|
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
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For the quarterly period ended March 31, 2013
|
o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|
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For the transition period from to
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Delaware
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36-2517428
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
|
|
|
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2500 Lake Cook Road,
Riverwoods, Illinois 60015
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(224) 405-0900
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
|
|
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||
Item 1
.
|
||
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||
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||
|
|
|
|
|
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|
March 31,
2013 |
|
December 31,
2012 |
|
November 30,
2012 |
||||||
|
(unaudited)
(dollars in millions, except share amounts)
|
||||||||||
Assets
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
8,067
|
|
|
$
|
2,584
|
|
|
$
|
3,926
|
|
Restricted cash
|
482
|
|
|
290
|
|
|
2,344
|
|
|||
Investment securities:
|
|
|
|
|
|
||||||
Available-for-sale (amortized cost of $5,098, $6,031 and $6,015 at March 31, 2013, December 31, 2012 and November 30, 2012, respectively)
|
5,196
|
|
|
6,145
|
|
|
6,133
|
|
|||
Held-to-maturity (fair value of $76, $89 and $90 at March 31, 2013, December 31, 2012 and November 30, 2012, respectively)
|
74
|
|
|
87
|
|
|
88
|
|
|||
Total investment securities
|
5,270
|
|
|
6,232
|
|
|
6,221
|
|
|||
Loan receivables:
|
|
|
|
|
|
||||||
Mortgage loans held for sale, measured at fair value
|
311
|
|
|
355
|
|
|
322
|
|
|||
Loan portfolio:
|
|
|
|
|
|
||||||
Credit card
|
48,655
|
|
|
51,135
|
|
|
49,642
|
|
|||
Other
|
6,857
|
|
|
6,406
|
|
|
6,309
|
|
|||
Purchased credit-impaired loans
|
4,561
|
|
|
4,702
|
|
|
4,744
|
|
|||
Total loan portfolio
|
60,073
|
|
|
62,243
|
|
|
60,695
|
|
|||
Total loan receivables
|
60,384
|
|
|
62,598
|
|
|
61,017
|
|
|||
Allowance for loan losses
|
(1,634
|
)
|
|
(1,788
|
)
|
|
(1,725
|
)
|
|||
Net loan receivables
|
58,750
|
|
|
60,810
|
|
|
59,292
|
|
|||
Premises and equipment, net
|
572
|
|
|
538
|
|
|
534
|
|
|||
Goodwill
|
286
|
|
|
286
|
|
|
286
|
|
|||
Intangible assets, net
|
187
|
|
|
189
|
|
|
190
|
|
|||
Other assets
|
2,525
|
|
|
2,562
|
|
|
2,490
|
|
|||
Total assets
|
$
|
76,139
|
|
|
$
|
73,491
|
|
|
$
|
75,283
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
||||||
Deposits:
|
|
|
|
|
|
||||||
Interest-bearing deposit accounts
|
$
|
42,255
|
|
|
$
|
42,077
|
|
|
$
|
42,034
|
|
Non-interest bearing deposit accounts
|
139
|
|
|
136
|
|
|
121
|
|
|||
Total deposits
|
42,394
|
|
|
42,213
|
|
|
42,155
|
|
|||
Short-term borrowings
|
290
|
|
|
327
|
|
|
284
|
|
|||
Long-term borrowings
|
19,230
|
|
|
17,666
|
|
|
19,729
|
|
|||
Accrued expenses and other liabilities
|
3,926
|
|
|
3,412
|
|
|
3,337
|
|
|||
Total liabilities
|
65,840
|
|
|
63,618
|
|
|
65,505
|
|
|||
Commitments, contingencies and guarantees (Notes 9, 12, and 13)
|
|
|
|
|
|
||||||
Stockholders’ Equity:
|
|
|
|
|
|
||||||
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 554,855,707, 553,350,975 and 553,049,298 shares issued at March 31, 2013, December 31, 2012 and November 30, 2012, respectively
|
6
|
|
|
5
|
|
|
5
|
|
|||
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 575,000 shares issued or outstanding and aggregate liquidation preference of $575 at March 31, 2013, December 31, 2012 and November 30, 2012, respectively
|
560
|
|
|
560
|
|
|
560
|
|
|||
Additional paid-in capital
|
3,632
|
|
|
3,598
|
|
|
3,593
|
|
|||
Retained earnings
|
8,136
|
|
|
7,472
|
|
|
7,373
|
|
|||
Accumulated other comprehensive loss
|
(84
|
)
|
|
(72
|
)
|
|
(75
|
)
|
|||
Treasury stock, at cost; 62,008,845, 55,489,104 and 55,177,937 shares at March 31, 2013, December 31, 2012 and November 30, 2012, respectively
|
(1,951
|
)
|
|
(1,690
|
)
|
|
(1,678
|
)
|
|||
Total stockholders’ equity
|
10,299
|
|
|
9,873
|
|
|
9,778
|
|
|||
