Exhibit 99.1
DISCOVER FINANCIAL SERVICES REPORTS FIRST QUARTER RESULTS FROM
CONTINUING OPERATIONS: NET INCOME OF $239 MILLION
CONTINUING OPERATIONS: NET INCOME OF $239 MILLION
AND EARNINGS PER SHARE OF $.50
Riverwoods, IL, March 19, 2008 - - Discover Financial Services (NYSE: DFS) today reported net income from continuing operations for the first quarter of 2008 of $239 million, or $.50 per share, as compared to $260 million, or $.54 per share in the first quarter of 2007. Reported net income of $81 million included a $158 million loss from discontinued operations related to the company’s Goldfish business previously reported as the International Card segment.
First Quarter Highlights
| · | U.S. Card managed loans grew to $47.5 billion, up 2% from last year driven primarily by a 5% increase in sales volume. |
| · | Revenue net of interest expense grew 13%, while total other expense increased by 2% over last year. |
| · | The first quarter U.S. Card managed credit card net charge-off rate was 4.37% and the managed over 30 days delinquency rate was 3.93%, up 51 basis points and 62 basis points, respectively, from last year. |
| · | Third-Party Payment debit and credit volume was $26.3 billion for the first quarter, 24% above last year. |
“Our U.S. Card results this quarter demonstrated strong profitability despite rising credit costs,” said David Nelms, chief executive officer of Discover Financial Services. “The net yield on our loan portfolio expanded as lower funding costs largely offset a higher level of provisioning for credit losses, which we attribute primarily to U.S. housing and mortgage issues and a deteriorating economic environment. We had continued solid growth in credit card sales, with appropriate growth in receivables. We also achieved strong performance this quarter in our Third-Party Payments segment, with network volume exceeding $26 billion, an increase of 24% from last year and pretax income up 30%.”
1
Segment Results (Managed Basis):
U.S. Card
The U.S. Card segment produced solid results in the first quarter of 2008 with pretax income of $375 million, down 6% from the first quarter of 2007, as higher provision for loan losses was largely offset by increased net interest income and other income.
| · | Provision for loan losses increased 54% due to higher net charge-offs and an increase in the reserve rate, reflecting recent delinquency trends. |
| · | Managed net interest income increased 11% due to higher interest income partially offset by higher interest expense. |
| · | Interest income increased due to higher average receivables and an increase in interest yield, as a reduction in low rate balance transfer volume more than offset lower pricing on variable-rate APR accounts. |
| · | Interest expense increased due to increased borrowings offset by lower funding costs. |
| · | Other income increased, reflecting a $75 million favorable revaluation of the interest-only strip receivable and higher discount and interchange revenue due to growth in sales. |
Sales volume remained strong, increasing 5% from the first quarter of last year. Managed loans grew to $47.5 billion, up 2% from last year, as the company moderated loan growth in response to the current economic environment. Balance transfer volumes were 43% below last year as the company implemented tighter marketing and credit criteria. The weakening economic environment impacted cardmember delinquencies and charge-offs, with a managed credit card over 30 days delinquency rate of 3.93%, up 34 basis points from the fourth quarter of 2007 and 62 basis points from last year. The managed credit card net charge-off rate of 4.37% was up 52 basis points from the fourth quarter of 2007 and 51 basis points from last year, consistent with the company’s current expectation for a full year managed net charge-off rate between 4.75% and 5.00%.
2
Third-Party Payments
The Third-Party Payments segment continued to produce strong growth in transaction volume, up 24% from last year reflecting the impact of financial institution signings in 2007 as well as increased volumes from existing financial institutions. Increased revenues from transaction growth along with controlled expenses led to first quarter pretax income of $16 million, up 30% from the first quarter of 2007. First quarter 2008 results also include higher marketing and pricing incentives as the company invested to grow share, as well as $3 million in revenue related to a one-time contractual payment.
