Exhibit 99.1
DISCOVER FINANCIAL SERVICES REPORTS THIRD QUARTER RESULTS
Earnings Per Share $0.42; Net Income of $202 Million
Board of Directors Declares $0.06 Dividend
Riverwoods, IL, September 25, 2007 -- Discover Financial Services (NYSE: DFS) today reported net income of $202 million or $0.42 per share (diluted) for the third quarter ended August 31, 2007 compared with net income of $241 million for the third quarter of 2006.
Highlights
| · | Managed loans experienced the seventh consecutive quarter of receivable growth, reaching $51.9 billion, 4% above last year. |
| · | Credit card sales volume reached a record $26.8 billion, 4% above last year. |
| · | Credit quality remained strong with a managed credit card net charge-off rate of 3.95%, declining 28 basis points from second quarter 2007 and a managed credit card 30+ day delinquency rate of 3.30%, up 18 basis points from last quarter’s record low level. |
| · | Achieved record quarterly transaction volume across the Discover and PULSE Networks, up 17% over last year. |
| · | Signed new merchant acquiring agreements with Chase Paymentech, Wells Fargo Merchant Services and Bank of America Merchant Services. Discover now has agreements with firms representing over 90% of U.S. industry sales volume. |
| · | Maintained strong balance sheet and liquidity position, growing cash reserves to $8 billion. |
"Discover achieved strong results this quarter, driven by record quarterly sales volume, continued growth in card receivables and sound credit quality," said David Nelms, chief executive officer of Discover Financial Services. "Our third quarter performance reflects our commitment to achieving continued growth in balances and transaction volume while remaining unrelenting in our focus on credit risk management. In addition, we’ve made significant gains in one of our most important strategic initiatives through agreements with merchant acquirers, which will enable us to increase acceptance of Discover Network cards.”
Third-Party Payments transaction growth increased this quarter and PULSE signed a number of multi-year agreements with key financial institutions.
The company sustained continued losses in its International Card business amidst a challenging operating environment in the United Kingdom. Discover is focused on a combination of revenue and expense-control initiatives designed to contribute to improved performance.
Following the spin-off from Morgan Stanley, which occurred on June 30, 2007, the company took steps to increase financial liquidity and finished the quarter with just over $8 billion in cash reserves.
Nelms added, "Having completed the transition to a stand alone company, our fundamental commitment is to build long-term value for our shareholders. In keeping with that focus, this morning we announced an initial dividend of $0.06 per share."
Financial information presented on a managed basis assumes that loans that have been securitized were not sold and presents financial information on these loans in a manner similar to the way financial information on loans that have not been sold is presented. For more information and a detailed reconciliation, please refer to the schedule titled “Reconciliation of GAAP to Managed” attached to this press release.
Segment Results (Managed Basis):
U.S. Card
| · | Pretax income of $387 million was unchanged from the third quarter of 2006 driven by: |
| o | an increase in interest income related to higher average receivables and an increase in interest yield, partially offset by higher interest expense resulting from increased funding costs and increased borrowings due in part to Discover’s spin-off from Morgan Stanley; |
| o | a decrease in other income due, in part, to lower new securitization activity and an unfavorable revaluation of the interest-only strip receivable; and |
| o | higher marketing and business development expenses, as well as spin-off related costs of $5 million in the third quarter of 2007, partially offset by lower other expenses. |
| · | Managed loans grew for the sixth consecutive quarter to $47.4 billion, up 5% from last year. |
| · | U.S. credit quality remained strong with a managed credit card 30+ day delinquency rate of 3.16%, 15 basis points lower than last year and 19 basis points higher than the record low achieved in second quarter 2007. |
| · | The managed credit card net charge-off rate of 3.70% was up 15 basis points from last year, but down 30 basis points from second quarter 2007. |
Third-Party Payments
| · | Pretax income of $9 million for the third quarter of 2007 was down slightly from $10 million for the third quarter of 2006 as marketing and pricing incentives offset revenue from higher volumes. |
| · | Transaction volume on the PULSE Network grew to 594 million, up 26% over last year, reflecting the impact of new financial institution signings as well as increased volumes from existing financial institutions. |
International Card
| · | Pretax loss of $67 million for the third quarter of 2007 compared unfavorably to the pretax loss of $30 million for the third quarter of 2006 due to: |
| o | an increase in provision for loan losses, as receivables related to a maturing securitization transaction were retained in the portfolio; |
| o | an increase in expenses, including $4 million of spin-off related costs; and |
| o | a decrease in net interest income reflecting higher funding costs post spin-off and the higher interest rate environment in the United Kingdom. |
| · | Managed loans decreased 2% from last year reflecting increased payments and reduced marketing, partially offset by a favorable foreign exchange rate. |
| · | The 30+ day delinquency rate of 4.89% was up 42 basis points from last year and 20 basis points from second quarter 2007. The increase over second quarter includes the impact of declining receivables and the implementation of higher minimum payment requirements on certain accounts. |
| · | The net charge-off rate of 6.56% increased 15 basis points from last year and 6 basis points from second quarter 2007. |
Dividend Declaration
Discover’s Board of Directors has declared a dividend of $0.06 per share. The cash dividend is payable on October 23, 2007 to stockholders of record at the close of business on October 5, 2007.
Conference Call and Webcast Information
The company will host a conference call to discuss its third quarter results on Tuesday, September 25, 2007, at 10:00 am Central Time. Interested parties can listen to the conference call via a live audio webcast at http://investorrelations.discoverfinancial.com.
About Discover Financial Services
Discover Financial Services (NYSE:DFS) operates the Discover Card with more than 50 million cardmembers, the Discover Network with millions of merchant and cash access locations, and the Goldfish credit card business in the United Kingdom. Discover Financial Services also operates the PULSE ATM/debit network, which serves more than 4,400 financial institutions and includes nearly 260,000 ATMs, as well as POS terminals, nationwide. For more information, visit www.discoverfinancial.com.
Contacts:
Investors:
Craig Streem, 224-405-3575
craigstreem@discover.com
Media:
Leslie Sutton, 224-405-3965
lesliesutton@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. Both the earnings release and the Financial Supplement are available online in the Investor Relations section at www.discoverfinancial.com.
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are based upon the current beliefs and expectations of Discover Financial Services' management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: the actions and initiatives of current and potential competitors; our ability to manage credit risks and securitize our receivables at acceptable rates; changes in economic variables, such as the number and size of personal bankruptcy filings, the rate of unemployment and the levels of consumer confidence and consumer debt; the level and volatility of equity prices, commodity prices and interest rates, currency values, investments and other market indices; the availability and cost of funding and capital; access to U.S. or U.K. debt markets; the ability to increase or sustain Discover Card usage or attract new cardmembers and introduce new products or services; our ability to attract new merchants and maintain relationships with current merchants; material security breaches of key systems; unforeseen and catastrophic events; our reputation; the potential effects of technological changes; the effect of political, economic and market conditions and geopolitical events; unanticipated developments relating to lawsuits, investigations or similar matters; the impact of current, pending and future legislation, regulation and regulatory and legal actions; our ability to attract and retain employees; the ability to protect our intellectual property; the impact of our separation from Morgan Stanley; the impact of any potential future acquisitions; investor sentiment; and the restrictions on our operations resulting from indebtedness incurred during our separation from Morgan Stanley.
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. Additional factors that could cause Discover Financial Services' results to differ materially from those described in the forward-looking statements can be found in the Company's Form 10, as amended, filed with the SEC and available at the SEC's internet site (http://www.sec.gov).
