Discover Financial Services - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - April 19, 2016

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DISCOVER FINANCIAL SERVICES
Exhibit 99.2
EARNINGS SUMMARY
 
(unaudited, in millions, except per share statistics)
 
 
Quarter Ended
 
 
 
 
 
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
 
EARNINGS SUMMARY
 
 
 
 
 
 
 

 
 
 
 
 
 
 
Interest Income

$2,084

 

$2,061

 

$2,008

 

$1,947

 

$1,929

 

$155

 
8
%
 
Interest Expense
334

 
329

 
323

 
311

 
300

 
34

 
11
%
 
Net Interest Income
1,750

 
1,732

 
1,685

 
1,636

 
1,629

 
121

 
7
%
 
Discount/Interchange Revenue
565

 
635

 
614

 
612

 
536

 
29

 
5
%
 
Rewards Cost
292

 
372

 
326

 
314

 
268

 
24

 
9
%
 
Discount and Interchange Revenue, net
273

 
263

 
288

 
298

 
268

 
5

 
2
%
 
Protection Products Revenue
61

 
60

 
62

 
68

 
71

 
(10
)
 
(14
%)
 
Loan Fee Income
80

 
87

 
87

 
80

 
81

 
(1
)
 
(1
%)
 
Transaction Processing Revenue
36

 
38

 
39

 
40

 
42

 
(6
)
 
(14
%)
 
Other Income
24

 
25

 
27

 
53

 
80

 
(56
)
 
(70
%)
 
Total Other Income
474

 
473

 
503

 
539

 
542

 
(68
)
 
(13
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue Net of Interest Expense
2,224

 
2,205

 
2,188

 
2,175

 
2,171

 
53

 
2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Loan Losses
424

 
484

 
332

 
306

 
390

 
34

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee Compensation and Benefits
345

 
333

 
337

 
326

 
331

 
14

 
4
%
 
Marketing and Business Development
162

 
196

 
168

 
199

 
182

 
(20
)
 
(11
%)
 
Information Processing & Communications
88

 
87

 
84

 
90

 
88

 
—

 
—
%
 
Professional Fees
160

 
170

 
160

 
153

 
127

 
33

 
26
%
 
Premises and Equipment
24

 
24

 
24

 
23

 
24

 
—

 
—
%
 
Other Expense
107

 
123

 
109

 
136

 
121

 
(14
)
 
(12
%)
 
Total Other Expense
886

 
933

 
882

 
927

 
873

 
13

 
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Before Income Taxes
914

 
788

 
974

 
942

 
908

 
6

 
1
%
 
Tax Expense
339

 
288

 
362

 
343

 
322

 
17

 
5
%
 
Net Income

$575

 

$500

 

$612

 

$599

 

$586

 

($11
)
 
(2
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Allocated to Common Stockholders

$562

 

$488

 

$599

 

$586

 

$573

 

($11
)
 
(2
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
37.1
%
 
36.5
%
 
37.2
%
 
36.4
%
 
35.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
9.94
%
 
9.75
%
 
9.62
%
 
9.63
%
 
9.69
%
 
25

 
bps
 
Operating Efficiency
39.8
%
 
42.3
%
 
40.3
%
 
42.6
%
 
40.2
%
 
(40
)
 
bps
 
ROE
21
%
 
18
%
 
22
%
 
21
%
 
21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Common Shares Outstanding
414

 
422

 
430

 
437

 
445

 
(31
)
 
(7
%)
 
Weighted Average Common Shares Outstanding
417

 
426

 
433

 
441

 
448

 
(31
)
 
(7
%)
 
Weighted Average Common Shares Outstanding (fully diluted)
417

 
426

 
434

 
442

 
448

 
(31
)
 
(7
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PER SHARE STATISTICS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Basic EPS

$1.35

 

$1.15

 

$1.38

 

$1.33

 

$1.28

 

$0.07

 
5
%
 
Diluted EPS

$1.35

 

$1.14

 

$1.38

 

$1.33

 

$1.28

 