Discontinued Operations
On February 7, 2008, the company announced that it reached an agreement to sell its Goldfish business in the United Kingdom, which previously had been reported as the International Card segment and, as a result, has reclassified the net assets of the business to discontinued operations in the first quarter of 2008, restating prior periods for comparability. The company recorded a loss from discontinued operations of $158 million in the first quarter of 2008. This included a loss from the write-down of net assets to fair value of $172 million and net income from operations of $14 million which included gains from the sale of other assets.
Dividend Declaration
The company declared a cash dividend of $.06 per share, payable on April 22, 2008, to stockholders of record at the close of business on April 3, 2008.
Conference Call and Webcast Information
The company will host a conference call to discuss its first quarter results on Wednesday, March 19, 2008, at 10 am Central time. Interested parties can listen to the conference call via a live audio webcast at http://investorrelations.discoverfinancial.com.
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About Discover Financial Services
Discover Financial Services (NYSE: DFS) is a leading credit card issuer and electronic payment services company with one of the most recognized brands in U.S. financial services. The company operates the Discover Card, America's cash rewards pioneer. Since its inception in 1986, the company has become one of the largest card issuers in the United States. Its payments businesses consist of the Discover Network, with millions of merchant and cash access locations, and PULSE, one of the nation's leading ATM/debit networks. Discover also operates the Goldfish credit card business in the United Kingdom. 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.
Financial information presented on a managed basis assumes that loans that have been securitized were not sold and presents financial information regarding these loans in a manner similar to the presentation of financial information regarding loans that have not been sold. Management believes it is useful for investors to consider the credit performance of the entire managed loan portfolio to understand the quality of loan originations and the related credit risks inherent in the owned portfolio and retained interests in securitization. For more information, and a detailed reconciliation, please refer to the schedule titled “Reconciliation of GAAP to Managed Data” attached to this press release.
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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 and securitization 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; closing of the sale of our Goldfish business in the United Kingdom; 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 Annual Report on Form 10-K for the year ended November 30, 2007, filed with the SEC and available at the SEC's internet site (http://www.sec.gov).
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| Discover Financial Services | ||||||||||||
| GAAP Basis | ||||||||||||
| (unaudited, dollars in thousands, except per | ||||||||||||
| share statistics) | Quarter Ended | |||||||||||
| Feb 29, 2008 | Nov 30, 2007 3 | Feb 28, 2007 3 | ||||||||||