Discover Financial Services | | | | | | | | | |
GAAP Basis | | | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | Quarter Ended | |
| | | Aug 31, 2007 | | | May 31, 2007 | | | Aug 31, 2006 | |
| | | | | | | | | | |
| Interest Income | | $ | 755,610 | | | $ | 703,365 | | | $ | 642,748 | |
| Interest Expense | | | 361,469 | | | | 336,253 | | | | 250,440 | |
| Net Interest Income | | | 394,141 | | | | 367,112 | | | | 392,308 | |
| Provision for Loan Losses | | | 211,576 | | | | 203,287 | | | | 231,614 | |
| Net interest income after provision for loan losses | | | 182,565 | | | | 163,825 | | | | 160,694 | |
| | | | | | | | | | | | | |
| Other Income | | | 845,498 | | | | 871,693 | | | | 889,374 | |
| | | | | | | | | | | | | |
| Employee Compensation and Benefits | | | 227,904 | | | | 234,373 | | | | 237,436 | |
| Marketing and Business Development | | | 163,015 | | | | 140,930 | | | | 145,184 | |
| Information Processing & Communications | | | 99,065 | | | | 96,622 | | | | 98,620 | |
| Professional Fees | | | 94,060 | | | | 113,264 | | | | 93,027 | |
| Premises and Equipment | | | 22,611 | | | | 24,350 | | | | 23,546 | |
| Other Expense | | | 92,194 | | | | 93,453 | | | | 84,724 | |
| Total Other Expense | | | 698,849 | | | | 702,992 | | | | 682,537 | |
| Income Before Income Taxes | | | 329,214 | | | | 332,526 | | | | 367,531 | |
| Tax Expense | | | 126,974 | | | | 123,284 | | | | 126,138 | |
| Net Income | | $ | 202,240 | | | $ | 209,242 | | | $ | 241,393 | |
| | | | | | | | | | | | | |
Balance Sheet Statistics | | | | | | | | | | | | |
| Total Assets | | $ | 36,141,011 | | | $ | 35,672,568 | | | $ | 28,318,362 | |
| Total Equity | | $ | 5,667,282 | | | $ | 5,780,284 | | | $ | 6,030,941 | |
| Total Tangible Equity | | $ | 4,927,431 | | | $ | 5,044,586 | | | $ | 5,322,013 | |
| Loan Receivables | | $ | 22,393,598 | | | $ | 22,788,042 | | | $ | 23,040,868 | |
| Average Loan Receivables | | $ | 22,736,502 | | | $ | 21,511,837 | | | $ | 22,545,836 | |
| ROE | | | 14 | % | | | 15 | % | | | 16 | % |
| Net Owned Receivables/Tangible Equity | | | 4.38 | | | | 4.36 | | | | 4.18 | |
| Total Owned Assets/Tangible Equity | | | 7.33 | | | | 7.07 | | | | 5.32 | |
| Net Yield on Loan Receivables | | | 6.88 | % | | | 6.77 | % | | | 6.90 | % |
| Return on Loan Receivables | | | 3.53 | % | | | 3.86 | % | | | 4.25 | % |
| | | | | | | | | | | | | |
| Allowance for Loan Losses (period end) | | $ | 792,883 | | | $ | 788,748 | | | $ | 811,865 | |
| Net Gain on Securitization | | $ | (24,043 | ) | | $ | 35,620 | | | $ | (2,165 | ) |
| | | | | | | | | | | | | |
EPS Statistics | | | | | | | | | | | | |
| Basic EPS | | $ | 0.42 | | | $ | 0.44 | | | $ | 0.51 | |
| Diluted EPS | | $ | 0.42 | | | | | | | | | |
| Stock Price Per Share (period end) | | $ | 23.14 | | | | | | | | | |
| Ending Shares Outstanding (000's) | | | 477,328 | | | | 477,236 | | | | 477,236 | |
| Weighted Average Shares Outstanding (000's) | | | 477,272 | | | | 477,236 | | | | 477,236 | |
| Weighted Average Shares Outstanding (fully diluted) (000's) | | | 480,071 | | | | | | | | | |
| Book Value Per Share | | $ | 11.87 | | | | | | | | | |
| | | | | | | | | | | | | |
Total Credit Card Loans | | | | | | | | | | | | |
| Credit Card Loans - Owned | | $ | 22,301,589 | | | $ | 22,698,457 | | | $ | 22,935,647 | |
| Average Credit Card Loans - Owned | | $ | 22,646,290 | | | $ | 21,419,465 | | | $ | 22,428,025 | |
| Interest Yield | | | 10.99 | % | | | 10.50 | % | | | 10.44 | % |
| Net Principal Charge-off Rate | | | 3.71 | % | | | 3.91 | % | | | 3.57 | % |
| Delinquency Rate (over 30 days) | | | 3.07 | % | | | 2.94 | % | | | 3.19 | % |
| Delinquency Rate (over 90 days) | | | 1.44 | % | | | 1.43 | % | | | 1.49 | % |
Discover Financial Services | | | | | | | | | |
Managed Basis1 | | | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | Quarter Ended | |
| | | Aug 31, 2007 | | | May 31, 2007 | | | Aug 31, 2006 | |
| | | | | | | | | | |
| Interest Income | | $ | 1,751,919 | | | $ | 1,715,844 | | | $ | 1,573,566 | |
| Interest Expense | | | 767,451 | | | | 747,303 | | | | 616,030 | |
| Net Interest Income | | | 984,468 | | | | 968,541 | | | | 957,536 | |
| Provision for Loan Losses | | | 509,026 | | | | 530,438 | | | | 495,364 | |
| Net interest income after provision for loan losses | | | 475,442 | | | | 438,103 | | | | 462,172 | |
| | | | | | | | | | | | | |
| Other Income | | | 552,621 | | | | 597,415 | | | | 587,896 | |
| | | | | | | | | | | | | |
| Employee Compensation and Benefits | | | 227,904 | | | | 234,373 | | | | 237,436 | |
| Marketing and Business Development | | | 163,015 | | | | 140,930 | | | | 145,184 | |
| Information Processing & Communications | | | 99,065 | | | | 96,622 | | | | 98,620 | |
| Professional Fees | | | 94,060 | | | | 113,264 | | | | 93,027 | |
| Premises and Equipment | | | 22,611 | | | | 24,350 | | | | 23,546 | |
| Other Expense | | | 92,194 | | | | 93,453 | | | | 84,724 | |
| Total Other Expense | | | 698,849 | | | | 702,992 | | | | 682,537 | |
| Income Before Income Taxes | | | 329,214 | | | | 332,526 | | | | 367,531 | |
| Tax Expense | | | 126,974 | | | | 123,284 | | | | 126,138 | |
| Net Income | | $ | 202,240 | | | $ | 209,242 | | | $ | 241,393 | |
| | | | | | | | | | | | | |
Balance Sheet Statistics | | | | | | | | | | | | |
| Total Assets | | $ | 65,457,390 | | | $ | 65,112,826 | | | $ | 54,713,999 | |
Total Equity 2 | | $ | 5,667,282 | | | $ | 5,780,284 | | | $ | 6,030,941 | |
Total Tangible Equity 2 | | $ | 4,927,431 | | | $ | 5,044,586 | | | $ | 5,322,013 | |
| Loan Receivables | | $ | 51,892,455 | | | $ | 51,505,397 | | | $ | 49,703,680 | |
| Average Loan Receivables | | $ | 51,530,934 | | | $ | 50,843,952 | | | $ | 48,884,255 | |
| Net Managed Receivables/Tangible Equity | | | 10.37 | | | | 10.05 | | | | 9.19 | |
| Total Managed Assets/Tangible Equity | | | 13.28 | | | | 12.91 | | | | 10.28 | |
| Net Yield on Loan Receivables | | | 7.58 | % | | | 7.56 | % | | | 7.77 | % |
| Return on Loan Receivables | | | 1.56 | % | | | 1.63 | % | | | 1.96 | % |
| | | | | | | | | | | | | |
Total Credit Card Loans | | | | | | | | | | | | |
| Credit Card Loans - Managed | | $ | 51,800,446 | | | $ | 51,415,812 | | | $ | 49,598,459 | |
| Average Credit Card Loans - Managed | | $ | 51,440,722 | | | $ | 50,751,580 | | | $ | 48,766,444 | |
| Managed Interest Yield | | | 12.52 | % | | | 12.35 | % | | | 12.38 | % |
| Managed Net Principal Charge-off Rate | | | 3.95 | % | | | 4.23 | % | | | 3.81 | % |
| Managed Delinquency Rate (over 30 days) | | | 3.30 | % | | | 3.12 | % | | | 3.42 | % |
