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Discover Financial Services Reports Operating Results (10-Q)

October 04, 2012 | About:
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10qk

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Discover Financial Services (DFS) filed Quarterly Report for the period ended 2012-08-31.

Discover Financial Services has a market cap of $20.46 billion; its shares were traded at around $39.7 with a P/E ratio of 9.2 and P/S ratio of 2.4. The dividend yield of Discover Financial Services stocks is 1%. Discover Financial Services had an annual average earning growth of 20.2% over the past 5 years.
This is the annual revenues and earnings per share of DFS over the last 10 years. For detailed 10-year financial data and charts, go to 10-Year Financials of DFS.


Highlight of Business Operations:

Loan receivables totaled $59.2 billion at August 31, 2012, up from $57.3 billion at November 30, 2011, due to growth in the credit card loans portfolio and the personal loan and private student loan classes of the other loans portfolio. This growth was offset by continued decreases in the purchased credit-impaired ("PCI") student loan balances resulting from paydowns on the portfolio. Discover card sales volume increased 4% and 5% for the three and nine months ended August 31, 2012, respectively, compared to the same periods in 2011. This growth was driven primarily by an increase in the number of existing customers using their Discover card.

Total other income increased during the three months ended August 31, 2012 by $25 million as compared to the same period in 2011. This increase was driven primarily by revenue related to the acquisition and integration of the assets of the Home Loan Center in the third quarter of 2012 (see Note 2: Business Combinations to our condensed consolidated financial statements). This included a net gain on the sale of loans and a net gain on the related interest rate lock commitments. This increase was slightly offset by a decrease in discount and interchange revenue due to an increase in Cashback Bonus rewards earned by our customers during the current quarter as compared to the same period in 2011.

For the nine months ended August 31, 2012, total other income decreased by $18 million as compared to the same period in 2011. The decrease was primarily attributable to lower revenue from The Student Loan Corporation ("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 a fair value adjustment on 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, 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). The decrease in other income was partially offset by revenue related to the acquisition and integration of the assets of the Home Loan Center in the third quarter of 2012 (see Note 2: Business Combinations to our condensed consolidated financial statements), including a net gain on the sale of loans and a net gain on the related interest rate lock commitments.

Total other income increased $42 million during the three months ended August 31, 2012, as compared to the three months ended August 31, 2011, primarily due to revenue related to the acquisition and integration of the Home Loan Center in the third quarter of 2012 (see Note 2: Business Combinations to our condensed consolidated financial statements). This increase included a net gain on the sale of loans and a net gain on the related interest rate lock commitments. There was also an increase in transaction processing revenue resulting from greater volume, primarily point-of-sale transactions, which have higher margins, on the PULSE network. These increases were partially offset by a decrease in discount and interchange revenue and loan fee income. The decrease in discount and interchange revenue was mainly due to higher rewards expenses which were partially offset by higher revenue based on the increase in sales volume.

Total other income increased $18 million during the nine months ended August 31, 2012, as compared to the nine months ended August 31, 2011, primarily due to the revenue related to the acquisition and integration of the assets of the Home Loan Center in the third quarter of 2012 as well as higher transaction processing revenue, as further discussed above. This increase was partially offset by lower revenue from the SLC transition services agreement. In addition, other income decreased due to 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. Finally, there were slight decreases in discount and interchange revenue, loan fee income and protection product revenue, the latter of which is expected to continue to decline.

Read the The complete Report

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