| Earnings Summary | ||||||||||||
| Interest Income | $ | 662,802 | $ | 659,676 | $ | 612,206 | ||||||
| Interest Expense | 339,441 | 350,917 | 251,807 | |||||||||
| Net Interest Income | 323,361 | 308,759 | 360,399 | |||||||||
| Other Income | 975,544 | 952,500 | 790,349 | |||||||||
| Revenue Net of Interest Expense | 1,298,905 | 1,261,259 | 1,150,748 | |||||||||
| Provision for Loan Losses | 305,632 | 296,187 | 147,198 | |||||||||
| Employee Compensation and Benefits | 217,370 | 208,910 | 215,167 | |||||||||
| Marketing and Business Development | 141,553 | 155,976 | 134,542 | |||||||||
| Information Processing & Communications | 78,276 | 85,034 | 78,844 | |||||||||
| Professional Fees | 73,672 | 94,380 | 76,065 | |||||||||
| Premises and Equipment | 19,641 | 19,348 | 19,575 | |||||||||
| Other Expense | 71,831 | 73,082 | 67,648 | |||||||||
| Total Other Expense | 602,343 | 636,730 | 591,841 | |||||||||
| Income (Loss) Before Income Taxes | 390,930 | 328,342 | 411,709 | |||||||||
| Tax Expense | 152,101 | 118,368 | 151,891 | |||||||||
| Net Income From Continuing Operations | 238,829 | 209,974 | 259,818 | |||||||||
Discontinued Operations, Net of Tax 1, 2 | (157,615 | ) | (266,458 | ) | (26,186 | ) | ||||||
Net Income (Loss) 1, 2 | $ | 81,214 | $ | (56,484 | ) | $ | 233,632 | |||||
| Effective Tax Rate From Continuing Operations | 38.9 | % | 36.1 | % | 36.9 | % | ||||||
Balance Sheet Statistics 4 | ||||||||||||
| Loan Receivables | $ | 21,042,681 | $ | 20,831,117 | $ | 19,727,837 | ||||||
| Total Assets | $ | 34,222,732 | $ | 33,449,702 | $ | 26,373,020 | ||||||
| Total Equity | $ | 5,654,341 | $ | 5,599,422 | $ | 5,528,658 | ||||||
| Total Tangible Equity | $ | 5,341,020 | $ | 5,284,232 | $ | 5,213,439 | ||||||
| Tangible Equity/Total Owned Assets | 15.6 | % | 15.8 | % | 19.8 | % | ||||||
ROE 1,2 | 6 | % | (4 | %) | 16 | % | ||||||
| ROE from Continuing Operations | 17 | % | 15 | % | 18 | % | ||||||
| Allowance for Loan Loss (period end) | $ | 860,378 | $ | 759,925 | $ | 663,172 | ||||||
| Change in Loan Loss Reserves | $ | 100,453 | $ | 130,467 | $ | (40,744 | ) | |||||
| Interest-only Strip Receivable (period end) | $ | 468,059 | $ | 400,313 | $ | 330,530 | ||||||
| Net Revaluation of Retained Interests | $ | 74,997 | $ | 37,475 | $ | 1,421 | ||||||
| Per Share Statistics | ||||||||||||
Basic EPS 1, 2 | $ | 0.17 | $ | (0.12 | ) | $ | 0.49 | |||||
| Basic EPS from Continuing Operations | $ | 0.50 | $ | 0.44 | $ | 0.54 | ||||||
Diluted EPS 1, 2, 5 | $ | 0.17 | $ | (0.12 | ) | $ | 0.49 | |||||
Diluted EPS from Continuing Operations 5 | $ | 0.50 | $ | 0.44 | $ | 0.54 | ||||||
| Stock Price (period end) | $ | 15.09 | $ | 17.37 | ||||||||
| Book Value | $ | 11.80 | $ | 11.72 | ||||||||
Ending Shares Outstanding (000's) 5 | 479,127 | 477,688 | 477,236 | |||||||||
Weighted Average Shares Outstanding (000's) 5 | 478,518 | 477,567 | 477,236 | |||||||||
Weighted Average Shares Outstanding (fully diluted) (000's) 5 | 481,744 | 477,567 | 477,236 | |||||||||
Credit Card Loans 4 | ||||||||||||
| Credit Card Loans - Owned | $ | 20,556,810 | $ | 20,579,923 | $ | 19,636,991 | ||||||
| Average Credit Card Loans - Owned | $ | 21,148,252 | $ | 19,276,203 | $ | 21,841,166 | ||||||
| Interest Yield | 10.35 | % | 10.53 | % | 10.55 | % | ||||||
Net Principal Charge-off Rate 6 | 3.90 | % | 3.44 | % | 3.48 | % | ||||||