| Managed Delinquency Rate (over 90 days) | | | 1.55 | % | | | 1.51 | % | | | 1.59 | % |
| | | | | | | | | | | | | |
Total Credit Card Volume | | | | | | | | | | | | |
| Domestic | | $ | 27,171,729 | | | $ | 26,408,578 | | | $ | 26,754,745 | |
| International | | | 3,601,870 | | | | 3,646,009 | | | | 3,450,974 | |
| Total | | $ | 30,773,599 | | | $ | 30,054,587 | | | $ | 30,205,719 | |
| | | | | | | | | | | | | |
Total Credit Card SalesVolume | | | | | | | | | | | | |
| Domestic | | $ | 23,527,999 | | | $ | 22,108,865 | | | $ | 22,690,277 | |
| International | | | 3,296,360 | | | | 3,277,439 | | | | 3,025,561 | |
| Total | | $ | 26,824,359 | | | $ | 25,386,304 | | | $ | 25,715,838 | |
| | | | | | | | | | | | | |
Transactions Processed on Networks (000's) | | | | | | | | | | | | |
| Discover Network | | | 379,267 | | | | 361,893 | | | | 361,917 | |
| PULSE Network | | | 593,866 | | | | 558,811 | | | | 472,866 | |
| Total | | | 973,133 | | | | 920,704 | | | | 834,783 | |
| | | | | | | | | | | | | |
Segment - Income Before Income Taxes | | | | | | | | | | | | |
| U.S. Card | | $ | 387,085 | | | $ | 388,813 | | | $ | 387,314 | |
| Third-Party Payments | | | 9,439 | | | | 8,010 | | | | 9,920 | |
| International Card | | | (67,310 | ) | | | (64,297 | ) | | | (29,703 | ) |
| Total | | $ | 329,214 | | | $ | 332,526 | | | $ | 367,531 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
2 Balance on a GAAP and Managed basis is the same. | | | | | | | | | |
Discover Financial Services | | | | | | | | | |
U.S. Card Segment | | | | | | | | | |
Managed Basis1 | | | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | Quarter Ended | |
| | | Aug 31, 2007 | | | May 31, 2007 | | | Aug 31, 2006 | |
| | | | | | | | | | |
| Interest Income | | $ | 1,626,214 | | | $ | 1,601,324 | | | $ | 1,460,607 | |
| Interest Expense | | | 697,643 | | | | 693,837 | | | | 567,033 | |
| Net Interest Income | | | 928,571 | | | | 907,487 | | | | 893,574 | |
| Provision for Loan Losses | | | 418,349 | | | | 444,249 | | | | 419,706 | |
| Net interest income after provision for loan losses | | | 510,222 | | | | 463,238 | | | | 473,868 | |
| Other Income | | | 481,060 | | | | 526,304 | | | | 510,958 | |
| Total Other Expense | | | 604,197 | | | | 600,729 | | | | 597,512 | |
| Income Before Income Taxes | | $ | 387,085 | | | $ | 388,813 | | | $ | 387,314 | |
| | | | | | | | | | | | | |
| Net Yield on Loan Receivables | | | 7.84 | % | | | 7.78 | % | | | 7.96 | % |
| Loan Receivables | | $ | 47,444,107 | | | $ | 46,953,902 | | | $ | 45,181,757 | |
| Average Loan Receivables | | $ | 47,016,472 | | | $ | 46,296,296 | | | $ | 44,523,521 | |
| | | | | | | | | | | | | |
| Credit Card Loans - Managed | | $ | 47,352,098 | | | $ | 46,864,317 | | | $ | 45,076,536 | |
| Average Credit Card Loans - Managed | | $ | 46,926,260 | | | $ | 46,203,924 | | | $ | 44,405,710 | |
| Managed Interest Yield | | | 12.76 | % | | | 12.59 | % | | | 12.59 | % |
| Managed Net Principal Charge-off Rate | | | 3.70 | % | | | 4.00 | % | | | 3.55 | % |
| Managed Delinquency Rate (over 30 days) | | | 3.16 | % | | | 2.97 | % | | | 3.31 | % |
| Managed Delinquency Rate (over 90 days) | | | 1.48 | % | | | 1.44 | % | | | 1.54 | % |
| Total Credit Card Volume | | $ | 27,171,729 | | | $ | 26,408,578 | | | $ | 26,754,745 | |
| Sales Volume | | $ | 23,527,999 | | | $ | 22,108,865 | | | $ | 22,690,277 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
Discover Financial Services | | | | | | | | | |
Third-Party Payments Segment | | | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | Quarter Ended | |
| | | Aug 31, 2007 | | | May 31, 2007 | | | Aug 31, 2006 | |
| | | | | | | | | | |
| Interest Income | | $ | 594 | | | $ | 558 | | | $ | 528 | |
| Interest Expense | | | - | | | | 4 | | | | - | |
| Net Interest Income | | | 594 | | | | 554 | | | | 528 | |
| Provision for Loan Losses | | | - | | | | - | | | | - | |
| Net interest income after provision for loan losses | | | 594 | | | | 554 | | | | 528 | |
| Other Income | | | 29,465 | | | | 29,248 | | | | 29,235 | |
| Total Other Expense | | | 20,620 | | | | 21,792 | | | | 19,843 | |
| Income Before Income Taxes | | $ | 9,439 | | | $ | 8,010 | | | $ | 9,920 | |
| | | | | | | | | | | | | |
| Transactions Processed on PULSE Network (000's) | | | 593,866 | | | | 558,811 | | | | 472,866 | |
Discover Financial Services | | | | | | | | | |
International Card Segment | | | | | | | | | |
Managed Basis1 | | | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | Quarter Ended | |
| | | Aug 31, 2007 | | | May 31, 2007 | | | Aug 31, 2006 | |
| | | | | | | | | | |
| Interest Income | | $ | 125,111 | | | $ | 113,962 | | | $ | 112,431 | |
| Interest Expense | | | 69,808 | | | | 53,462 | | | | 48,997 | |
| Net Interest Income | | | 55,303 | | | | 60,500 | | | | 63,434 | |
| Provision for Loan Losses | | | 90,677 | | | | 86,189 | | | | 75,658 | |
| Net interest income after provision for loan losses | | | (35,374 | ) | | | (25,689 | ) | | | (12,224 | ) |
| Other Income | | | 42,096 | | | | 41,863 | | | | 47,703 | |
| Total Other Expense | | | 74,032 | | | | 80,471 | | | | 65,182 | |
| Income Before Income Taxes | | $ | (67,310 | ) | | $ | (64,297 | ) | | $ | (29,703 | ) |
| | | | | | | | | | | | | |
| Net Yield on Loan Receivables | | | 4.86 | % | | | 5.28 | % | | | 5.77 | % |
| Loan Receivables | | $ | 4,448,348 | | | $ | 4,551,495 | | | $ | 4,521,923 | |
| Average Loan Receivables | | $ | 4,514,462 | | | $ | 4,547,656 | | | $ | 4,360,734 | |
| | | | | | | | | | | | | |
| Credit Card Loans - Managed | | $ | 4,448,348 | | | $ | 4,551,495 | | | $ | 4,521,923 | |
| Average Credit Card Loans - Managed | | $ | 4,514,462 | | | $ | 4,547,656 | | | $ | 4,360,734 | |
| Managed Interest Yield | | | 10.00 | % | | | 9.89 | % | | | 10.19 | % |
| Managed Net Principal Charge-off Rate | | | 6.56 | % | | | 6.50 | % | | | 6.41 | % |
| Managed Delinquency Rate (over 30 days) | | | 4.89 | % | | | 4.69 | % | | | 4.47 | % |
| Managed Delinquency Rate (over 90 days) | | | 2.30 | % | | | 2.25 | % | | | 2.09 | % |
| Total Credit Card Volume | | $ | 3,601,870 | | | $ | 3,646,009 | | | $ | 3,450,974 | |
| Sales Volume | | $ | 3,296,360 | | | $ | 3,277,439 | | | $ | 3,025,561 | |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
Discover Financial Services | | | | | | | | | |
Reconciliation of GAAP to Managed 3 | | | | | | | |
(unaudited, dollars in thousands) | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | 3Q07 | | | 2Q07 | | | 3Q06 | |
| | | | | | | | | | |
| Interest Income | | | | | | | | | |