Total liabilities and stockholders’ equity
|
$
|
76,139
|
|
|
$
|
73,491
|
|
|
$
|
75,283
|
|
|
March 31,
2013 |
|
December 31,
2012 |
|
November 30,
2012 |
||||||
|
(unaudited) (dollars in millions)
|
||||||||||
Assets
|
|
|
|
|
|
||||||
Restricted cash
|
$
|
474
|
|
|
$
|
280
|
|
|
$
|
2,337
|
|
Credit card loan receivables
|
32,630
|
|
|
34,782
|
|
|
33,764
|
|
|||
Purchased credit-impaired loans
|
2,461
|
|
|
2,539
|
|
|
2,563
|
|
|||
Allowance for loan losses allocated to securitized loan receivables
|
(988
|
)
|
|
(1,110
|
)
|
|
(1,069
|
)
|
|||
Other assets
|
31
|
|
|
29
|
|
|
30
|
|
|||
Liabilities
|
|
|
|
|
|
||||||
Long-term borrowings
|
$
|
16,744
|
|
|
$
|
15,933
|
|
|
$
|
17,995
|
|
Accrued interest payable
|
11
|
|
|
11
|
|
|
13
|
|
|
For the Three Months Ended March 31,
|
|
For the One Month Ended December 31,
|
||||||||
|
2013
|
|
2012
|
|
2012
|
||||||
|
(unaudited)
(dollars in millions, except per share amounts)
|
||||||||||
Interest income:
|
|
|
|
|
|
||||||
Credit card loans
|
$
|
1,451
|
|
|
$
|
1,414
|
|
|
$
|
510
|
|
Other loans
|
234
|
|
|
205
|
|
|
78
|
|
|||
Investment securities
|
20
|
|
|
18
|
|
|
7
|
|
|||
Other interest income
|
3
|
|
|
4
|
|
|
—
|
|
|||
Total interest income
|
1,708
|
|
|
1,641
|
|
|
595
|
|
|||
Interest expense:
|
|
|
|
|
|
||||||
Deposits
|
186
|
|
|
224
|
|
|
65
|
|
|||
Short-term borrowings
|
1
|
|
|
—
|
|
|
—
|
|
|||
Long-term borrowings
|
111
|
|
|
125
|
|
|
38
|
|
|||
Total interest expense
|
298
|
|
|
349
|
|
|
103
|
|
|||
Net interest income
|
1,410
|
|
|
1,292
|
|
|
492
|
|
|||
Provision for loan losses
|
159
|
|
|
84
|
|
|
178
|
|
|||
Net interest income after provision for loan losses
|
1,251
|
|
|
1,208
|
|
|
314
|
|
|||
Other income:
|
|
|
|
|
|
||||||
Discount and interchange revenue, net
|
263
|
|
|
240
|
|
|
82
|
|
|||
Protection products revenue
|
88
|
|
|
103
|
|
|
33
|
|
|||
Loan fee income
|
81
|
|
|
81
|
|
|
29
|
|
|||
Transaction processing revenue
|
53
|
|
|
49
|
|
|
18
|
|
|||
Gain on investments
|
3
|
|
|
—
|
|
|
2
|
|
|||
Gain on origination and sale of mortgage loans
|
51
|
|
|
—
|
|
|
17
|
|
|||
Other income
|
43
|
|
|
38
|
|
|
19
|
|
|||
Total other income
|
582
|
|
|
511
|
|
|
200
|
|
|||
Other expense:
|
|
|
|
|
|
||||||
Employee compensation and benefits
|
290
|
|
|
246
|
|
|
87
|
|
|||
Marketing and business development
|
169
|
|
|
128
|
|
|
51
|
|
|||
Information processing and communications
|
78
|
|
|
72
|
|
|
25
|
|
|||
Professional fees
|
104
|
|
|
104
|
|
|
34
|
|
|||
Premises and equipment
|
19
|
|
|
18
|
|
|
8
|
|
|||
Other expense
|
93
|
|
|
104
|
|
|
35
|
|
|||
Total other expense
|
753
|
|
|
672
|
|
|
240
|
|
|||
Income before income tax expense
|
1,080
|
|
|
1,047
|
|
|
274
|
|
|||
Income tax expense
|
407
|
|
|
397
|
|
|
104
|
|
|||
Net income
|
$
|
673
|
|
|
$
|
650
|
|
|
$
|
170
|
|
Net income allocated to common stockholders
|
$
|
659
|
|
|
$
|
644
|
|
|
$
|
168
|
|
Basic earnings per share
|
$
|
1.33
|
|
|
$
|
1.22
|
|
|
$
|
0.34
|
|
Diluted earnings per share
|
$
|
1.33
|
|
|
$
|
1.21
|
|
|
$
|
0.34
|
|
Dividends declared per share
|
$
|
—
|
|
|
$
|
0.10
|
|
|
$
|
0.14
|
|
|
For the Three Months Ended March 31,
|
|
For the One Month Ended December 31,
|
||||||||
|
2013
|
|
2012
|
|
2012
|
||||||
|
(unaudited)
(dollars in millions)
|
||||||||||
Net income
|
$
|
673
|
|
|
$
|
650
|
|
|
$
|
170
|
|
Other comprehensive (loss) income, net of taxes
|
|
|
|
|
|
||||||
Unrealized loss on securities available for sale, net of tax
|
(11
|
)
|
|
(8
|
)
|
|
(3
|
)
|
|||
Unrealized loss on cash flow hedge
s, net of tax
|
(1
|
)
|
|
(2
|
)
|
|
—
|
|
|||
Unrealized pension and post-retirement plan gain, net of tax
|
—
|
|
|
1
|
|
|
6
|
|
|||
Other comprehensive (loss) income
|
(12
|
)
|
|
(9
|
)
|
|
3
|
|
|||
Comprehensive income
|
$
|
661
|
|
|
$
|
641
|
|
|
$
|
173
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Treasury
Stock
|
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|||||||||||||||||||||
|
(unaudited)
(dollars in millions, shares in thousands)
|
||||||||||||||||||||||||||||||||
Balance at December 31, 2011
|
—
|
|
|
$
|
—
|
|
|
549,958
|
|
|
$
|
5
|
|
|
$
|
3,515
|
|
|
$
|
5,351
|
|
|
$
|
(49
|
)
|
|
$
|