| Delinquency Rate (over 30 days) | 3.69 | % | 3.28 | % | 2.97 | % | ||||||
| Delinquency Rate (over 90 days) | 1.86 | % | 1.53 | % | 1.46 | % | ||||||
| Transactions Processed on Networks (000's) | ||||||||||||
| Discover Network | 378,912 | 378,438 | 361,700 | |||||||||
| PULSE Network | 621,072 | 611,518 | 520,866 | |||||||||
| Total | 999,984 | 989,956 | 882,566 | |||||||||
| Network Volume | ||||||||||||
| PULSE Network | $ | 24,783,895 | $ | 23,035,361 | $ | 20,029,576 | ||||||
| Third - Party Issuers | 1,545,943 | 1,458,959 | 1,215,140 | |||||||||
| Total Third - Party Payments | 26,329,838 | 24,494,320 | 21,244,716 | |||||||||
| U.S. Card | 24,074,331 | 23,482,095 | 22,925,046 | |||||||||
| Total | $ | 50,404,169 | $ | 47,976,415 | $ | 44,169,762 | ||||||
1 The quarter ended February 29, 2008 includes a net loss from discontinued operations of $158 million consisting of a $172 million loss related to reflecting the Goldfish business as held for sale and net income of $14 million related to the Goldfish business operations. |
2 The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business. |
3 Certain prior period amounts have been reclassified to conform to the current period presentation. |
4 Based on Continuing Operations except equity and ROE. Equity is based on company's stockholder's equity. |
5 For all periods prior to the spin off from Morgan Stanley, the same number of shares is being used for diluted EPS as for basic EPS as no common stock of Discover Financial Services was traded prior to July 2, 2007 and no Discover equity awards were outstanding for the prior periods. |
6 Charge-off rate calculation has been restated to reflect annualization by days in the year for all periods. |
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| Discover Financial Services |
Managed Basis 1 |
| (unaudited, dollars in thousands) |
| Quarter Ended | ||||||||||||
| Feb 29, 2008 | Nov 30, 2007 2 | Feb 28, 2007 2 | ||||||||||
| Earnings Summary | ||||||||||||
| Interest Income | $ | 1,652,615 | $ | 1,667,418 | $ | 1,482,566 | ||||||
| Interest Expense | 668,953 | 750,638 | 593,625 | |||||||||
| Net Interest Income | 983,662 | 916,780 | 888,941 | |||||||||
| Other Income | 636,679 | 633,014 | 520,685 | |||||||||
| Revenue Net of Interest Expense | 1,620,341 | 1,549,794 | 1,409,626 | |||||||||
| Provision for Loan Losses | 627,068 | 584,722 | 406,076 | |||||||||
| Employee Compensation and Benefits | 217,370 | 208,910 | 215,167 | |||||||||
| Marketing and Business Development | 141,553 | 155,976 | 134,542 | |||||||||
| Information Processing & Communications | 78,276 | 85,034 | 78,844 | |||||||||
| Professional Fees | 73,672 | 94,380 | 76,065 | |||||||||
| Premises and Equipment | 19,641 | 19,348 | 19,575 | |||||||||
| Other Expense | 71,831 | 73,082 | 67,648 | |||||||||
| Total Other Expense | 602,343 | 636,730 | 591,841 | |||||||||
| Income (Loss) Before Income Taxes | 390,930 | 328,342 | 411,709 | |||||||||
| Tax Expense | 152,101 | 118,368 | 151,891 | |||||||||
| Net Income From Continuing Operations | 238,829 | 209,974 | 259,818 | |||||||||
Discontinued Operations, Net of Tax 3, 4 | (157,615 | ) | (266,458 | ) | (26,186 | ) | ||||||
Net Income (Loss) 3, 4 | $ | 81,214 | $ | (56,484 | ) | $ | 233,632 | |||||
Balance Sheet Statistics 5 | ||||||||||||
| Loan Receivables | $ | 47,500,410 | $ | 48,180,436 | $ | 46,356,858 | ||||||