| GAAP Basis | | $ | 755,610 | | | $ | 703,365 | | | $ | 642,748 | |
Securitization Adjustments 3 | | | 996,309 | | | | 1,012,479 | | | | 930,818 | |
| Managed Basis | | $ | 1,751,919 | | | $ | 1,715,844 | | | $ | 1,573,566 | |
| | | | | | | | | | | | | |
| Interest Expense | | | | | | | | | | | | |
| GAAP Basis | | $ | 361,469 | | | $ | 336,253 | | | $ | 250,440 | |
| Securitization Adjustments | | | 405,982 | | | | 411,050 | | | | 365,590 | |
| Managed Basis | | $ | 767,451 | | | $ | 747,303 | | | $ | 616,030 | |
| | | | | | | | | | | | | |
| Net Interest Income | | | | | | | | | | | | |
| GAAP Basis | | $ | 394,141 | | | $ | 367,112 | | | $ | 392,308 | |
| Securitization Adjustments | | | 590,327 | | | | 601,429 | | | | 565,228 | |
| Managed Basis | | $ | 984,468 | | | $ | 968,541 | | | $ | 957,536 | |
| | | | | | | | | | | | | |
| Provision for Loan Losses | | | | | | | | | | | | |
| GAAP Basis | | $ | 211,576 | | | $ | 203,287 | | | $ | 231,614 | |
| Securitization Adjustments | | | 297,450 | | | | 327,151 | | | | 263,750 | |
| Managed Basis | | $ | 509,026 | | | $ | 530,438 | | | $ | 495,364 | |
| | | | | | | | | | | | | |
| Net interest income after provision for loan losses | | | | | | | | | |
| GAAP Basis | | $ | 182,565 | | | $ | 163,825 | | | $ | 160,694 | |
| Securitization Adjustments | | | 292,877 | | | | 274,278 | | | | 301,478 | |
| Managed Basis | | $ | 475,442 | | | $ | 438,103 | | | $ | 462,172 | |
| | | | | | | | | | | | | |
| Other Income | | | | | | | | | | | | |
| GAAP Basis | | $ | 845,498 | | | $ | 871,693 | | | $ | 889,374 | |
| Securitization Adjustments | | | (292,877 | ) | | | (274,278 | ) | | | (301,478 | ) |
| Managed Basis | | $ | 552,621 | | | $ | 597,415 | | | $ | 587,896 | |
| | | | | | | | | | | | | |
| Total Assets | | | | | | | | | | | | |
| GAAP Basis | | $ | 36,141,011 | | | $ | 35,672,568 | | | $ | 28,318,362 | |
| Securitization Adjustments | | | 29,316,379 | | | | 29,440,258 | | | | 26,395,637 | |
| Managed Basis | | $ | 65,457,390 | | | $ | 65,112,826 | | | $ | 54,713,999 | |
| | | | | | | | | | | | | |
| Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 22,393,598 | | | $ | 22,788,042 | | | $ | 23,040,868 | |
| Securitization Adjustments | | | 29,498,857 | | | | 28,717,355 | | | | 26,662,812 | |
| Managed Basis | | $ | 51,892,455 | | | $ | 51,505,397 | | | $ | 49,703,680 | |
| | | | | | | | | | | | | |
| Average Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 22,736,502 | | | $ | 21,511,837 | | | $ | 22,545,836 | |
| Securitization Adjustments | | | 28,794,432 | | | | 29,332,115 | | | | 26,338,419 | |
| Managed Basis | | $ | 51,530,934 | | | $ | 50,843,952 | | | $ | 48,884,255 | |
| | | | | | | | | | | | | |
| Net Receivables/Tangible Equity | | | | | | | | | | | | |
| GAAP Basis | | | 4.38 | | | | 4.36 | | | | 4.18 | |
| Securitization Adjustments | | | 5.99 | | | | 5.69 | | | | 5.01 | |
| Managed Basis | | | 10.37 | | | | 10.05 | | | | 9.19 | |
| | | | | | | | | | | | | |
| Total Assets/Tangible Equity | | | | | | | | | | | | |
| GAAP Basis | | | 7.33 | | | | 7.07 | | | | 5.32 | |
| Securitization Adjustments | | | 5.95 | | | | 5.84 | | | | 4.96 | |
| Managed Basis | | | 13.28 | | | | 12.91 | | | | 10.28 | |
| | | | | | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | | 6.88 | % | | | 6.77 | % | | | 6.90 | % |
| Securitization Adjustments | | | 8.13 | % | | | 8.13 | % | | | 8.51 | % |
| Managed Basis | | | 7.58 | % | | | 7.56 | % | | | 7.77 | % |
| | | | | | | | | | | | | |
| Return on Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | | 3.53 | % | | | 3.86 | % | | | 4.25 | % |
| Securitization Adjustments | | | 2.79 | % | | | 2.83 | % | | | 3.64 | % |
| Managed Basis | | | 1.56 | % | | | 1.63 | % | | | 1.96 | % |
| | | | | | | | | | | | | |
Total Credit Card Loans | | | | | | | | | | | | |
| Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 22,301,589 | | | $ | 22,698,457 | | | $ | 22,935,647 | |
| Securitization Adjustments | | | 29,498,857 | | | | 28,717,355 | | | | 26,662,812 | |
| Managed Basis | | $ | 51,800,446 | | | $ | 51,415,812 | | | $ | 49,598,459 | |
| | | | | | | | | | | | | |
| Average Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 22,646,290 | | | $ | 21,419,465 | | | $ | 22,428,025 | |
| Securitization Adjustments | | | 28,794,432 | | | | 29,332,115 | | | | 26,338,419 | |
| Managed Basis | | $ | 51,440,722 | | | $ | 50,751,580 | | | $ | 48,766,444 | |
| | | | | | | | | | | | | |
| Interest Yield | | | | | | | | | | | | |
| GAAP Basis | | | 10.99 | % | | | 10.50 | % | | | 10.44 | % |
| Securitization Adjustments | | | 13.73 | % | | | 13.69 | % | | | 14.02 | % |
| Managed Basis | | | 12.52 | % | | | 12.35 | % | | | 12.38 | % |
| | | | | | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | | | | | |
| GAAP Basis | | | 3.71 | % | | | 3.91 | % | | | 3.57 | % |
| Securitization Adjustments | | | 4.13 | % | | | 4.46 | % | | | 4.01 | % |
| Managed Basis | | | 3.95 | % | | | 4.23 | % | | | 3.81 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | | | | | |
| GAAP Basis | | | 3.07 | % | | | 2.94 | % | | | 3.19 | % |
| Securitization Adjustments | | | 3.48 | % | | | 3.26 | % | | | 3.62 | % |
| Managed Basis | | | 3.30 | % | | | 3.12 | % | | | 3.42 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | | | | | |
| GAAP Basis | | | 1.44 | % | | | 1.43 | % | | | 1.49 | % |
| Securitization Adjustments | | | 1.63 | % | | | 1.58 | % | | | 1.68 | % |
| Managed Basis | | | 1.55 | % | | | 1.51 | % | | | 1.59 | % |
| | | | | | | | | | | | | |
US CARD | | | | | | | | | | | | |
| Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 19,170,450 | | | $ | 19,938,986 | | | $ | 20,159,249 | |
| Securitization Adjustments | | | 28,273,657 | | | | 27,014,916 | | | | 25,022,508 | |
| Managed Basis | | $ | 47,444,107 | | | $ | 46,953,902 | | | $ | 45,181,757 | |
| | | | | | | | | | | | | |
| Average Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 19,812,392 | | | $ | 18,673,525 | | | $ | 19,788,137 | |
| Securitization Adjustments | | | 27,204,080 | | | | 27,622,771 | | | | 24,735,384 | |
| Managed Basis | | $ | 47,016,472 | | | $ | 46,296,296 | | | $ | 44,523,521 | |
| | | | | | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | | 7.26 | % | | | 7.09 | % | | | 7.10 | % |
| Securitization Adjustments | | | 8.26 | % | | | 8.24 | % | | | 8.65 | % |
| Managed Basis | | | 7.84 | % | | | 7.78 | % | | | 7.96 | % |
| | | | | | | | | | | | | |
U.S. Credit Card Loans | | | | | | | | | | | | |
| Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 19,078,441 | | | $ | 19,849,401 | | | $ | 20,054,028 | |