(464
|
)
|
|
$
|
8,358
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
650
|
|
|
—
|
|
|
—
|
|
|
650
|
|
|||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(9
|
)
|
|||||||
Purchases of treasury stock
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(250
|
)
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
|
(270
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,069
|
|
|
—
|
|
|
25
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|||||||
Dividends declared—common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
|
(51
|
)
|
|||||||
Balance at March 31, 2012
|
—
|
|
|
$
|
—
|
|
|
552,042
|
|
|
$
|
5
|
|
|
$
|
3,290
|
|
|
$
|
5,950
|
|
|
$
|
(58
|
)
|
|
$
|
(484
|
)
|
|
$
|
8,703
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at November 30, 2012
|
575
|
|
|
$
|
560
|
|
|
553,049
|
|
|
$
|
5
|
|
|
$
|
3,593
|
|
|
$
|
7,373
|
|
|
$
|
(75
|
)
|
|
$
|
(1,678
|
)
|
|
$
|
9,778
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
170
|
|
|
—
|
|
|
—
|
|
|
170
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
3
|
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
(12
|
)
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
302
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|||||||
Dividends declared—common and Series B preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|
—
|
|
|
—
|
|
|
(71
|
)
|
|||||||
Balance at December 31, 2012
|
575
|
|
|
$
|
560
|
|
|
553,351
|
|
|
$
|
5
|
|
|
$
|
3,598
|
|
|
$
|
7,472
|
|
|
$
|
(72
|
)
|
|
$
|
(1,690
|
)
|
|
$
|
9,873
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
673
|
|
|
—
|
|
|
—
|
|
|
673
|
|
|||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(12
|
)
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(261
|
)
|
|
(261
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
1,490
|
|
|
1
|
|
|
33
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
34
|
|
|||||||
Dividends declared — Series B preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
—
|
|
|
(9
|
)
|
|||||||
Balance at March 31, 2013
|
575
|
|
|
$
|
560
|
|
|
554,856
|
|
|
$
|
6
|
|
|
$
|
3,632
|
|
|
$
|
8,136
|
|
|
$
|
(84
|
)
|
|
$
|
(1,951
|
)
|
|
$
|
10,299
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
During first quarter 2012, the Company executed an accelerated share repurchase agreement with an unaffiliated financial institution to purchase $250 million of outstanding shares of common stock. This transaction was not settled as of March 31, 2012 and was therefore reported as a reduction of additional paid-in capital.
|
|
For the Three Months Ended March 31,
|
|
For the One Month Ended December 31,
|
||||||||
|
2013
|
|
2012
|
|
2012
|
||||||
|
(unaudited)
(dollars in millions)
|
||||||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
673
|
|
|
$
|
650
|
|
|
$
|
170
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Provision for loan losses
|
159
|
|
|
84
|
|
|
178
|
|
|||
Deferred income taxes
|
121
|
|
|
108
|
|
|
(12
|
)
|
|||
Depreciation and amortization on premises and equipment
|
25
|
|
|
23
|
|
|
9
|
|
|||
Amortization of deferred revenues
|
(48
|
)
|
|
(50
|
)
|
|
(16
|
)
|
|||
Other depreciation and amortization
|
43
|
|
|
38
|
|
|
15
|
|
|||
Accretion of accretable yield on acquired loans
|
(70
|
)
|
|
(77
|
)
|
|
(24
|
)
|
|||
Gain on investments
|
(3
|
)
|
|
—
|
|
|
(2
|
)
|
|||
Loss on equity method and other investments
|
4
|
|
|
2
|
|
|
1
|
|
|||
(Gain) loss on origination and sale of loans
|
(51
|
)
|
|
1
|
|
|
(17
|
)
|
|||
Stock-based compensation expense
|
17
|
|
|
10
|
|
|
3
|
|
|||
Proceeds from sale of mortgage loans originated for sale
|
1,249
|
|
|
—
|
|
|
378
|
|
|||
Net principal disbursed on mortgage loans originated for sale
|
(1,156
|
)
|
|
—
|
|
|
(392
|
)
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
Increase in other assets
|
(88
|
)
|
|
(16
|
)
|
|
(68
|
)
|
|||
Increase (decrease) in accrued expenses and other liabilities
|
617
|
|
|
(68
|
)
|
|
(1
|
)
|
|||
Net cash provided by operating activities
|
1,492
|
|
|
705
|
|
|
222
|
|
|||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Maturities and sales of available-for-sale investment securities
|
1,015
|
|
|
440
|
|