| Average Loan Receivables | $ | 48,863,167 | $ | 47,381,471 | $ | 46,965,884 | ||||||
| Total Assets | $ | 61,937,501 | $ | 60,591,475 | $ | 52,722,599 | ||||||
Total Equity 6 | $ | 5,654,341 | $ | 5,599,422 | $ | 5,528,658 | ||||||
Total Tangible Equity 6 | $ | 5,341,020 | $ | 5,284,232 | $ | 5,213,439 | ||||||
| Tangible Equity/Net Managed Receivables | 11.5 | % | 11.1 | % | 11.4 | % | ||||||
| Tangible Equity/Total Managed Assets | 8.6 | % | 8.7 | % | 9.9 | % | ||||||
| Net Yield on Loan Receivables | 8.10 | % | 7.76 | % | 7.68 | % | ||||||
| Return on Loan Receivables | 1.97 | % | 1.78 | % | 2.24 | % | ||||||
Credit Card Loans 5 | ||||||||||||
| Credit Card Loans - Managed | $ | 47,014,539 | $ | 47,929,242 | $ | 46,266,012 | ||||||
| Average Credit Card Loans - Managed | $ | 48,487,812 | $ | 47,251,899 | $ | 46,870,259 | ||||||
| Managed Interest Yield | 12.72 | % | 12.85 | % | 12.45 | % | ||||||
Managed Net Principal Charge-off Rate 7 | 4.37 | % | 3.85 | % | 3.86 | % | ||||||
| Managed Delinquency Rate (over 30 days) | 3.93 | % | 3.59 | % | 3.31 | % | ||||||
| Managed Delinquency Rate (over 90 days) | 1.98 | % | 1.68 | % | 1.63 | % | ||||||
| Credit Card Volume | $ | 26,207,028 | $ | 26,159,776 | $ | 26,880,735 | ||||||
| Credit Card Sales Volume | $ | 23,155,253 | $ | 22,588,639 | $ | 22,037,053 | ||||||
| Segment - Income Before Income Taxes | ||||||||||||
| U.S. Card | $ | 375,403 | $ | 320,751 | $ | 399,789 | ||||||
| Third - Party Payments | 15,527 | 7,591 | 11,920 | |||||||||
| Total | $ | 390,930 | $ | 328,342 | $ | 411,709 | ||||||
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 Data schedule. |
2 Certain prior period amounts have been reclassified to conform to the current period presentation. |
3 The quarter ended February 29, 2008 includes a net loss from discontinued operations of $158 million consisting of a $172 million loss related to reflecting the Goldfish business as held for sale and net income of $14 million related to the Goldfish business operations. |
4 The quarter ended November 30, 2007 includes a $391 million pre-tax ($279 million after-tax) non-cash impairment charge related to the company's Goldfish business. |
5 Based on Continuing Operations except equity and ROE. Equity is based on company's stockholder's equity. |
6 Balance on a GAAP and Managed basis is the same. |
7 Charge-off rate calculation has been restated to reflect annualization by days in the year for all periods. |
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| Discover Financial Services |
| U.S. Card Segment |
Managed Basis1 |
| (unaudited, dollars in thousands) |
| Quarter Ended | ||||||||||||
| Feb 29, 2008 | Nov 30, 2007 2 | Feb 28, 2007 2 | ||||||||||
| Earnings Summary | ||||||||||||
| Interest Income | $ | 1,651,987 | $ | 1,666,768 | $ | 1,481,992 | ||||||
| Interest Expense | 668,951 | 750,638 | 593,610 | |||||||||
| Net Interest Income | 983,036 | 916,130 | 888,382 | |||||||||
| Other Income | 602,411 | 603,709 | 490,003 | |||||||||
| Revenue Net of Interest Expense | 1,585,447 | 1,519,839 | 1,378,385 | |||||||||
| Provision for Loan Losses | 627,068 | 584,722 | 406,076 | |||||||||
| Total Other Expense | 582,976 | 614,366 | 572,520 | |||||||||
| Income Before Income Taxes | $ | 375,403 | $ | 320,751 | $ | 399,789 | ||||||
