GuruFocus Premium Membership

Serving Intelligent Investors since 2004. Only 96 cents a day.

Free Trial

Free 7-day Trial
All Articles and Columns »

Discover Financial Services Reports Operating Results (10-Q)

June 26, 2012 | About:

10qk

18 followers
Discover Financial Services (DFS) filed Quarterly Report for the period ended 2012-05-31.

Discover Financial Services has a market cap of $17.83 billion; its shares were traded at around $33.51 with a P/E ratio of 7.8 and P/S ratio of 2.1. The dividend yield of Discover Financial Services stocks is 1.2%. Discover Financial Services had an annual average earning growth of 20.2% over the past 5 years.

Highlight of Business Operations:

Loan receivables totaled $57.1 billion at May 31, 2012, which was slightly down from $57.3 billion at November 30, 2011, primarily due to the sale of federal student loans in the first quarter of 2012 that were held for sale at November 30, 2011, and due to continued decreases in the purchased credit-impaired ("PCI") student loan balances resulting from paydowns on the portfolio. These were largely offset by growth in both the personal loan and private student loan portfolios. Discover card sales volume increased 5% and 6% for the three and six months ended May 31, 2012, respectively, compared to the same periods in 2011. This growth was driven primarily by an increase in the number of customers using their Discover card.

Total other income decreased during the three and six months ended May 31, 2012 by $20 million and $43 million, respectively, as compared to the same periods in 2011. The decrease was primarily attributable to lower revenue from the SLC transition services agreement, which was partially offset by an increase in the value of an interest rate swap acquired in the SLC acquisition. Furthermore, other income in 2011 benefited from the fair value adjustment on the federal student loans that were held for sale. The decrease in other income was also driven by lower revenues from protection products and loan fee income. The decrease in revenue from loan fees was primarily attributable to lower levels of late fee income due to improved credit quality. In addition to the above factors, for the six months ended May 31, 2012, as compared to the same period in 2011, the decrease in other income was also caused by the inclusion of the impact of the originally estimated bargain purchase gain of $16 million related to the acquisition of SLC in the first quarter of 2011 (see Note 2: Business Combinations to our condensed consolidated financial statements).

Interest income on other interest-earning assets, which largely relates to investment income on our liquidity portfolio, increased primarily due a continued shift in the mix of our liquidity portfolio to higher yielding investments, and higher average levels of liquidity. Interest expense declined in the three and six months ended May 31, 2012, as compared to the same periods in 2011, primarily due to deposits bearing higher interest rates maturing and being replaced by deposits bearing lower interest rates.

Total other income decreased $11 million during the three months ended May 31, 2012, as compared to the three months ended May 31, 2011, due to lower revenue from the SLC transition services agreement, lower protection product revenue, and lower loan fee income primarily related to lower late fee revenue. An additional component of the decrease was due to the inclusion of an increase in the value of the federal student loans held for sale in second quarter 2011. These decreases were partially offset by an increase in 2012 in transaction processing revenue resulting from greater volume, primarily point-of-sale transactions, which have higher margins, on the PULSE network, combined with an increase in the fair value of an interest rate swap acquired in the SLC acquisition.

Total other income decreased $24 million during the six months ended May 31, 2012, as compared to the six months ended May 31, 2011, primarily due to the inclusion of the originally estimated bargain purchase gain of $16 million related to the acquisition of SLC in the first quarter of 2011 (see Note 2: Business Combinations to our condensed consolidated financial statements). Other contributors to the decrease include lower revenue from the SLC transition services agreement and a decline in protection product revenue. Second quarter 2011 included an increase in the value of the federal student loans held for sale. These decreases were partially offset by an increase in transaction processing revenue resulting from greater volume, primarily point-of-sale transactions, which have higher margins, on the PULSE network.

Read the The complete Report

About the author:

10qk
GuruFocus - Stock Picks and Market Insight of Gurus

Rating: 3.5/5 (2 votes)

Comments

Please leave your comment:


Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)
Free 7-day Trial
FEEDBACK
Email Hide