|
112
|
|
|||
Purchases of available-for-sale investment securities
|
(90
|
)
|
|
(679
|
)
|
|
(132
|
)
|
|||
Maturities of held-to-maturity investment securities
|
13
|
|
|
2
|
|
|
1
|
|
|||
Proceeds from sale of student loans held for sale
|
—
|
|
|
268
|
|
|
—
|
|
|||
Net principal disbursed on loans originated for investment
|
2,102
|
|
|
2,005
|
|
|
(1,599
|
)
|
|||
Purchases of loan receivables
|
(133
|
)
|
|
(211
|
)
|
|
(27
|
)
|
|||
Purchases of other investments
|
(31
|
)
|
|
(8
|
)
|
|
(4
|
)
|
|||
Proceeds from sale of other investments
|
—
|
|
|
—
|
|
|
17
|
|
|||
(Increase) decrease in restricted cash
|
(192
|
)
|
|
(483
|
)
|
|
2,054
|
|
|||
Purchases of premises and equipment
|
(59
|
)
|
|
(31
|
)
|
|
(13
|
)
|
|||
Net cash provided by investing activities
|
2,625
|
|
|
1,303
|
|
|
409
|
|
|||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Net (decrease) increase in short-term borrowings
|
(37
|
)
|
|
—
|
|
|
43
|
|
|||
Proceeds from issuance of securitized debt
|
1,700
|
|
|
999
|
|
|
—
|
|
|||
Maturities and repayment of securitized debt
|
(899
|
)
|
|
(108
|
)
|
|
(2,066
|
)
|
|||
Proceeds from issuance of other long-term borrowings
|
750
|
|
|
—
|
|
|
—
|
|
|||
Repayment of long-term borrowings and bank notes
|
—
|
|
|
(5
|
)
|
|
—
|
|
|||
Proceeds from issuance of common stock
|
5
|
|
|
10
|
|
|
2
|
|
|||
Purchases of treasury stock
|
(261
|
)
|
|
(270
|
)
|
|
(12
|
)
|
|||
Net increase in deposits
|
187
|
|
|
970
|
|
|
65
|
|
|||
Dividends paid on common and preferred stock
|
(79
|
)
|
|
(53
|
)
|
|
(5
|
)
|
|||
Net cash provided by (used for) financing activities
|
1,366
|
|
|
1,543
|
|
|
(1,973
|
)
|
|||
Net increase (decrease) in cash and cash equivalents
|
5,483
|
|
|
3,551
|
|
|
(1,342
|
)
|
|||
Cash and cash equivalents, at beginning of period
|
2,584
|
|
|
2,335
|
|
|
3,926
|
|
|||
Cash and cash equivalents, at end of period
|
$
|
8,067
|
|
|
$
|
5,886
|
|
|
$
|
2,584
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Interest expense
|
$
|
231
|
|
|
$
|
303
|
|
|
$
|
81
|
|
Income taxes, net of income tax refunds
|
$
|
113
|
|
|
$
|
378
|
|
|
$
|
(1
|
)
|
Non-cash investing and financing transactions:
|
|
|
|
|
|
||||||
Assumption of debt by buyer related to loans sold
|
$
|
—
|
|
|
$
|
425
|
|
|
$
|
—
|
|
1.
|
Background and Basis of Presentation
|
(1)
|
Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).
|
(2)
|
Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
|
|
|||||||||||||||
|
Amortized
Cost
|
|
Gross
Unrealized
Gains
|
|
Gross
Unrealized
Losses
|
|
Fair Value
|
||||||||
At November 30, 2012
|
|
|
|
|
|
|
|
||||||||
Available-for-Sale Investment Securities
(1)
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury securities
|
$
|
2,414
|
|
|
$
|
48
|
|
|
$
|
—
|
|
|
$
|
2,462
|
|
U.S. government agency securities
|
2,189
|
|
|
48
|
|
|
—
|
|
|
2,237
|
|
||||
Credit card asset-backed securities of other issuers
|
157
|
|
|
2
|
|
|
—
|
|
|
159
|
|
||||
Corporate debt securities
|
75
|
|
|
—
|
|
|
—
|
|
|
75
|
|
||||
Residential mortgage-backed securities - Agency
|
1,180
|
|
|
20
|
|
|
—
|
|
|
1,200
|
|
||||
Total available-for-sale investment securities
|
$
|
6,015
|
|
|
$
|
118
|
|
|
$
|
—
|
|
|
$
|
6,133
|
|
Held-to-Maturity Investment Securities
(2)
|
|
|
|
|
|
|
|
||||||||
U.S. Treasury securities
(3)
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
States and political subdivisions of states
|
34
|
|
|
—
|
|
|
—
|
|
|
34
|
|
||||
Residential mortgage-backed securities - Agency
(4)
|
53
|
|
|
2
|
|
|
—
|
|
|
55
|
|
||||
Total held-to-maturity investment securities
|
$
|
88
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
|
|
|
|
|
|
|
(1)
|
Available-for-sale investment securities are reported at fair value.
|
(2)
|
Held-to-maturity investment securities are reported at amortized cost.
|
(3)
|
Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.
|
(4)
|
Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives.
|
(1)
|
Available-for-sale investment securities are reported at fair value.
|
(2)
|
Held-to-maturity investment securities are reported at amortized cost.
|
(3)
|
Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives.
|
4.