| Loan Receivables | $ | 47,500,410 | $ | 48,180,436 | $ | 46,356,858 | ||||||
| Average Loan Receivables | $ | 48,863,167 | $ | 47,381,471 | $ | 46,965,884 | ||||||
| Net Yield on Loan Receivables | 8.09 | % | 7.76 | % | 7.67 | % | ||||||
| Pretax Return on Loan Receivables | 3.09 | % | 2.72 | % | 3.45 | % | ||||||
| Credit Card Loans | ||||||||||||
| Credit Card Loans - Managed | $ | 47,014,539 | $ | 47,929,242 | $ | 46,266,012 | ||||||
| Average Credit Card Loans - Managed | $ | 48,487,812 | $ | 47,251,899 | $ | 46,870,259 | ||||||
| Managed Interest Yield | 12.72 | % | 12.85 | % | 12.45 | % | ||||||
Managed Net Principal Charge-off Rate 3 | 4.37 | % | 3.85 | % | 3.86 | % | ||||||
| Managed Delinquency Rate (over 30 days) | 3.93 | % | 3.59 | % | 3.31 | % | ||||||
| Managed Delinquency Rate (over 90 days) | 1.98 | % | 1.68 | % | 1.63 | % | ||||||
| Total Credit Card Volume | $ | 26,207,028 | $ | 26,159,776 | $ | 26,880,735 | ||||||
| Sales Volume | $ | 23,155,253 | $ | 22,588,639 | $ | 22,037,053 | ||||||
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 Data schedule. |
2 Certain prior period amounts have been reclassified to conform to the current period presentation. |
3 Charge-off rate calculation has been restated to reflect annualization by days in the year for all periods. |
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| Discover Financial Services |
| Third - Party Payments Segment |
| (unaudited, dollars in thousands) |
| Quarter Ended | ||||||||||||
| Feb 29, 2008 | Nov 30, 2007 | Feb 28, 2007 | ||||||||||
| Earnings Summary | ||||||||||||
| Interest Income | $ | 628 | $ | 650 | $ | 574 | ||||||
| Interest Expense | 2 | - | 15 | |||||||||
| Net Interest Income | 626 | 650 | 559 | |||||||||
| Other Income | 34,268 | 29,305 | 30,682 | |||||||||
| Revenue Net of Interest Expense | 34,894 | 29,955 | 31,241 | |||||||||
| Provision for Loan Losses | - | - | - | |||||||||
| Total Other Expense | 19,367 | 22,364 | 19,321 | |||||||||
| Income Before Income Taxes | $ | 15,527 | $ | 7,591 | $ | 11,920 | ||||||
| Network Volume | ||||||||||||
| PULSE Network | $ | 24,783,895 | $ | 23,035,361 | $ | 20,029,576 | ||||||
| Third - Party Issuers | 1,545,943 | 1,458,959 | 1,215,140 | |||||||||
| Total Third - Party Payments | $ | 26,329,838 | $ | 24,494,320 | $ | 21,244,716 | ||||||
| Transactions Processed on PULSE Network (000's) | 621,072 | 611,518 | 520,866 | |||||||||
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| Discover Financial Services |
Reconciliation of GAAP to Managed Data 1 |
| (unaudited, dollars in thousands) |
| Quarter Ended | ||||||||||||
| Feb 29, 2008 | Nov 30, 2007 | Feb 28, 2007 | ||||||||||
| Interest Income | ||||||||||||
| GAAP Basis | $ | 662,802 | $ | 659,676 | $ | 612,206 | ||||||
Securitization Adjustments 1 | 989,813 | 1,007,742 | 870,360 | |||||||||
| Managed Basis | $ | 1,652,615 | $ | 1,667,418 | $ | 1,482,566 | ||||||
| Interest Expense | ||||||||||||
| GAAP Basis | $ | 339,441 | $ | 350,917 | $ | 251,807 | ||||||
| Securitization Adjustments | 329,512 | 399,721 | 341,818 | |||||||||
| Managed Basis | $ | 668,953 | $ | 750,638 | $ | 593,625 | ||||||
| Net Interest Income | ||||||||||||
| GAAP Basis | $ | 323,361 | $ | 308,759 | $ | 360,399 | ||||||
| Securitization Adjustments | 660,301 | 608,021 | 528,542 | |||||||||
| Managed Basis | $ | 983,662 | $ | 916,780 | $ | 888,941 | ||||||
