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Discover Financial Services Reports Fourth Quarter Net Income of $551 Million or $1.07 Per Diluted Share

  Discover Financial Services Reports Fourth Quarter Net Income of $551
  Million or $1.07 Per Diluted Share

      Declares Quarterly Dividend of $0.14 Per Share, an Increase of 40%

Business Wire

RIVERWOODS, Ill. -- December 20, 2012

Discover Financial Services (NYSE: DFS) today reported net income of $551
million or $1.07 per diluted share for the fourth quarter of 2012, as compared
to $513 million or $0.95 per share for the fourth quarter of 2011. The
company’s return on equity was 23%.

Fourth Quarter Highlights

  *Total loans, credit card loans and Discover card sales volume all grew 6%
    from the prior year.
  *Credit card net charge-offs reached historic lows with a net charge-off
    rate of 2.29%. Credit card loan delinquencies over 30 days past due
    increased 5 basis points sequentially to 1.86%.
  *Payment Services pretax income was down 21% from the prior year to $33
    million. Transaction volume for the segment was $49.0 billion in the
    quarter, an increase of 13% from the prior year.

“Our strategy and business model are working as we achieved organic growth in
all of our lending products,” said David Nelms, chairman and CEO of Discover.
“I am proud of our strong performance this year and our achievement of record
net income, record volumes and a strong return on equity. In 2012, we
established new partnerships in payments, diversified our direct banking
product offerings and demonstrated our commitment to returning excess capital,
which we are further emphasizing with a 40% increase in our dividend.”

Segment Results:

Direct Banking

Direct Banking pretax income of $827 million in the quarter was up $51
million, or 7%, from the prior year.

Discover card sales volume grew 6% from the prior year to $26.5 billion.
Credit card loans ended the quarter at $49.6 billion, up 6%, from the prior
year.

Total loans ended the quarter at $61.0 billion, up 6% compared to the prior
year. Private student loans increased $426 million, or 6%, from the prior year
and personal loans increased $624 million, or 24%, from the prior year.

Net interest margin was 9.44%, up 34 basis points from the prior year. The
increase in net interest margin from the prior year reflects decreased funding
costs partially offset by lower total yield. Credit card yield was 12.16%, a
decrease of 20 basis points from the prior year. The decline in credit card
yield from the prior year reflects an increase in promotional rate balances
and a decline in higher rate balances, partially offset by lower interest
charge-offs. Interest expense as a percent of total loans decreased 49 basis
points from the prior year as the company continued to take advantage of
available low rate funding.

Net interest income increased $134 million, or 11%, from the prior year,
benefiting from loan growth and lower interest expense, which was partially
offset by a decline in total yield.

The delinquency rate for credit card loans over 30 days past due was 1.86%, an
improvement of 53 basis points from the prior year, and a seasonal increase of
5 basis points from the prior quarter. The credit card net charge-off rate
improved to 2.29% for the fourth quarter of 2012, down 95 basis points from
the prior year, and 14 basis points from the prior quarter.

Net principal charge-offs were $87 million lower than the prior year as a
result of the continued decline in delinquencies and bankruptcies. Provision
for loan losses of $338 million increased $19 million, or 6%, from the prior
year, driven by an increase in loan loss reserves partially offset by the
decline in charge-offs. The reserve build for the fourth quarter of 2012 was
$38 million reflecting reserve additions due to loan growth. The fourth
quarter of 2011 included a reserve release of $68 million.

Other income increased $50 million, or 11%, from the prior year primarily due
to revenue from Discover Home Loans, which was launched in June 2012 after
acquiring Home Loan Center assets from Tree.com, higher interchange revenue as
a result of increased sales and a $26 million gain on sale of a minority
investment. Increases in other income were partially offset by higher customer
rewards.

Expenses were up $114 million, or 18%, from the prior year. The increase was
primarily due to higher employee compensation and marketing expenses
associated with the Home Loan Center acquisition in June, increased card
marketing initiatives and higher headcount.

Payment Services

Payment Services pretax income was $33 million in the quarter, down $9
million, or 21%, from the prior year. Revenue increased $8 million, primarily
driven by an increase in point-of-sale transactions on the PULSE network.
Expenses were up $17 million from the prior year mainly due to higher
marketing and employee expenses, primarily related to new partnership and
growth initiatives.

Payment Services dollar volume was $49.0 billion for the fourth quarter of
2012, up 13% from the prior year, driven by higher PULSE and Network Partners
volume. Network Partners was formerly referred to as Third-Party Issuers. The
name change does not impact the composition of the business.