|
Loan Receivables
|
|
March 31,
2013 |
|
December 31,
2012 |
|
November 30,
2012 |
||||||
Mortgage loans held for sale
(1)
|
$
|
311
|
|
|
$
|
355
|
|
|
$
|
322
|
|
Loan portfolio:
|
|
|
|
|
|
||||||
Credit card loans:
|
|
|
|
|
|
||||||
Discover card
(2)
|
48,451
|
|
|
50,929
|
|
|
49,436
|
|
|||
Discover business card
|
204
|
|
|
206
|
|
|
206
|
|
|||
Total credit card loans
|
48,655
|
|
|
51,135
|
|
|
49,642
|
|
|||
Other loans:
|
|
|
|
|
|
||||||
Personal loans
|
3,395
|
|
|
3,296
|
|
|
3,272
|
|
|||
Private student loans
|
3,426
|
|
|
3,072
|
|
|
3,000
|
|
|||
Other
|
36
|
|
|
38
|
|
|
37
|
|
|||
Total other loans
|
6,857
|
|
|
6,406
|
|
|
6,309
|
|
|||
PCI student loans
(3)
|
4,561
|
|
|
4,702
|
|
|
4,744
|
|
|||
Total loan portfolio
|
60,073
|
|
|
62,243
|
|
|
60,695
|
|
|||
Total loan receivables
|
60,384
|
|
|
62,598
|
|
|
61,017
|
|
|||
Allowance for loan losses
|
(1,634
|
)
|
|
(1,788
|
)
|
|
(1,725
|
)
|
|||
Net loan receivables
|
$
|
58,750
|
|
|
$
|
60,810
|
|
|
$
|
59,292
|
|
|
|
|
|
|
|
(1)
|
Substantially all mortgage loans held for sale are pledged as collateral against the warehouse line of credit used to fund consumer residential loans.
|
(2)
|
Amounts include
$19.5 billion
,
$18.8 billion
and
$21.0 billion
underlying investors’ interest in trust debt at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively, and
$13.1 billion
,
$16.0 billion
and
$12.7 billion
in seller's interest at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information.
|
(3)
|
Amounts include
$2.5 billion
,
$2.5 billion
and
$2.6 billion
of loans pledged as collateral against the notes issued from the SLC securitization trusts at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively. See Note 5: Credit Card and Student Loan Securitization Activities. Of the remaining
$2.1 billion
,
$2.2 billion
and
$2.1 billion
at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively, that were not pledged as collateral, approximately
$18 million
,
$17 million
and
$16 million
represent loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.
|
Delinquent and Non-Accruing Loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
|
30-89 Days
Delinquent
|
|
90 or
More Days
Delinquent
|
|
Total Past
Due
|
|
90 or
More Days
Delinquent
and
Accruing
|
|
Total
Non-accruing
(1)
|
||||||||||
At March 31, 2013
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Discover card
(2)
|
$
|
418
|
|
|
$
|
440
|
|
|
$
|
858
|
|
|
$
|
388
|
|
|
$
|
188
|
|
Discover business card
|
2
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
1
|
|
|||||
Total credit card loans
|
420
|
|
|
442
|
|
|
862
|
|
|
390
|
|
|
189
|
|
|||||
Other loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
(3)
|
19
|
|
|
7
|
|
|
26
|
|
|
7
|
|
|
5
|
|
|||||
Private student loans (excluding PCI)
(4)
|
32
|
|
|
19
|
|
|
51
|
|
|
14
|
|
|
5
|
|
|||||
Other
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
1
|
|
|||||
Total other loans (excluding PCI)
|
51
|
|
|
27
|
|
|
78
|
|
|
21
|
|
|
11
|
|
|||||
Total loan receivables (excluding PCI)
|
471
|
|
|
469
|
|
|
940
|
|
|
411
|
|
|
200
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
At December 31, 2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Discover card
(2)
|
$
|
455
|
|
|
$
|
458
|
|
|
$
|
913
|
|
|
$
|
407
|
|
|
$
|
183
|
|
Discover business card
|
2
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
1
|
|
|||||
Total credit card loans
|
457
|
|
|
460
|
|
|
917
|
|
|
409
|
|
|
184
|
|
|||||
Other loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
(3)
|
18
|
|
|
8
|
|
|
26
|
|
|
7
|
|
|
4
|
|
|||||
Private student loans (excluding PCI)
(4)
|
28
|
|
|
9
|
|
|
37
|
|
|
7
|
|
|
2
|
|
|||||
Other
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|||||
Total other loans (excluding PCI)
|
46
|
|
|
18
|
|
|
64
|
|
|
14
|
|
|
8
|
|
|||||
Total loan receivables (excluding PCI)
|
503
|
|
|
478
|
|
|
981
|
|
|
423
|
|
|
192
|
|
|||||
|
|
|
|
|
|
|
|
|
|
||||||||||
At November 30, 2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Discover card
(2)
|
$
|
472
|
|
|
$
|
449
|
|
|
$
|
921
|
|
|
$
|
398
|
|
|
$
|
189
|
|
Discover business card
|
2
|
|
|
2
|
|
|
4
|
|
|
2
|
|
|
1
|
|
|||||
Total credit card loans
|
474
|
|
|
451
|
|
|
925
|
|
|
400
|
|
|
190
|
|
|||||
Other loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
(3)
|
17
|
|
|
8
|
|
|
25
|
|
|
7
|
|
|
4
|
|
|||||
Private student loans (excluding PCI)
(4)
|
24
|
|
|
8
|
|
|
32
|
|
|
6
|
|
|
2
|
|
|||||
Other
|
—
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
2
|
|
|||||
Total other loans (excluding PCI)
|
41
|
|
|
17
|
|
|
58
|
|
|
13
|
|
|
8
|
|
|||||
Total loan receivables (excluding PCI)
|
515
|
|
|
468
|
|
|
983
|
|
|
413
|
|
|
198
|
|
|||||
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these credit card loans was
$8 million
,
$8 million
and
$3 million
for the
three
months ended
March 31, 2013
and
2012
and the one month ended
December 31, 2012
, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent rates.
|
(2)
|
Consumer credit card loans that are 90 or more days delinquent and accruing interest include
$50 million
,
$52 million
and
$55 million
of loans accounted for as troubled debt restructurings at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively.