$0.07

 
5
%
 
Common Stock Price (period end)

$50.92

 

$53.62

 

$51.99

 

$57.62

 

$56.35

 

($5.43
)
 
(10
%)
 
Book Value per share

$27.32

 

$26.74

 

$26.32

 

$25.75

 

$25.22

 

$2.10

 
8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: See Glossary of Financial Terms for definitions of financial terms
 




DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
 
Quarter Ended
 
 
 
 
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
SEGMENT- INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct Banking

$882

 

$767

 

$950

 

$914

 

$881

 

$1

 
—
%
Payment Services
32

 
21

 
24

 
28

 
27

 
5

 
19
%
Total

$914

 

$788

 

$974

 

$942

 

$908

 

$6

 
1
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TRANSACTIONS PROCESSED ON NETWORKS
 

 
 

 
 

 
 

 
 

 
 

 
 

Discover Network
486

 
546

 
519

 
512

 
456

 
30

 
7
%
PULSE Network
841

 
905

 
972

 
989

 
1,024

 
(183
)
 
(18
%)
Total
1,327

 
1,451

 
1,491

 
1,501

 
1,480

 
(153
)
 
(10
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NETWORK VOLUME
 

 
 

 
 

 
 

 
 

 
 

 
 

PULSE Network

$34,680

 

$35,902

 

$36,267

 

$37,162

 

$40,814

 

($6,134
)
 
(15
%)
Network Partners 
3,572

 
3,274

 
3,206

 
3,536

 
2,949

 
623

 
21
%
Diners Club International 1
6,738

 
6,760

 
6,560

 
6,773

 
6,474

 
264

 
4
%
Total Payment Services
44,990

 
45,936

 
46,033

 
47,471

 
50,237

 
(5,247
)
 
(10
%)
Discover Network - Proprietary  
28,576

 
32,910

 
31,408

 
31,084

 
27,324

 
1,252

 
5
%
Total

$73,566

 

$78,846

 

$77,441

 

$78,555

 

$77,561

 

($3,995
)
 
(5
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
 
BALANCE SHEET SUMMARY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Investment Securities

$16,101

 

$12,755

 

$13,650

 

$14,050

 

$14,701

 

$1,400

 
10
%
 
Total Loan Receivables
70,320

 
72,385

 
70,078

 
69,028

 
67,648

 
2,672

 
4
%
 
Allowance for Loan Losses
(1,921
)
 
(1,869
)
 
(1,743
)
 
(1,735
)
 
(1,776
)
 
(145
)
 
(8
%)
 
Net Loan Receivables
68,399

 
70,516

 
68,335

 
67,293

 
65,872

 
2,527

 
4
%
 
Premises and Equipment, net
706

 
693

 
684

 
688

 
678

 
28

 
4
%
 
Goodwill and Intangible Assets, net
422

 
423

 
424

 
425

 
432

 
(10
)
 
(2
%)
 
Other Assets
2,465

 
2,412

 
2,378

 
2,317

 
2,364

 
101

 
4
%
 
Total Assets

$88,093

 

$86,799

 

$85,471

 

$84,773

 

$84,047

 

$4,046

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities & Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Direct to Consumer and Affinity Deposits

$32,818

 

$30,866

 

$29,801

 

$29,498

 

$29,303

 

$3,515

 
12
%
 
Brokered Deposits and Other Deposits
15,647

 
16,665

 
16,738

 
16,755

 
17,061

 
(1,414
)
 
(8
%)
 
Deposits
48,465

 
47,531

 
46,539

 
46,253

 
46,364

 
2,101

 
5
%
 
Borrowings
24,752

 
24,650

 
23,726

 
24,168

 
23,022

 
1,730

 
8
%
 
Accrued Expenses and Other Liabilities
3,560

 
3,343

 
3,903

 
3,089

 
3,450

 
110

 
3
%
 
Total Liabilities
76,777

 
75,524

 
74,168

 
73,510

 
72,836

 
3,941

 
5
%
 
Total Equity
11,316

 
11,275

 
11,303

 
11,263

 
11,211

 
105

 
1
%
 
Total Liabilities and Stockholders' Equity

$88,093

 