| Other Income | ||||||||||||
| GAAP Basis | $ | 975,544 | $ | 952,500 | $ | 790,349 | ||||||
| Securitization Adjustments | (338,865 | ) | (319,486 | ) | (269,664 | ) | ||||||
| Managed Basis | $ | 636,679 | $ | 633,014 | $ | 520,685 | ||||||
| Revenue Net of Interest Expense | ||||||||||||
| GAAP Basis | $ | 1,298,905 | $ | 1,261,259 | $ | 1,150,748 | ||||||
| Securitization Adjustments | 321,436 | 288,535 | 258,878 | |||||||||
| Managed Basis | $ | 1,620,341 | $ | 1,549,794 | $ | 1,409,626 | ||||||
| Provision for Loan Losses | ||||||||||||
| GAAP Basis | $ | 305,632 | $ | 296,187 | $ | 147,198 | ||||||
| Securitization Adjustments | 321,436 | 288,535 | 258,878 | |||||||||
| Managed Basis | $ | 627,068 | $ | 584,722 | $ | 406,076 | ||||||
| Loan Receivables | ||||||||||||
| GAAP Basis | $ | 21,042,681 | $ | 20,831,117 | $ | 19,727,837 | ||||||
| Securitization Adjustments | 26,457,729 | 27,349,319 | 26,629,021 | |||||||||
| Managed Basis | $ | 47,500,410 | $ | 48,180,436 | $ | 46,356,858 | ||||||
| Total Assets | ||||||||||||
| GAAP Basis | $ | 34,222,732 | $ | 33,449,702 | $ | 26,373,020 | ||||||
| Securitization Adjustments | 27,714,769 | 27,141,773 | 26,349,579 | |||||||||
| Managed Basis | $ | 61,937,501 | $ | 60,591,475 | $ | 52,722,599 | ||||||
| Tangible Equity/Total Assets | ||||||||||||
| GAAP Basis | 15.6 | % | 15.8 | % | 19.8 | % | ||||||
| Securitization Adjustments | 19.3 | % | 19.5 | % | 19.8 | % | ||||||
| Managed Basis | 8.6 | % | 8.7 | % | 9.9 | % | ||||||
| Credit Card Loans | ||||||||||||
| Credit Card Loans | ||||||||||||
| GAAP Basis | $ | 20,556,810 | $ | 20,579,923 | $ | 19,636,991 | ||||||
| Securitization Adjustments | 26,457,729 | 27,349,319 | 26,629,021 | |||||||||
| Managed Basis | $ | 47,014,539 | $ | 47,929,242 | $ | 46,266,012 | ||||||
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| Discover Financial Services |
Reconciliation of GAAP to Managed Data 1 |
| (unaudited, dollars in thousands) |
| Quarter Ended | ||||||||||||
| Feb. 29, 2008 | Nov. 30, 2007 | Feb. 28, 2007 | ||||||||||
| Average Credit Card Loans | ||||||||||||
| GAAP Basis | $ | 21,148,252 | $ | 19,276,203 | $ | 21,841,166 | ||||||
| Securitization Adjustments | 27,339,560 | 27,975,696 | 25,029,093 | |||||||||
| Managed Basis | $ | 48,487,812 | $ | 47,251,899 | $ | 46,870,259 | ||||||
| Interest Yield | ||||||||||||
| GAAP Basis | 10.35 | % | 10.53 | % | 10.55 | % | ||||||
| Securitization Adjustments | 14.56 | % | 14.45 | % | 14.10 | % | ||||||
| Managed Basis | 12.72 | % | 12.85 | % | 12.45 | % | ||||||
| Net Principal Charge-off Rate | ||||||||||||
| GAAP Basis | 3.90 | % | 3.44 | % | 3.48 | % | ||||||
| Securitization Adjustments | 4.73 | % | 4.14 | % | 4.19 | % | ||||||
| Managed Basis | 4.37 | % | 3.85 | % | 3.86 | % | ||||||
| Delinquency Rate (over 30 days) | ||||||||||||
| GAAP Basis | 3.69 | % | 3.28 | % | 2.97 | % | ||||||
| Securitization Adjustments | 4.11 | % | 3.82 | % | 3.56 | % | ||||||
| Managed Basis | 3.93 | % | 3.59 | % | 3.31 | % | ||||||
| Delinquency Rate (over 90 days) | ||||||||||||
| GAAP Basis | 1.86 | % | 1.53 | % | 1.46 | % | ||||||
| Securitization Adjustments | 2.08 | % | 1.79 | % | 1.75 | % | ||||||
| Managed Basis | 1.98 | % | 1.68 | % | 1.63 | % | ||||||
1 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.
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