| Securitization Adjustments | | | 28,273,657 | | | | 27,014,916 | | | | 25,022,508 | |
| Managed Basis | | $ | 47,352,098 | | | $ | 46,864,317 | | | $ | 45,076,536 | |
| | | | | | | | | | | | | |
| Average Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 19,722,180 | | | $ | 18,581,153 | | | $ | 19,670,326 | |
| Securitization Adjustments | | | 27,204,080 | | | | 27,622,771 | | | | 24,735,384 | |
| Managed Basis | | $ | 46,926,260 | | | $ | 46,203,924 | | | $ | 44,405,710 | |
| | | | | | | | | | | | | |
| Interest Yield | | | | | | | | | | | | |
| GAAP Basis | | | 11.22 | % | | | 10.72 | % | | | 10.56 | % |
| Securitization Adjustments | | | 13.88 | % | | | 13.85 | % | | | 14.20 | % |
| Managed Basis | | | 12.76 | % | | | 12.59 | % | | | 12.59 | % |
| | | | | | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | | | | | |
| GAAP Basis | | | 3.27 | % | | | 3.51 | % | | | 3.19 | % |
| Securitization Adjustments | | | 4.01 | % | | | 4.34 | % | | | 3.84 | % |
| Managed Basis | | | 3.70 | % | | | 4.00 | % | | | 3.55 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | | | | | |
| GAAP Basis | | | 2.80 | % | | | 2.71 | % | | | 3.03 | % |
| Securitization Adjustments | | | 3.40 | % | | | 3.16 | % | | | 3.54 | % |
| Managed Basis | | | 3.16 | % | | | 2.97 | % | | | 3.31 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | | | | | |
| GAAP Basis | | | 1.31 | % | | | 1.31 | % | | | 1.41 | % |
| Securitization Adjustments | | | 1.60 | % | | | 1.54 | % | | | 1.64 | % |
| Managed Basis | | | 1.48 | % | | | 1.44 | % | | | 1.54 | % |
| | | | | | | | | | | | | |
INTERNATIONAL CARD | | | | | | | | | | | | |
| Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 3,223,148 | | | $ | 2,849,056 | | | $ | 2,881,619 | |
| Securitization Adjustments | | | 1,225,200 | | | | 1,702,439 | | | | 1,640,304 | |
| Managed Basis | | $ | 4,448,348 | | | $ | 4,551,495 | | | $ | 4,521,923 | |
| | | | | | | | | | | | | |
| Average Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | $ | 2,924,110 | | | $ | 2,838,312 | | | $ | 2,757,699 | |
| Securitization Adjustments | | | 1,590,352 | | | | 1,709,344 | | | | 1,603,035 | |
| Managed Basis | | $ | 4,514,462 | | | $ | 4,547,656 | | | $ | 4,360,734 | |
| | | | | | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | | | | | |
| GAAP Basis | | | 4.21 | % | | | 4.60 | % | | | 5.39 | % |
| Securitization Adjustments | | | 6.06 | % | | | 6.41 | % | | | 6.42 | % |
| Managed Basis | | | 4.86 | % | | | 5.28 | % | | | 5.77 | % |
| | | | | | | | | | | | | |
International Credit Card Loans | | | | | | | | | | | | |
| Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 3,223,148 | | | $ | 2,849,056 | | | $ | 2,881,619 | |
| Securitization Adjustments | | | 1,225,200 | | | | 1,702,439 | | | | 1,640,304 | |
| Managed Basis | | $ | 4,448,348 | | | $ | 4,551,495 | | | $ | 4,521,923 | |
| | | | | | | | | | | | | |
| Average Credit Card Loans | | | | | | | | | | | | |
| GAAP Basis | | $ | 2,924,110 | | | $ | 2,838,312 | | | $ | 2,757,699 | |
| Securitization Adjustments | | | 1,590,352 | | | | 1,709,344 | | | | 1,603,035 | |
| Managed Basis | | $ | 4,514,462 | | | $ | 4,547,656 | | | $ | 4,360,734 | |
| | | | | | | | | | | | | |
| Interest Yield | | | | | | | | | | | | |
| GAAP Basis | | | 9.42 | % | | | 9.09 | % | | | 9.58 | % |
| Securitization Adjustments | | | 11.07 | % | | | 11.20 | % | | | 11.24 | % |
| Managed Basis | | | 10.00 | % | | | 9.89 | % | | | 10.19 | % |
| | | | | | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | | | | | |
| GAAP Basis | | | 6.71 | % | | | 6.53 | % | | | 6.32 | % |
| Securitization Adjustments | | | 6.27 | % | | | 6.45 | % | | | 6.58 | % |
| Managed Basis | | | 6.56 | % | | | 6.50 | % | | | 6.41 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | | | | | |
| GAAP Basis | | | 4.63 | % | | | 4.55 | % | | | 4.29 | % |
| Securitization Adjustments | | | 5.55 | % | | | 4.93 | % | | | 4.78 | % |
| Managed Basis | | | 4.89 | % | | | 4.69 | % | | | 4.47 | % |
| | | | | | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | | | | | |
| GAAP Basis | | | 2.21 | % | | | 2.24 | % | | | 2.03 | % |
| Securitization Adjustments | | | 2.51 | % | | | 2.26 | % | | | 2.19 | % |
| Managed Basis | | | 2.30 | % | | | 2.25 | % | | | 2.09 | % |
| | | | | | | | | | | | | |
| | | | | | | | | | | | | |
3 Securitization Adjustments present the effect of loan securitization by recharacterizing as securitization income the portions of the following items that relate to the securitized loans: interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income. | |
| | |
| The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assume that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans. The Company operates its business and analyzes its financial performance on a managed basis. Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans. The Company believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations. Managed loan data is also relevant because the company services the securitized and owned loans, and the related accounts, in the same manner without regard to ownership of the loans. In addition, investors often request information on a managed basis which provides a more meaningful comparison to industry competitors. | |
Discover Financial Services | | | | | | |
GAAP Basis | | | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | Nine Months Ended | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | $ | 2,139,280 | | | $ | 1,836,360 | |
| Interest Expense | | | 981,681 | | | | 696,522 | |
| Net Interest Income | | | 1,157,599 | | | | 1,139,838 | |
| Provision for Loan Losses | | | 610,249 | | | | 515,944 | |
| Net interest income after provision for loan losses | | | 547,350 | | | | 623,894 | |
| | | | | | | | | |
| Other Income | | | 2,542,868 | | | | 2,710,676 | |
| | | | | | | | | |
| Employee Compensation and Benefits | | | 695,595 | | | | 698,571 | |
| Marketing and Business Development | | | 446,289 | | | | 405,955 | |
| Information Processing & Communications | | | 289,139 | | | | 284,659 | |
| Professional Fees | | | 288,282 | | | | 248,720 | |
| Premises and Equipment | | | 69,770 | | | | 68,392 | |
| Other Expense | | | 267,942 | | | | 231,509 | |
| Total Other Expense | | | 2,057,017 | | | | 1,937,806 | |
| Income Before Income Taxes | | | 1,033,201 | | | | 1,396,764 | |
| Tax Expense | | | 388,087 | | | | 506,670 | |
| Net Income | | $ | 645,114 | | | $ | 890,094 | |
| | | | | | | | | |
Balance Sheet Statistics | | | | | | | | |
| Total Assets | | $ | 36,141,011 | | | $ | 28,318,362 | |