$86,799

 

$85,471

 

$84,773

 

$84,047

 

$4,046

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIQUIDITY
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Liquidity Portfolio
$14,556

 

$12,077

 

$12,354

 

$12,781

 

$14,162

 

$394

 
3
%
 
Undrawn Credit Facilities 1
30,077

 
30,682

 
31,008

 
25,029

 
24,340

 
5,737

 
24
%
 
Total Liquidity
$44,633

 

$42,759

 

$43,362

 

$37,810

 

$38,502

 

$6,131

 
16
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
 
BALANCE SHEET STATISTICS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Total Common Equity

$10,756

 

$10,715

 

$10,743

 

$10,703

 

$10,651

 

$105

 
1
%
 
Total Common Equity/Total Assets
12.2
%
 
12.3
%
 
12.6
%
 
12.6
%
 
12.7
%
 
 
 
 
 
Total Common Equity/Net Loans
15.7
%
 
15.2
%
 
15.7
%
 
15.9
%
 
16.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tangible Assets

$87,671

 

$86,376

 

$85,047

 

$84,348

 

$83,615

 

$4,056

 
5
%
 
Tangible Common Equity 1

$10,334

 

$10,292

 

$10,319

 

$10,278

 

$10,219

 

$115

 
1
%
 
Tangible Common Equity/Tangible Assets 1
11.8
%
 
11.9
%
 
12.1
%
 
12.2
%
 
12.2
%
 
 
 
 
 
Tangible Common Equity/Net Loans 1
15.1
%
 
14.6
%
 
15.1
%
 
15.3
%
 
15.5
%
 
 
 
 
 
Tangible Common Equity per share  1

$24.95

 

$24.41

 

$24.02

 

$23.50

 

$22.99

 

$1.96

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REGULATORY CAPITAL RATIOS
Basel III Transition
 
 

 
 

 
Total Risk Based Capital Ratio
16.8
%
 
16.5
%
 
17.1
%
 
17.2
%
 
17.6
%
 
 

 
 

 
Tier 1 Risk Based Capital Ratio
15.0
%
 
14.7
%
 
15.2
%
 
15.3
%
 
15.6
%
 
 

 
 

 
Tier 1 Leverage Ratio
12.8
%
 
12.9
%
 
13.1
%
 
13.2
%
 
13.3
%
 
 

 
 

 
Common Equity Tier 1 Capital Ratio
14.3
%
 
13.9
%
 
14.4
%
 
14.5
%
 
14.8
%
 
 
 
 
 
 
Basel III Fully Phased-in
 
 
 
 
 
Common Equity Tier 1 Capital Ratio 2
14.2
%
 
13.9
%
 
14.3
%
 
14.4
%
 
14.7
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RATIO OF EARNINGS TO FIXED CHARGES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of Earnings to Fixed Charges 3
3.8

 
3.9

 
4.0

 
4.0

 
4.1

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 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
 
3 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
 
 

 
 

 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
AVERAGE BALANCES
 

 
 

 
 

 
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

Cash and Investment Securities

$13,452

 

$12,881

 

$12,609

 

$13,219

 

$12,148

 

$1,304

 
11
%
Restricted Cash
801

 
529

 
703

 
686

 
605

 
196

 
32
%
Credit Card Loans
56,124

 
56,050

 
55,281

 
53,987

 
54,038

 
2,086

 
4
%
Private Student Loans
8,967

 
8,732

 
8,580

 
8,597

 
8,721

 
246

 
3
%
Personal Loans
5,503

 
5,488

 
5,307

 
5,131

 
5,047

 
456

 
9
%
Other Loans
243

 
233

 
294

 
385

 
342

 
(99
)
 
(29
%)
Total Loans
70,837

 
70,503

 
69,462

 
68,100

 
68,148

 
2,689

 
4
%
Total Interest Earning Assets
85,090

 
83,913

 
82,774

 
82,005

 
80,901

 
4,189

 
5
%
Allowance for Loan Losses
(1,866
)
 