|
(3)
|
Personal loans that are 90 or more days delinquent and accruing interest include
$1 million
,
$2 million
and
$1 million
of loans accounted for as troubled debt restructurings at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
.
|
(4)
|
Private student loans that are 90 or more days delinquent and accruing interest include
$2 million
,
$2 million
and
$2 million
of loans accounted for as troubled debt restructurings at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
.
|
(1)
|
PCI loans are discussed under the heading "Purchased Credit-Impaired Loans."
|
|
|||||||||||||||||||
|
Credit Card
|
|
Personal
Loans
|
|
Student
Loans
|
|
Other
Loans
|
|
Total
|
||||||||||
At November 30, 2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment in accordance with ASC 450-20
|
$
|
1,373
|
|
|
$
|
93
|
|
|
$
|
69
|
|
|
$
|
1
|
|
|
$
|
1,536
|
|
Evaluated for impairment in accordance with ASC 310-10-35
(1)
|
181
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
189
|
|
|||||
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total allowance for loan losses
|
$
|
1,554
|
|
|
$
|
97
|
|
|
$
|
73
|
|
|
$
|
1
|
|
|
$
|
1,725
|
|
Recorded investment in loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment in accordance with ASC 450-20
|
$
|
48,310
|
|
|
$
|
3,251
|
|
|
$
|
2,985
|
|
|
$
|
37
|
|
|
$
|
54,583
|
|
Evaluated for impairment in accordance with ASC 310-10-35
(1)
|
1,332
|
|
|
21
|
|
|
15
|
|
|
—
|
|
|
1,368
|
|
|||||
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
|
—
|
|
|
—
|
|
|
4,744
|
|
|
—
|
|
|
4,744
|
|
|||||
Total recorded investment
|
$
|
49,642
|
|
|
$
|
3,272
|
|
|
$
|
7,744
|
|
|
$
|
37
|
|
|
$
|
60,695
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents loans collectively evaluated for impairment in accordance with ASC 310-40,
Receivables,
which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of credit card loans was
$1.1 billion
,
$1.1 billion
and
$1.1 billion
at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively. The unpaid principal balance of personal loans was
$23 million
,
$21 million
and
$21 million
at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively. The unpaid principal balance of student loans was
$18 million
,
$15 million
and
$14 million
at
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively. All loans accounted for as troubled debt restructurings have a related allowance for loan losses.
|
(1)
|
The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.
|
(2)
|
The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.
|
(3)
|
This balance is considered impaired, but is excluded from the internal and external program amounts reflected in this table. Represents credit card loans that were modified in troubled debt restructurings, but that have subsequently reverted back to the loans' pre-modification payment terms either due to noncompliance with the terms of the modification or successful completion of a temporary modification program.
|
(4)
|
For personal loan customers in modification programs, gross interest income that would have been recorded with original terms is not significant for accounts in which there was an APR reduction. Student loan customers who have been granted a forbearance are not given interest rate reductions.
|
(1)
|
The outstanding balance upon default is the loan balance at the end of the month prior to default.
|
(2)
|
A customer defaults from a modification program after two consecutive missed payments.
|
(3)
|
Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked.
|
(4)
|
Student loan defaults have been defined as
60
or more days delinquent.
|
(1)
|
There were no comparable balances to report for the three months ended March 31, 2012 as the acquisition of Home Loan Center assets did not close until June 6, 2012.
|
(2)
|
Conforming loans are loans that conform to Government Sponsored Enterprises guidelines.
|
(3)
|
FHA loans are loans that are insured by the Federal Housing Administration and are typically made to borrowers with low down payments. The loan amount must be within certain limits.
|
(1)
|
Conforming loans are loans that conform to Government Sponsored Enterprises guidelines.
|
(2)
|
FHA loans are loans that are insured by the Federal Housing Administration and are typically made to borrowers with low down payments. The loan amount must be within certain limits.
|
5.
|
Credit Card and Student Loan Securitization Activities
|
(1)
|
The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.
|
(1)
|
Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.
|
|
3-Month Rolling
Average Excess
Spread
(1)
|
|
Group excess spread percentage
|
12.97
|
%
|
DiscoverSeries excess spread percentage
|
12.92
|
%
|
|
|
(1)
|
DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.
|
6.
|
Deposits
|
(1)
|
$100,000
represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to
$250,000
.
|
7.