| Total Equity | | $ | 5,667,282 | | | $ | 6,030,941 | |
| Total Tangible Equity | | $ | 4,927,431 | | | $ | 5,322,013 | |
| Loan Receivables | | $ | 22,393,598 | | | $ | 23,040,868 | |
| Average Loan Receivables | | $ | 23,021,556 | | | $ | 21,563,711 | |
| ROE | | | 15 | % | | | 22 | % |
| Net Owned Receivables/Tangible Equity | | | 4.38 | | | | 4.18 | |
| Total Owned Assets/Tangible Equity | | | 7.33 | | | | 5.32 | |
| Net Yield on Loan Receivables | | | 6.70 | % | | | 7.04 | % |
| Return on Loan Receivables | | | 3.73 | % | | | 5.50 | % |
| | | | | | | | | |
| Allowance for Loan Losses (period end) | | $ | 792,883 | | | $ | 811,865 | |
| Net Gain on Securitization | | $ | 7,580 | | | $ | 153,950 | |
| | | | | | | | | |
EPS Statistics | | | | | | | | |
| Basic EPS | | $ | 1.35 | | | $ | 1.87 | |
| Diluted EPS | | $ | 1.35 | | | | | |
| Stock Price Per Share (period end) | | | | | | | | |
Ending Shares Outstanding (000's) | | | 477,328 | | | | 477,236 | |
| Weighted Average Shares Outstanding (000's) | | | 477,248 | | | | 477,236 | |
| Weighted Average Shares Outstanding (fully diluted) (000's) | | | 478,278 | | | | | |
| Book Value Per Share | | $ | 11.87 | | | | | |
| | | | | | | | | |
Total Credit Card Loans | | | | | | | | |
| Credit Card Loans - Owned | | $ | 22,301,589 | | | $ | 22,935,647 | |
| Average Credit Card Loans - Owned | | $ | 22,928,841 | | | $ | 21,351,673 | |
| Interest Yield | | | 10.63 | % | | | 10.42 | % |
| Net Principal Charge-off Rate | | | 3.80 | % | | | 3.74 | % |
| Delinquency Rate (over 30 days) | | | 3.07 | % | | | 3.19 | % |
| Delinquency Rate (over 90 days) | | | 1.44 | % | | | 1.49 | % |
| | | | | | | | | |
Discover Financial Services | | | | | | |
Managed Basis1 | | | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | Nine Months Ended | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | $ | 5,067,447 | | | $ | 4,623,679 | |
| Interest Expense | | | 2,160,580 | | | | 1,728,487 | |
| Net Interest Income | | | 2,906,867 | | | | 2,895,192 | |
| Provision for Loan Losses | | | 1,522,124 | | | | 1,374,105 | |
| Net interest income after provision for loan losses | | | 1,384,743 | | | | 1,521,087 | |
| | | | | | | | | |
| Other Income | | | 1,705,475 | | | | 1,813,483 | |
| | | | | | | | | |
| Employee Compensation and Benefits | | | 695,595 | | | | 698,571 | |
| Marketing and Business Development | | | 446,289 | | | | 405,955 | |
| Information Processing & Communications | | | 289,139 | | | | 284,659 | |
| Professional Fees | | | 288,282 | | | | 248,720 | |
| Premises and Equipment | | | 69,770 | | | | 68,392 | |
| Other Expense | | | 267,942 | | | | 231,509 | |
| Total Other Expense | | | 2,057,017 | | | | 1,937,806 | |
| Income Before Income Taxes | | | 1,033,201 | | | | 1,396,764 | |
| Tax Expense | | | 388,087 | | | | 506,670 | |
| Net Income | | $ | 645,114 | | | $ | 890,094 | |
| | | | | | | | | |
Balance Sheet Statistics | | | | | | | | |
| Total Assets | | $ | 65,457,390 | | | $ | 54,713,999 | |
Total Equity 2 | | $ | 5,667,282 | | | $ | 6,030,941 | |
Total Tangible Equity 2 | | $ | 4,927,431 | | | $ | 5,322,013 | |
| Loan Receivables | | $ | 51,892,455 | | | $ | 49,703,680 | |
| Average Loan Receivables | | $ | 51,314,502 | | | $ | 48,096,995 | |
| Net Managed Receivables/Tangible Equity | | | 10.37 | | | | 9.19 | |
| Total Managed Assets/Tangible Equity | | | 13.28 | | | | 10.28 | |
| Net Yield on Loan Receivables | | | 7.55 | % | | | 8.02 | % |
| Return on Loan Receivables | | | 1.67 | % | | | 2.47 | % |
| | | | | | | | | |
Total Credit Card Loans | | | | | | | | |
| Credit Card Loans - Managed | | $ | 51,800,446 | | | $ | 49,598,459 | |
| Average Credit Card Loans - Managed | | $ | 51,221,787 | | | $ | 47,884,957 | |
| Managed Interest Yield | | | 12.37 | % | | | 12.40 | % |
| Managed Net Principal Charge-off Rate | | | 4.07 | % | | | 4.06 | % |
| Managed Delinquency Rate (over 30 days) | | | 3.30 | % | | | 3.42 | % |
| Managed Delinquency Rate (over 90 days) | | | 1.55 | % | | | 1.59 | % |
| | | | | | | | | |
Total Credit Card Volume | | | | | | | | |
| Domestic | | $ | 80,461,042 | | | $ | 77,219,348 | |
| International | | | 10,826,078 | | | | 8,333,763 | |
| Total | | $ | 91,287,120 | | | $ | 85,553,111 | |
| | | | | | | | | |
Total Credit Card Sales Volume | | | | | | | | |
| Domestic | | $ | 67,673,917 | | | $ | 64,981,252 | |
| International | | | 9,743,083 | | | | 7,212,101 | |
| Total | | $ | 77,417,000 | | | $ | 72,193,353 | |
| | | | | | | | | |
Transactions Processed on Networks (000's) | | | | | | | | |
| Discover Network | | | 1,102,860 | | | | 1,041,781 | |
| PULSE Network | | | 1,673,543 | | | | 1,368,390 | |
| Total | | | 2,776,403 | | | | 2,410,171 | |
| | | | | | | | | |
Segment - Income Before Income Taxes | | | | | | | | |
| U.S. Card | | $ | 1,176,924 | | | $ | 1,411,467 | |
| Third-Party Payments | | | 29,369 | | | | 22,003 | |
| International Card | | | (173,092 | ) | | | (36,706 | ) |
| Total | | $ | 1,033,201 | | | $ | 1,396,764 | |
| | | | | | | | | |
| | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
2 Balance on a GAAP and Managed basis is the same. | | | | | | | | |
Discover Financial Services | | | | | | |
U.S. Card Segment | | | | | | |
Managed Basis1 | | | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | Nine Months Ended | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | $ | 4,709,530 | | | $ | 4,319,190 | |
| Interest Expense | | | 1,985,090 | | | | 1,598,384 | |
| Net Interest Income | | | 2,724,440 | | | | 2,720,806 | |
| Provision for Loan Losses | | | 1,268,674 | | | | 1,210,507 | |
| Net interest income after provision for loan losses | | | 1,455,766 | | | | 1,510,299 | |
| Other Income | | | 1,497,367 | | | | 1,603,963 | |
| Total Other Expense | | | 1,776,209 | | | | 1,702,795 | |
| Income Before Income Taxes | | $ | 1,176,924 | | | $ | 1,411,467 | |
| | | | | | | | | |
| Net Yield on Loan Receivables | | | 7.76 | % | | | 8.19 | % |
| Loan Receivables | | $ | 47,444,107 | | | $ | 45,181,757 | |
| Average Loan Receivables | | $ | 46,758,044 | | | $ | 44,246,464 | |
| | | | | | | | | |
| Credit Card Loans - Managed | | $ | 47,352,098 | | | $ | 45,076,536 | |
| Average Credit Card Loans - Managed | | $ | 46,665,329 | | | $ | 44,105,054 | |
| Managed Interest Yield | | | 12.60 | % | | | 12.57 | % |
| Managed Net Principal Charge-off Rate | | | 3.84 | % | | | 3.95 | % |
| Managed Delinquency Rate (over 30 days) | | | 3.16 | % | | | 3.31 | % |
| Managed Delinquency Rate (over 90 days) | | | 1.48 | % | | | 1.54 | % |