(1,794
)
 
(1,776
)
 
(1,807
)
 
(1,753
)
 
(113
)
 
(6
%)
Other Assets
4,453

 
4,357

 
4,333

 
4,331

 
4,309

 
144

 
3
%
Total Assets

$87,677

 

$86,476

 

$85,331

 

$84,529

 

$83,457

 

$4,220

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

Direct to Consumer and Affinity Deposits

$31,529

 

$30,126

 

$29,477

 

$29,194

 

$28,891

 

$2,638

 
9
%
Brokered Deposits and Other Deposits
15,982

 
16,504

 
16,857

 
16,840

 
17,034

 
(1,052
)
 
(6
%)
Total Interest-bearing Deposits
47,511

 
46,630

 
46,334

 
46,034

 
45,925

 
1,586

 
3
%
Short-term Borrowings
2

 
—

 
60

 
153

 
126

 
(124
)
 
(98
%)
Securitized Borrowings
16,950

 
16,628

 
16,449

 
17,319

 
17,188

 
(238
)
 
(1
%)
Other Long-term Borrowings
7,934

 
7,900

 
7,401

 
5,989

 
5,272

 
2,662

 
50
%
Total Interest-bearing Liabilities
72,397

 
71,158

 
70,244

 
69,495

 
68,511

 
3,886

 
6
%
Other Liabilities & Stockholders' Equity
15,280

 
15,318

 
15,087

 
15,034

 
14,946

 
334

 
2
%
Total Liabilities and Stockholders' Equity

$87,677

 

$86,476

 

$85,331

 

$84,529

 

$83,457

 

$4,220

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVERAGE RATES
 

 
 

 
 

 
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

Cash and Investment Securities
0.72
%
 
0.61
%
 
0.55
%
 
0.59
%
 
0.62
%
 
10

 
bps
Restricted Cash
0.40
%
 
0.16
%
 
0.15
%
 
0.13
%
 
0.11
%
 
29

 
bps
Credit Card Loans
12.42
%
 
12.20
%
 
12.03
%
 
12.04
%
 
12.05
%
 
37

 
bps
Private Student Loans
7.02
%
 
6.88
%
 
6.88
%
 
6.91
%
 
6.95
%
 
7

 
bps
Personal Loans
12.20
%
 
11.79
%
 
12.08
%
 
12.12
%
 
12.19
%
 
1

 
bps
Other Loans
5.18
%
 
4.88
%
 
4.44
%
 
4.62
%
 
4.23
%
 
95

 
bps
Total Loans
11.69
%
 
11.49
%
 
11.37
%
 
11.35
%
 
11.37
%
 
32

 
bps
Total Interest Earning Assets
9.85
%
 
9.75
%
 
9.62
%
 
9.52
%
 
9.67
%
 
18

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

Direct to Consumer and Affinity Deposits
1.22
%
 
1.21
%
 
1.23
%
 
1.23
%
 
1.25
%
 
(3
)
 
bps
Brokered Deposits and Other Deposits
1.68
%
 
1.60
%
 
1.55
%
 
1.55
%
 
1.51
%
 
17

 
bps
Total Interest-bearing Deposits
1.37
%
 
1.35
%
 
1.35
%
 
1.35
%
 
1.35
%
 
2

 
bps
Short-term Borrowings
0.64
%
 
—
%
 
1.49
%
 
1.37
%
 
1.43
%
 
(79
)
 
bps
Securitized Borrowings
2.04
%
 
1.99
%
 
1.98
%
 
1.92
%
 
1.90
%
 
14

 
bps
Other Long-term Borrowings
4.38
%
 
4.33
%
 
4.44
%
 
4.93
%
 
5.14
%
 
(76
)
 
bps
Total Interest-bearing Liabilities
1.86
%
 
1.83
%
 
1.82
%
 
1.80
%
 
1.78
%
 
8

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
9.94
%
 
9.75
%
 
9.62
%
 
9.63
%
 
9.69
%
 
25

 
bps
Net Yield on Interest-earning Assets
8.27
%
 
8.19
%
 
8.08
%
 
8.00
%
 
8.17
%
 
10

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: See Glossary of Financial Terms for definitions of financial terms




DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
 
Quarter Ended
 
 

 
 

 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
TOTAL LOAN RECEIVABLES
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Loans 1, 2

$70,320

 

$72,385

 

$70,078

 

$69,028

 

$67,648

 

$2,672

 
4
%
Average Loans 1, 2

$70,837

 

$70,503

 

$69,462

 

$68,100

 

$68,148

 

$2,689

 
4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
11.69
%
 
11.49
%
 
11.37
%
 
11.35
%
 
11.37
%
 
32

 
bps
Gross Principal Charge-off Rate
2.80
%
 
2.65
%
 
2.51
%
 
2.76
%
 
2.82
%
 
(2
)
 
bps
Gross Principal Charge-off Rate excluding PCI Loans 3
2.92
%
 
2.78
%
 
2.64
%
 
2.91
%
 
2.98
%
 
(6
)
 
bps
Net Principal Charge-off Rate
2.11
%
 
2.02
%
 
1.85
%
 
2.05
%
 
2.14
%
 
(3
)
 
bps
Net Principal Charge-off Rate excluding PCI Loans 3
2.21
%
 
2.11
%
 
1.94
%
 
2.16
%
 
2.26
%
 
(5
)
 
bps
Delinquency Rate (over 30 days) excluding PCI Loans 3
1.64
%
 
1.67
%
 
1.60
%
 
1.49
%
 
1.57
%
 
7

 
bps
Delinquency Rate (over 90 days) excluding PCI Loans 3
0.79
%
 
0.76
%
 
0.72
%
 
0.69
%
 
0.78
%
 
1

 
bps
Gross Principal Charge-off Dollars

$493

 

$472

 

$440

 

$469

 

$474

 

$19

 
4
%
Net Principal Charge-off Dollars

$372

 

$358

 

$324

 

$347

 

$360

 

$12

 
3
%
Net Interest and Fee Charge-off Dollars

$86

 

$86

 

$81

 

$87

 

$95

 

($9
)
 
(9
%)
Loans Delinquent Over 30 Days 3

$1,105

 

$1,153

 

$1,070

 

$980

 

$1,006

 

$99

 
10
%
Loans Delinquent Over 90 Days 3

$531

 

$530

 

$481

 

$450

 

$500

 

$31

 
6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Loss (period end)

$1,921

 

$1,869

 

$1,743

 

$1,735

 

$1,776

 

$145

 
8
%
Change in Loan Loss Reserves

$52

 

$126

 

$8

 

($41
)
 

$30

 

$22

 
73
%
Reserve Rate
2.73
%
 
2.58
%
 
2.49
%
 
2.51
%
 
2.63
%
 
10

 
bps
Reserve Rate Excluding PCI Loans 3
2.80
%
 
2.65
%
 
2.57
%
 
2.60
%
 
2.72
%
 
8

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CREDIT CARD LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Loans

$55,620

 

$57,896

 

$55,655

 

$54,949

 

$53,499

 

$2,121

 
4
%
Average Loans

$56,124

 

$56,050

 

$55,281

 

$53,987

 

$54,038

 

$2,086

 
4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
12.42
%
 
12.20
%
 
12.03
%
 
12.04
%
 
12.05
%
 
37

 
bps
Gross Principal Charge-off Rate
3.15
%
 
2.94
%
 
2.83
%
 
3.14
%
 
3.21
%
 
(6
)
 
bps
Net Principal Charge-off Rate
2.34
%
 
2.18
%
 
2.04
%
 
2.28
%
 
2.40
%
 
(6
)
 
bps
Delinquency Rate (over 30 days)
1.68
%
 
1.72
%
 
1.65
%
 
1.55
%
 
1.64
%
 
4

 
bps
Delinquency Rate (over 90 days)
0.86
%
 
0.85
%
 
0.78
%
 
0.75
%
 
0.86
%
 
—

 
bps
Gross Principal Charge-off Dollars

$439

 