|
Long-Term Borrowings
|
|
||||||
|
November 30, 2012
|
|||||
|
Outstanding
|
|
Interest
Rate
|
|||
Securitized Debt
|
|
|
|
|||
Fixed rate asset-backed securities
|
|
|
|
|||
Principal value
|
$
|
4,549
|
|
|
2.87
|
%
|
Fair value adjustment
(1)
|
7
|
|
|
|
||
Book value
|
4,556
|
|
|
|
||
Floating rate asset-backed securities
|
9,268
|
|
|
0.49
|
%
|
|
Floating rate asset-backed securities
|
1,250
|
|
|
0.73
|
%
|
|
Floating rate asset-backed securities and other borrowings
|
750
|
|
|
0.63
|
%
|
|
Total Discover Card Master Trust I and Discover Card Execution Note Trust
|
15,824
|
|
|
|
||
Floating rate asset-backed securities
|
1,195
|
|
|
0.56
|
%
|
|
Floating rate asset-backed securities
|
536
|
|
|
4.25
|
%
|
|
Floating rate asset-backed securities
|
128
|
|
|
4.00
|
%
|
|
Floating rate asset-backed securities
|
312
|
|
|
3.71
|
%
|
|
Total SLC Private Student Loan Trusts
|
2,171
|
|
|
|
||
Total Long-Term Borrowings—owed to securitization investors
|
17,995
|
|
|
|
||
Discover Financial Services
(Parent Company)
|
|
|
|
|||
Fixed rate senior notes due 2017
|
|
|
|
|||
Principal value
|
400
|
|
|
6.45
|
%
|
|
Fair value adjustment
(1)
|
23
|
|
|
|
||
Book value
|
423
|
|
|
|
||
Fixed rate senior notes due 2019
|
78
|
|
|
10.25
|
%
|
|
Fixed rate senior notes due 2022
|
211
|
|
|
5.20
|
%
|
|
Fixed rate senior notes due 2022
|
323
|
|
|
3.85
|
%
|
|
Discover Bank
|
|
|
|
|||
Subordinated bank notes due 2019
|
200
|
|
|
8.70
|
%
|
|
Subordinated bank notes due 2020
|
497
|
|
|
7.00
|
%
|
|
Capital lease obligations
|
2
|
|
|
4.51
|
%
|
|
Total long-term borrowings
|
$
|
19,729
|
|
|
|
|
|
|
|
|
(1)
|
The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in LIBOR. See Note 15: Derivatives and Hedging Activities.
|
(2)
|
London Interbank Offered Rate (“LIBOR”).
|
(3)
|
Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.
|
Year
|
Amount
|
||
Due in 2013
|
$
|
2,337
|
|
Due in 2014
|
4,290
|
|
|
Due in 2015
|
3,306
|
|
|
Due in 2016
|
1,300
|
|
|
Due in 2017
|
2,069
|
|
|
Thereafter
|
5,928
|
|
|
Total
|
$
|
19,230
|
|
|
|
8.
|
Accumulated Other Comprehensive Income
|
(1)
|
Represents the difference between the fair value and amortized cost of available-for-sale investment securities.
|
(2)
|
Represents unrealized gains (losses) related to effective portion of cash flow hedges.
|
(3)
|
Reflects adjustments to the funded status of pension and postretirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation.
|
(4)
|
Unrealized losses on available-for-sale investments are net of tax benefit of
$5 million
for the three months ended March 31, 2013.
|
(5)
|
Amounts reclassified out of accumulated other comprehensive income include unrealized gains of $1 million (net of tax expense of
$1 million
) on the sale of available-for-sale investments and unrealized gains of $1 million (net of tax expense of
$1 million
) on cash flow hedges recorded in other income and interest income, respectively, in the condensed consolidated statement of income.
|
9.
|
Income Taxes
|
10.
|
Earnings Per Share
|
11.
|
Capital Adequacy
|
12.
|
Commitments, Contingencies and Guarantees
|
•
|
Merchant Guarantee
. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.
|
•
|
ATM Guarantee.
PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.
|
(1)
|
Represents period transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume.
|
13.
|
Litigation and Regulatory Matters
|
14.
|
Fair Value Disclosures
|
•
|
Level 1
: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
|
•
|
Level 2
: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2.
|
•
|
Level 3
: Fair values determined by Level 3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category.
|
|
|||||||||||||||
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
||||||||
Balance at December 31, 2012
|
|
|
|
|
|
|
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
U.S Treasury securities
|
$
|
2,459
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,459
|
|
U.S government agency securities
|
2,233
|
|
|
—
|
|
|
—
|
|
|
2,233
|
|
||||
Credit card asset-backed securities of other issuers
|
—
|
|
|
151
|
|
|
—
|
|
|
151
|
|
||||
Residential mortgage-backed securities - Agency
|
—
|
|
|
1,302
|
|
|
—
|
|
|
1,302
|
|
||||
Available-for-sale investment securities
|
$
|
4,692
|
|
|
$
|
1,453
|
|
|
$
|
—
|
|
|
$
|
6,145
|
|
Mortgage loans held for sale
|
$
|
—
|
|
|
$
|
355
|
|
|
$
|
—
|
|
|
$
|
355
|
|
Interest rate lock commitments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
12
|
|
Forward delivery contracts
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Other derivative financial instruments
|
—
|
|
|
98
|
|
|
—
|
|
|
98
|
|
||||
Derivative financial instruments
|
$
|
—
|
|
|
$
|
99
|
|
|
$
|
12
|
|
|
$
|
111
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
Forward delivery contracts
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Other derivative financial instruments
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Derivative financial instruments
|
$
|
—
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
||||||||
Balance at November 30, 2012
|
|
|
|
|
|
|
|
||||||||
Assets
|
|
|
|
|
|
|
|
||||||||
U.S Treasury securities
|
$
|
2,462
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,462
|
|
U.S government agency securities
|
2,237
|
|
|
—
|
|
|
—
|
|
|
2,237
|
|
||||
Credit card asset-backed securities of other issuers
|
—
|
|
|
159
|
|
|
—
|
|
|
159
|
|
||||
Corporate debt securities
|
—
|
|
|
75
|
|
|
—
|
|
|
75
|
|
||||
Residential mortgage-backed securities - Agency
|
—
|
|
|
1,200
|
|
|
—
|
|
|
1,200
|
|
||||
Available-for-sale investment securities
|
$
|
4,699
|
|
|
$
|
1,434
|
|
|
$
|
—
|
|
|
$
|
6,133
|
|
Mortgage loans held for sale
|
$
|
—
|
|
|
$
|
322
|
|
|
$
|
—
|
|
|
$
|
322
|
|
Interest rate lock commitments
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
15
|
|
Forward delivery contracts
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Other derivative financial instruments
|
—
|
|
|
116
|
|
|
—
|
|
|
116
|
|
||||
Derivative financial instruments
|
$
|
—
|
|
|
$
|
117
|
|
|
$
|
15
|
|
|
$
|
132
|
|
Liabilities
|
|
|
|
|
|
|
|
||||||||
Forward delivery contracts
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
Other derivative financial instruments
|
—
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||
Derivative financial instruments
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
|
|
|
|
|
|
|
•
|
Mortgage loans held for sale
. Valuations of mortgage loans held for sale are based on the loan amount, note rate, loan program, expected sale date of the loan and, most significantly, investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. Mortgage loans held for sale are classified as Level 2 as the investor pricing tables used to value them are an observable input. Impaired mortgage loans held for sale are classified as Level 3 as loss severity is an unobservable input used in valuation. The Company recognizes interest income separately from changes in fair value.