| Total Credit Card Volume | | $ | 80,461,042 | | | $ | 77,219,348 | |
| Sales Volume | | $ | 67,673,917 | | | $ | 64,981,252 | |
| | | | | | | | | |
| | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
Discover Financial Services | | | | | | |
Third-Party Payments Segment | | | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | Nine Months Ended | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | $ | 1,726 | | | $ | 1,285 | |
| Interest Expense | | | 19 | | | | 17 | |
| Net Interest Income | | | 1,707 | | | | 1,268 | |
| Provision for Loan Losses | | | - | | | | - | |
| Net interest income after provision for loan losses | | | 1,707 | | | | 1,268 | |
| Other Income | | | 89,395 | | | | 82,623 | |
| Total Other Expense | | | 61,733 | | | | 61,888 | |
| Income Before Income Taxes | | $ | 29,369 | | | $ | 22,003 | |
| | | | | | | | | |
| Transactions Processed on PULSE Network (000's) | | | 1,673,543 | | | | 1,368,390 | |
Discover Financial Services | | | | | | |
International Card Segment | | | | | | |
Managed Basis1 | | | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | Nine Months Ended | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | $ | 356,191 | | | $ | 303,204 | |
| Interest Expense | | | 175,471 | | | | 130,086 | |
| Net Interest Income | | | 180,720 | | | | 173,118 | |
| Provision for Loan Losses | | | 253,450 | | | | 163,598 | |
| Net interest income after provision for loan losses | | | (72,730 | ) | | | 9,520 | |
| Other Income | | | 118,713 | | | | 126,897 | |
| Total Other Expense | | | 219,075 | | | | 173,123 | |
| Income Before Income Taxes | | $ | (173,092 | ) | | $ | (36,706 | ) |
| | | | | | | | | |
| Net Yield on Loan Receivables | | | 5.28 | % | | | 5.99 | % |
| Loan Receivables | | $ | 4,448,348 | | | $ | 4,521,923 | |
| Average Loan Receivables | | $ | 4,556,458 | | | $ | 3,850,531 | |
| | | | | | | | | |
| Credit Card Loans - Managed | | $ | 4,448,348 | | | $ | 4,521,923 | |
| Average Credit Card Loans - Managed | | $ | 4,556,458 | | | $ | 3,779,903 | |
| Managed Interest Yield | | | 10.05 | % | | | 10.44 | % |
| Managed Net Principal Charge-off Rate | | | 6.50 | % | | | 5.30 | % |
| Managed Delinquency Rate (over 30 days) | | | 4.89 | % | | | 4.47 | % |
| Managed Delinquency Rate (over 90 days) | | | 2.30 | % | | | 2.09 | % |
| Total Credit Card Volume | | $ | 10,826,078 | | | $ | 8,333,763 | |
| Sales Volume | | $ | 9,743,083 | | | $ | 7,212,101 | |
| | | | | | | | | |
| | | | | | | | | |
1 Managed basis assumes loans that have been securitized were not sold and presents earnings and statistical information on these loans in a manner similar to the way loans that have not been sold are presented. See Reconciliation of GAAP to Managed schedule. | |
Discover Financial Services | | | | | | |
Reconciliation of GAAP to Managed 3 | | | | |
(unaudited, dollars in thousands) | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | YTD 2007 | | | YTD 2006 | |
| | | | | | | |
| Interest Income | | | | | | |
| GAAP Basis | | $ | 2,139,280 | | | $ | 1,836,360 | |
Securitization Adjustments 3 | | | 2,928,167 | | | | 2,787,319 | |
| Managed Basis | | $ | 5,067,447 | | | $ | 4,623,679 | |
| | | | | | | | | |
| Interest Expense | | | | | | | | |
| GAAP Basis | | $ | 981,681 | | | $ | 696,522 | |
| Securitization Adjustments | | | 1,178,899 | | | | 1,031,965 | |
| Managed Basis | | $ | 2,160,580 | | | $ | 1,728,487 | |
| | | | | | | | | |
| Net Interest Income | | | | | | | | |
| GAAP Basis | | $ | 1,157,599 | | | $ | 1,139,838 | |
| Securitization Adjustments | | | 1,749,268 | | | | 1,755,354 | |
| Managed Basis | | $ | 2,906,867 | | | $ | 2,895,192 | |
| | | | | | | | | |
| Provision for Loan Losses | | | | | | | | |
| GAAP Basis | | $ | 610,249 | | | $ | 515,944 | |
| Securitization Adjustments | | | 911,875 | | | | 858,161 | |
| Managed Basis | | $ | 1,522,124 | | | $ | 1,374,105 | |
| | | | | | | | | |
| Net interest income after provision for loan losses | | | | | |
| GAAP Basis | | $ | 547,350 | | | $ | 623,894 | |
| Securitization Adjustments | | | 837,393 | | | | 897,193 | |
| Managed Basis | | $ | 1,384,743 | | | $ | 1,521,087 | |
| | | | | | | | | |
| Other Income | | | | | | | | |
| GAAP Basis | | $ | 2,542,868 | | | $ | 2,710,676 | |
| Securitization Adjustments | | | (837,393 | ) | | | (897,193 | ) |
| Managed Basis | | $ | 1,705,475 | | | $ | 1,813,483 | |
| | | | | | | | | |
| Total Assets | | | | | | | | |
| GAAP Basis | | $ | 36,141,011 | | | $ | 28,318,362 | |
| Securitization Adjustments | | | 29,316,379 | | | | 26,395,637 | |
| Managed Basis | | $ | 65,457,390 | | | $ | 54,713,999 | |
| | | | | | | | | |
| Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 22,393,598 | | | $ | 23,040,868 | |
| Securitization Adjustments | | | 29,498,857 | | | | 26,662,812 | |
| Managed Basis | | $ | 51,892,455 | | | $ | 49,703,680 | |
| | | | | | | | | |
| Average Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 23,021,556 | | | $ | 21,563,711 | |
| Securitization Adjustments | | | 28,292,946 | | | | 26,533,284 | |
| Managed Basis | | $ | 51,314,502 | | | $ | 48,096,995 | |
| | | | | | | | | |
| Net Receivables/Tangible Equity | | | | | | | | |
| GAAP Basis | | | 4.38 | | | | 4.18 | |
| Securitization Adjustments | | | 5.99 | | | | 5.01 | |
| Managed Basis | | | 10.37 | | | | 9.19 | |
| | | | | | | | | |
| Total Assets/Tangible Equity | | | | | | | | |
| GAAP Basis | | | 7.33 | | | | 5.32 | |
| Securitization Adjustments | | | 5.95 | | | | 4.96 | |
| Managed Basis | | | 13.28 | | | | 10.28 | |
| | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | |
| GAAP Basis | | | 6.70 | % | | | 7.04 | % |
| Securitization Adjustments | | | 8.24 | % | | | 8.81 | % |
| Managed Basis | | | 7.55 | % | | | 8.02 | % |
| | | | | | | | | |
| Return on Loan Receivables | | | | | | | | |
| GAAP Basis | | | 3.73 | % | | | 5.50 | % |
| Securitization Adjustments | | | 3.04 | % | | | 4.47 | % |
| Managed Basis | | | 1.67 | % | | | 2.47 | % |
| | | | | | | | | |
Total Credit Card Loans | | | | | | | | |
| Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 22,301,589 | | | $ | 22,935,647 | |
| Securitization Adjustments | | | 29,498,857 | | | | 26,662,812 | |
| Managed Basis | | $ | 51,800,446 | | | $ | 49,598,459 | |
| | | | | | | | | |
| Average Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 22,928,841 | | | $ | 21,351,673 | |
| Securitization Adjustments | | | 28,292,946 | | | | 26,533,284 | |
| Managed Basis | | $ | 51,221,787 | | | $ | 47,884,957 | |
| | | | | | | | | |
| Interest Yield | | | | | | | | |