$415

 

$394

 

$423

 

$428

 

$11

 
3
%
Net Principal Charge-off Dollars

$326

 

$309

 

$285

 

$307

 

$319

 

$7

 
2
%
Loans Delinquent Over 30 Days

$934

 

$995

 

$919

 

$850

 

$879

 

$55

 
6
%
Loans Delinquent Over 90 Days

$480

 

$490

 

$437

 

$414

 

$458

 

$22

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Loss (period end)

$1,590

 

$1,554

 

$1,459

 

$1,441

 

$1,492

 

$98

 
7
%
Change in Loan Loss Reserves

$36

 

$95

 

$18

 

($51
)
 

$18

 

$18

 
100
%
Reserve Rate
2.86
%
 
2.68
%
 
2.62
%
 
2.62
%
 
2.79
%
 
7

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Discover Card Volume

$30,004

 

$33,830

 

$32,971

 

$32,299

 

$28,725

 

$1,279

 
4
%
Discover Card Sales Volume

$27,552

 

$31,672

 

$30,374

 

$30,017

 

$26,379

 

$1,173

 
4
%
Rewards Rate
1.06
%
 
1.18
%
 
1.07
%
 
1.05
%
 
1.02
%
 
4

 
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
 
 

 
 

 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
PRIVATE STUDENT LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Loans

$8,914

 

$8,763

 

$8,769

 

$8,520

 

$8,696

 

$218

 
3
%
Ending PCI Loans 1

$2,965

 

$3,116

 

$3,249

 

$3,381

 

$3,519

 

($554
)
 
(16
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
7.02
%
 
6.88
%
 
6.88
%
 
6.91
%
 
6.95
%
 
7

 
bps
Net Principal Charge-off Rate
0.56
%
 
0.82
%
 
0.57
%
 
0.61
%
 
0.61
%
 
(5
)
 
bps
Net Principal Charge-off Rate excluding PCI Loans 2
0.85
%
 
1.30
%
 
0.94
%
 
1.02
%
 
1.03
%
 
(18
)
 
bps
Delinquency Rate (over 30 days) excluding PCI Loans 2
1.92
%
 
1.91
%
 
1.88
%
 
1.78
%
 
1.66
%
 
26

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve Rate
1.65
%
 
1.63
%
 
1.48
%
 
1.68
%
 
1.63
%
 
2

 
bps
Reserve Rate excluding PCI Loans 2
1.86
%
 
1.88
%
 
1.84
%
 
2.23
%
 
2.18
%
 
(32
)
 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PERSONAL LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

Ending Loans

$5,534

 

$5,490

 

$5,425

 

$5,183

 

$5,065

 

$469

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
12.20
%
 
11.79
%
 
12.08
%
 
12.12
%
 
12.19
%
 
1

 
bps
Net Principal Charge-off Rate
2.45
%
 
2.28
%
 
1.99
%
 
2.10
%
 
2.22
%
 
23

 
bps
Delinquency Rate (over 30 days)
0.97
%
 
0.89
%
 
0.80
%
 
0.71
%
 
0.76
%
 
21

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve Rate
2.99
%
 
2.82
%
 
2.49
%
 
2.54
%
 
2.43
%
 
56

 
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
 
 
 
 
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
 
Mar 31, 2016 vs.
Mar 31, 2015
DIRECT BANKING
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Income

$2,084

 

$2,061

 

$2,008

 

$1,947

 

$1,929

 

$155

 
8
%
Interest Expense
334

 
329

 
323

 
311

 
300

 
34

 
11
%
Net Interest Income
1,750

 
1,732

 
1,685

 
1,636

 
1,629

 
121

 
7
%
Other Income
406

 
408

 
435

 
468

 
468

 
(62
)
 
