary, so users of this information are advised to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the Company 2. Tier 1 common capital (under Basel I), a non-GAAP financial measure, represents common equity and the effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital, less goodwill and intangibles. A reconciliation of tier 1 common capital to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use tier 1 common capital and definitions may vary, so users of this information are advised to exercise caution in comparing tier 1 common capital of different companies. Tier 1 common capital is included to support the tier 1 common capital ratio which is meaningful to investors to assess the quality and composition of the Company’s capital 3. Adjustments related to capital components for fully phased-in Basel III include deferred tax liabilities related to intangible assets and deduction for deferred tax assets 4. Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion 5. Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets include higher risk weighting for past due loans and unfunded commitments 6. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. The Company reported under Basel I at December 31, 2014 7. Tier 1 common capital ratio is calculated using tier 1 common capital (Basel I), a non-GAAP measure, divided by risk weighted assets (Basel I) 8. Common equity tier 1 capital ratio (Basel III fully phased-in) is calculated using common equity tier 1 capital (Basel III fully phased-in), a non-GAAP measure, divided by risk weighted assets (Basel III fully phased-in) 18 GAAP total common equity $10,715 $10,743 $10,574 Less: Goodwill (255) (255) (257) Less: Intangibles (168) (169) (176) Tangible common equity(1) $10,292 $10,319 $10,141 Effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital 138 Total tier 1 common capital (Basel I)(2) $10,279 Add: Adjustments related to capital components during transition(3) $26 Common equity Tier 1 capital (Basel III fully phased-in) $10,305 Common equity Tier 1 capital (Basel III transition) $10,566 $10,612 Adjustments related to capital components during transition(4) (82) (82) Common equity Tier 1 capital (Basel III fully phased-in) $10,484 $10,530 Risk weighted assets (Basel I) N/A N/A $72,889 Risk weighted assets (Basel III transition) $75,787 $73,526 N/A Risk weighted assets (Basel III fully phased-in) (5) $75,685 $73,423 $73,315 Tier 1 common capital ratio (Basel I)(6,7) N/A N/A 14.1% Common equity Tier 1 capital ratio (Basel III transition)(6) 13.9% 14.4% N/A Common equity Tier 1 capital ratio (Basel III fully phased-in)(6,8) 13.9% 14.3% 14.1%
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