| GAAP Basis | | | 10.63 | % | | | 10.42 | % |
| Securitization Adjustments | | | 13.79 | % | | | 13.99 | % |
| Managed Basis | | | 12.37 | % | | | 12.40 | % |
| | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | |
| GAAP Basis | | | 3.80 | % | | | 3.74 | % |
| Securitization Adjustments | | | 4.30 | % | | | 4.31 | % |
| Managed Basis | | | 4.07 | % | | | 4.06 | % |
| | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | |
| GAAP Basis | | | 3.07 | % | | | 3.19 | % |
| Securitization Adjustments | | | 3.48 | % | | | 3.62 | % |
| Managed Basis | | | 3.30 | % | | | 3.42 | % |
| | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | |
| GAAP Basis | | | 1.44 | % | | | 1.49 | % |
| Securitization Adjustments | | | 1.63 | % | | | 1.68 | % |
| Managed Basis | | | 1.55 | % | | | 1.59 | % |
| | | | | | | | | |
US CARD | | | | | | | | |
| Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 19,170,450 | | | $ | 20,159,249 | |
| Securitization Adjustments | | | 28,273,657 | | | | 25,022,508 | |
| Managed Basis | | $ | 47,444,107 | | | $ | 45,181,757 | |
| | | | | | | | | |
| Average Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 20,127,794 | | | $ | 19,041,730 | |
| Securitization Adjustments | | | 26,630,250 | | | | 25,204,734 | |
| Managed Basis | | $ | 46,758,044 | | | $ | 44,246,464 | |
| | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | |
| GAAP Basis | | | 6.99 | % | | | 7.23 | % |
| Securitization Adjustments | | | 8.35 | % | | | 8.92 | % |
| Managed Basis | | | 7.76 | % | | | 8.19 | % |
| | | | | | | | | |
U.S. Credit Card Loans | | | | | | | | |
| Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 19,078,441 | | | $ | 20,054,028 | |
| Securitization Adjustments | | | 28,273,657 | | | | 25,022,508 | |
| Managed Basis | | $ | 47,352,098 | | | $ | 45,076,536 | |
| | | | | | | | | |
| Average Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 20,035,079 | | | $ | 18,900,320 | |
| Securitization Adjustments | | | 26,630,250 | | | | 25,204,734 | |
| Managed Basis | | $ | 46,665,329 | | | $ | 44,105,054 | |
| | | | | | | | | |
| Interest Yield | | | | | | | | |
| GAAP Basis | | | 10.82 | % | | | 10.54 | % |
| Securitization Adjustments | | | 13.94 | % | | | 14.09 | % |
| Managed Basis | | | 12.60 | % | | | 12.57 | % |
| | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | |
| GAAP Basis | | | 3.40 | % | | | 3.63 | % |
| Securitization Adjustments | | | 4.16 | % | | | 4.19 | % |
| Managed Basis | | | 3.84 | % | | | 3.95 | % |
| | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | |
| GAAP Basis | | | 2.80 | % | | | 3.03 | % |
| Securitization Adjustments | | | 3.40 | % | | | 3.54 | % |
| Managed Basis | | | 3.16 | % | | | 3.31 | % |
| | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | |
| GAAP Basis | | | 1.31 | % | | | 1.41 | % |
| Securitization Adjustments | | | 1.60 | % | | | 1.64 | % |
| Managed Basis | | | 1.48 | % | | | 1.54 | % |
| | | | | | | | | |
INTERNATIONAL CARD | | | | | | | | |
| Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 3,223,148 | | | $ | 2,881,619 | |
| Securitization Adjustments | | | 1,225,200 | | | | 1,640,304 | |
| Managed Basis | | $ | 4,448,348 | | | $ | 4,521,923 | |
| | | | | | | | | |
| Average Loan Receivables | | | | | | | | |
| GAAP Basis | | $ | 2,893,762 | | | $ | 2,521,981 | |
| Securitization Adjustments | | | 1,662,696 | | | | 1,328,550 | |
| Managed Basis | | $ | 4,556,458 | | | $ | 3,850,531 | |
| | | | | | | | | |
| Net Yield on Loan Receivables | | | | | | | | |
| GAAP Basis | | | 4.60 | % | | | 5.57 | % |
| Securitization Adjustments | | | 6.48 | % | | | 6.79 | % |
| Managed Basis | | | 5.28 | % | | | 5.99 | % |
| | | | | | | | | |
International Credit Card Loans | | | | | | | | |
| Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 3,223,148 | | | $ | 2,881,619 | |
| Securitization Adjustments | | | 1,225,200 | | | | 1,640,304 | |
| Managed Basis | | $ | 4,448,348 | | | $ | 4,521,923 | |
| | | | | | | | | |
| Average Credit Card Loans | | | | | | | | |
| GAAP Basis | | $ | 2,893,762 | | | $ | 2,451,353 | |
| Securitization Adjustments | | | 1,662,696 | | | | 1,328,550 | |
| Managed Basis | | $ | 4,556,458 | | | $ | 3,779,903 | |
| | | | | | | | | |
| Interest Yield | | | | | | | | |
| GAAP Basis | | | 9.30 | % | | | 9.51 | % |
| Securitization Adjustments | | | 11.35 | % | | | 12.16 | % |
| Managed Basis | | | 10.05 | % | | | 10.44 | % |
| | | | | | | | | |
| Net Principal Charge-off Rate | | | | | | | | |
| GAAP Basis | | | 6.51 | % | | | 4.58 | % |
| Securitization Adjustments | | | 6.49 | % | | | 6.64 | % |
| Managed Basis | | | 6.50 | % | | | 5.30 | % |
| | | | | | | | | |
| Delinquency Rate (over 30 days) | | | | | | | | |
| GAAP Basis | | | 4.63 | % | | | 4.29 | % |
| Securitization Adjustments | | | 5.55 | % | | | 4.78 | % |
| Managed Basis | | | 4.89 | % | | | 4.47 | % |
| | | | | | | | | |
| Delinquency Rate (over 90 days) | | | | | | | | |
| GAAP Basis | | | 2.21 | % | | | 2.03 | % |
| Securitization Adjustments | | | 2.51 | % | | | 2.19 | % |
| Managed Basis | | | 2.30 | % | | | 2.09 | % |
| | | | | | | | | |
| | | | | | | | | |
3 Securitization Adjustments present the effect of loan securitization by recharacterizing as securitization income the portions of the following items that relate to the securitized loans: interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income. | |
| | |
| The data is presented on both a "managed" loan basis and as reported under generally accepted accounting principles ("owned" loan basis). Managed loan data assume that the Company's securitized loan receivables have not been sold and presents the results of securitized loan receivables in the same manner as the Company's owned loans. The Company operates its business and analyzes its financial performance on a managed basis. Accordingly, underwriting and servicing standards are comparable for both owned and securitized loans. The Company believes that managed loan information is useful to investors because it provides information regarding the quality of loan origination and credit performance of the entire managed portfolio and allows investors to understand the related credit risks inherent in owned loans and retained interests in securitizations. Managed loan data is also relevant because the company services the securitized and owned loans, and the related accounts, in the same manner without regard to ownership of the loans. In addition, investors often request information on a managed basis which provides a more meaningful comparison to industry competitors. | |
17