(13
%)
Revenue Net of Interest Expense
2,156

 
2,140

 
2,120

 
2,104

 
2,097

 
59

 
3
%
Provision for Loan Losses
423

 
486

 
332

 
306

 
388

 
35

 
9
%
Total Other Expense
851

 
887

 
838

 
884

 
828

 
23

 
3
%
Income Before Income Taxes

$882

 

$767

 

$950

 

$914

 

$881

 

$1

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
9.94
%
 
9.75
%
 
9.63
%
 
9.63
%
 
9.70
%
 
24

 
bps
Pretax Return on Loan Receivables
5.01
%
 
4.32
%
 
5.43
%
 
5.38
%
 
5.24
%
 
(23
)
 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PAYMENT SERVICES
 

 
 

 
 

 
 

 
 

 
 

 
 

Interest Income

$—

 

$—

 

$—

 

$—

 

$—

 

$—

 
NM

Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
NM

Net Interest Income
—

 
—

 
—

 
—

 
—

 
—

 
NM

Other Income
68

 
65

 
68

 
71

 
74

 
(6
)
 
(8
%)
Revenue Net of Interest Expense
68

 
65

 
68

 
71

 
74

 
(6
)
 
(8
%)
Provision for Loan Losses
1

 
(2
)
 
—

 
—

 
2

 
(1
)
 
(50%)

Total Other Expense
35

 
46

 
44

 
43

 
45

 
(10
)
 
(22
%)
Income Before Income Taxes

$32

 

$21

 

$24

 

$28

 

$27

 

$5

 
19
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 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. 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
 
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
 
Mar 31, 2016
 
Dec 31, 2015
 
Sep 30, 2015
 
Jun 30, 2015
 
Mar 31, 2015
GAAP Total Common Equity

$10,756

 

$10,715

 

$10,743

 

$10,703

 

$10,651

Less: Goodwill
(255
)
 
(255
)
 
(255
)
 
(255
)
 
(257
)
Less: Intangibles
(167
)
 
(168
)
 
(169
)
 
(170
)
 
(175
)
Tangible Common Equity 1

$10,334

 

$10,292

 

$10,319

 

$10,278

 

$10,219

 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 Capital (Basel III Transition)

$10,593

 

$10,566

 

$10,612

 

$10,552

 

$10,497

Adjustments Related To Capital Components During Transition 2
(54
)
 
(82
)
 
(82
)
 
(83
)
 
(87
)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)

$10,539

 

$10,484

 

$10,530

 

$10,469

 

$10,410

 
 
 
 
 
 
 
 
 
 
Risk Weighted Assets (Basel III Transition)

$74,205

 

$75,787

 

$73,526

 

$72,658

 

$70,868

Risk Weighted Assets (Basel III Fully Phased-in) 3

$74,137

 

$75,685

 

$73,423

 

$72,555

 

$70,762

 
 
 
 
 
 
 
 
 
 
Common Equity Tier 1 Capital Ratio (Basel III Transition)
14.3
%
 
13.9
%
 
14.4
%
 
14.5
%
 
14.8
%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) 4
14.2
%
 
13.9
%
 
14.3
%
 
14.4
%
 
14.7
%
 
 
 
 
 
 
 
 
 
 
GAAP Book Value Per Share

$27.32

 

$26.74

 

$26.32

 

$25.75

 

$25.22

Less: Goodwill
(0.62
)
 
(0.60
)
 
(0.60
)
 
(0.58
)
 
(0.58
)
Less: Intangibles
(0.40
)
 
(0.40
)
 
(0.40
)
 
(0.39
)
 
(0.39
)
   Less: Preferred Stock
(1.35
)
 
(1.33
)
 
(1.30
)
 
(1.28
)
 
(1.26
)
Tangible Common Equity Per Share

$24.95

 

$24.41

 

$24.02

 

$23.50

 

$22.99

 
 
 
 
 
 
 
 
 
 
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 Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion
 
 
 
 
 
 
 
 
 
 
3 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
 
 
 
 
 
 
 
 
 
 
4 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
 
 
 
 
 
 
 
 
 


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