Dividend

The company’s board declared a cash dividend of $0.14 per share of common
stock, payable on Jan. 17, 2013, to stockholders of record at the close of
business on Jan. 3, 2013.

Share Repurchases

In the fourth quarter of 2012, the company repurchased approximately 10
million shares of common stock for $401 million. Shares outstanding declined
by 2% from prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results
on Thursday, December 20, 2012, at 10:30 a.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 operates the Discover
card, America's cash rewards pioneer, and offers home loans, private student
loans, personal loans, online savings accounts, certificates of deposit and
money market accounts through its direct banking business. Its payment
businesses consist of 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.discoverfinancial.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
those related to financial regulatory reform, consumer financial services
practices, and funding, capital and liquidity; the actions and initiatives of
current and potential competitors; the company’s ability to manage its
expenses; the company’s ability to successfully achieve full card acceptance
across its networks and maintain relationships with network participants; the
company’s ability to sustain and grow its private student loan portfolio; the
company’s ability to manage its credit risk, market risk, liquidity risk,
operational risk, legal and compliance risk, and strategic risk; the
availability and cost of funding and capital; access to deposit,
securitization, equity, debt and credit markets; the impact of rating agency
actions; the level and volatility of equity prices, commodity prices and
interest rates, currency values, investments, other market fluctuations and
other market indices; losses in the company’s investment portfolio; limits on
the company's ability to pay dividends and repurchase its common stock;
fraudulent activities or material security breaches of key systems; the
company’s ability to increase or sustain Discover card usage or attract new
customers; the company’s ability to attract new merchants and maintain
relationships with current merchants; the effect of political, economic and
market conditions, geopolitical events and unforeseen or catastrophic events;
the company’s ability to introduce new products or services; the company’s
ability to manage its relationships with third-party vendors; the company's
ability to maintain current technology and integrate new and acquired systems;
the company’s ability to collect amounts for disputed transactions from
merchants and merchant acquirers; the company’s ability to attract and retain
employees; the company’s ability to protect its reputation and its
intellectual property; difficulty obtaining regulatory approval for,
financing, closing, transitioning, integrating or managing the expenses of
acquisitions of or investments in new businesses, products or technologies;
and new lawsuits, investigations or similar matters or unanticipated
developments related to current matters. The company routinely evaluates and
may pursue acquisitions of or investments in businesses, products,
technologies, loan portfolios or deposits, which may involve payment in cash
or the company's debt or equity securities.

Additional factors that could cause the company’s results to differ materially
from those described in the forward-looking statements can be found under
“Risk Factors,” “Business – Competition,” “Business – Supervision and
Regulation” and “Management’s Discussion and Analysis of Financial Condition
and Results of Operations” in the company's Annual Report on Form 10-K for the
year ended November 30, 2011; “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 February 29, 2012, May 31, 2012
and August 31, 2012; and "Risk Factors" in the company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 2012, which are filed with the SEC and
available at the SEC's internet site (http://www.sec.gov).

                                                                
DISCOVER FINANCIAL SERVICES
(unaudited, in millions, except per share statistics)
                                     Quarter Ended
                                       Nov 30,         Aug 31,       Nov 30,
                                       2012            2012          2011
EARNINGS SUMMARY
Interest Income                        $1,706          $1,695        $1,620
Interest Expense                       312             325           360
Net Interest Income                    1,394           1,370         1,260
                                                                     
Discount/Interchange Revenue           521             533           489
Rewards                                281             268           215
Discount and Interchange               240             265           274
Revenue, net
Protection Products Revenue            99              104           107
Loan Fee Income                        83              80            87
Transaction Processing                 54              59            48
Revenue
Other Income                           128             86            30
Total Other Income                     604             594           546
                                                                     
Revenue Net of Interest                1,998           1,964         1,806
Expense
                                                                     
Provision for Loan Losses              338             126           319
                                                                     
Employee Compensation and              278             274           229
Benefits
Marketing and Business                 192             161           144
Development
Information Processing &               78              69            69
Communications
Professional Fees                      115             107           114
Premises and Equipment                 20              20            18
Other Expense                          117             195           95
Total Other Expense                    800             826           669
                                                                   
Income Before Income Taxes             860             1,012         818
Tax Expense                            309             385           305
Net Income                             $551            $627          $513
                                                                     
Net Income Allocated to                $541            $621          $508
Common Stockholders
                                                                     
                                                                     
PER SHARE STATISTICS
Basic EPS                              $1.08           $1.21         $0.95
Diluted EPS                            $1.07           $1.21         $0.95
Common Stock Price (period             $41.61          $38.73        $23.82
end)
Book Value per share                   $19.55          $18.02        $15.59
                                                                     
SEGMENT- INCOME BEFORE
INCOME TAXES
Direct Banking                         $827            $963          $776
Payment Services                       33              49            42
Total                                  $860            $1,012        $818
                                                                     
BALANCE SHEET SUMMARY
Total Assets                           $75,238         $73,909       $68,784
Total Liabilities                      65,506          64,763        60,542
Total Equity                           9,732           9,146         8,242
Total Liabilities and                  $75,238         $73,909       $68,784
Stockholders' Equity
                                                                     
TOTAL LOAN RECEIVABLES
STATISTICS
Ending Loans ^1, 2, 3                  $61,017         $59,157       $57,337
Average Loans ^1, 2                    $59,343         $57,721       $55,539
                                                                     
Interest Yield                         11.39%          11.50%        11.56%
Net Principal Charge-off               2.03%           2.12%         2.81%
Rate
Net Principal Charge-off               2.21%           2.32%         3.05%
Rate excluding PCI Loans ^4
Delinquency Rate (over 30              1.75%           1.71%         2.30%
days) ^4
Delinquency Rate (over 90              0.83%           0.81%         1.14%
days) ^4
Net Principal Charge-off               $300            $308          $387
Dollars
Net Interest and Fee                   $88             $92           $128
Charge-off Dollars
Loans Delinquent Over 30               $983            $931          $1,200
Days ^4
Loans Delinquent Over 90               $468            $441          $596
Days ^4
                                                                     
Allowance for Loan Loss                $1,725          $1,687        $2,205
(period end)
Change in Loan Loss Reserves           $38             ($182)        ($68)
Reserve Rate ^5                        2.83%           2.85%         3.85%
Reserve Rate Excluding PCI             3.07%           3.11%         4.23%
Loans ^4, 5
                                                                     
CREDIT CARD LOANS STATISTICS
Ending Loans ^3                        $49,642         $48,124       $46,639
Average Loans                          $48,122         $47,067       $45,756
                                                                     
Interest Yield                         12.16%          12.27%        12.36%
Net Principal Charge-off               2.29%           2.43%         3.24%
Rate
Delinquency Rate (over 30              1.86%           1.81%         2.39%
days)
Delinquency Rate (over 90              0.91%           0.89%         1.20%
days)
Net Principal Charge-off               $274            $287          $370
Dollars
Loans Delinquent Over 30               $925            $870          $1,117
Days
Loans Delinquent Over 90               $451            $427          $560
Days
                                                                     
Allowance for Loan Loss                $1,554          $1,522        $2,070
(period end)
Change in Loan Loss Reserves           $32             ($191)        ($84)
Reserve Rate                           3.13%           3.16%         4.44%
                                                                     
Total Discover Card Volume             $28,940         $29,763       $26,946
Discover Card Sales Volume             $26,533         $27,202       $25,033
                                                                     
NETWORK VOLUME
PULSE Network                          $39,376         $40,990       $33,911
Network Partners ^6                    2,297           2,231         1,939
Diners Club International ^7           7,298           7,041         7,469
Total Payment Services                 48,971          50,262        43,319
Discover Network -                     27,462          28,085        25,926
Proprietary
Total                                  $76,433         $78,347       $69,245
                                                                     
                                                                     
^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 Effective November 30, 2012 the Company began including confirmed card
transactions as part of loans in process, which resulted in a $365 million
increase to ending card receivables for the fourth quarter. Comparable periods
(shown above) have not been adjusted to reflect this change.
                                                                     
^4 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.
                                                                     
^5 The Reserve Rate includes federal student loans held for sale.
                                                                     
^6 Network Partners was formerly referred to as Third-Party Issuers. The
reference has been changed to better reflect the nature of the volume
included. The composition, however, has not changed.
                                                                     
^7 Volume is derived from data provided by licensees for Diners Club branded
cards issued outside of North America and is subject to subsequent revision or
amendment.
                                                                     
Note: See Glossary for definitions of financial terms in the financial
supplement which is available online at the SEC's website (http://www.sec.gov)
and the company's website (http://investorrelations.discoverfinancial.com).

Contact:

Discover Financial Services
Investors:
Bill Franklin, 224-405-1902
williamfranklin@discover.com
or
Media:
Jon Drummond, 224-405-1888
jondrummond@discover.com