|
•
|
Interest rate lock commitments
. IRLCs for loans to be sold to investors using a mandatory or assignment of trade method derive their base value from an underlying loan type with similar characteristics using the TBA MBS market, which is actively quoted and easily validated through external sources. The data inputs used in this valuation include, but are not limited to, loan type, underlying loan amount, note rate, loan program, and expected sale date of the loan. IRLCs for loans to be sold to investors on a best-efforts basis derive their base value from the value of the underlying loans using investor pricing tables stratified by product, note rate and term, adjusted for current market conditions. These valuations are adjusted at the loan level to consider the servicing release premium and loan pricing adjustments specific to each loan. For all IRLCs, this base value is then adjusted for the anticipated loan funding probability, or pull through rate. The anticipated loan funding probability is an unobservable input based on historical experience, which results in classification of IRLCs as Level 3.
|
•
|
Forward delivery contracts.
Under the Company's risk management policy, the Company economically hedges the changes in fair value of IRLCs and mortgage loans held for sale caused by changes in interest rates by using TBA MBS
|
The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis.
|
|||||||||||||||||||||||||||||
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in millions)
|
|||||||||||||||||||||||||||||
For the Three Months Ended March 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Balance at December 31, 2012
|
|
Transfers into
Level 3 |
|
Transfers out of Level 3
|
|
Total net gains (losses) included in earnings
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Transfers of IRLCs to closed loans
|
|
Balance at March 31, 2013
|
|||||||||||
Interest rate lock commitments
|
|
$
|
12
|
|
|
—
|
|
|
—
|
|
|
48
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
(49
|
)
|
|
$
|
14
|
|
Mortgage loans held for sale
|
|
$
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||
For the One Month Ended December 31, 2012
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
|
|
Balance at November 30, 2012
|
|
Transfers into
Level 3 |
|
Transfers out of Level 3
|
|
Total net gains (losses) included in earnings
|
|
Purchases
|
|
Sales
|
|
Settlements
|
|
Transfers of IRLCs to closed loans
|
|
Balance at December 31, 2012
|
|||||||||||
Interest rate lock commitments
|
|
$
|
15
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(21
|
)
|
|
$
|
12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following tables disclose the estimated fair value of the Company's financial assets and financial liabilities that are not required to be carried at fair value, as of March 31, 2013, December 31, 2012 and November 30, 2012 (dollars in millions):
|
|||||||||||||||||||
|
Quoted Prices in Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
|
Carrying
Value
|
||||||||||
Balance at March 31, 2013
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S Treasury securities
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
States and political subdivisions of states
|
—
|
|
|
24
|
|
|
—
|
|
|
24
|
|
|
24
|
|
|||||
Residential mortgage-backed securities - Agency
|
—
|
|
|
51
|
|
|
—
|
|
|
51
|
|
|
49
|
|
|||||
Held-to-maturity investment securities
|
$
|
1
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
76
|
|
|
$
|
74
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
8,067
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
8,067
|
|
|
$
|
8,067
|
|
Restricted cash
|
$
|
482
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
482
|
|
|
$
|
482
|
|
Net loan receivables
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
60,903
|
|
|
$
|
60,903
|
|
|
$
|
58,439
|
|
Accrued interest receivables
|
$
|
—
|
|
|
$
|
505
|
|
|
$
|
—
|
|
|
$
|
505
|
|
|
$
|
505
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits
|
$
|
—
|
|
|
$
|
42,814
|
|
|
$
|
—
|
|
|
$
|
42,814
|
|
|
$
|
42,394
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
290
|
|
|
$
|
—
|
|
|
$
|
290
|
|
|
$
|
290
|
|
Long-term borrowings - owed to securitization investors
|
$
|
—
|
|
|
$
|
14,931
|
|
|
$
|
2,310
|
|
|
$
|
17,241
|
|
|
$
|
16,744
|
|
Other long-term borrowings
|
$
|
—
|
|
|
$
|
3,090
|
|
|
$
|
2
|
|
|
$
|
3,092
|
|
|
$
|
2,486
|
|
Accrued interest payables
|
$
|
—
|
|
|
$
|
145
|
|
|
$
|
—
|
|
|
$
|
145
|
|
|
$
|
145
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
|
Carrying
Value
|
||||||||||
Balance at December 31, 2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S Treasury securities
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
States and political subdivisions of states
|
—
|
|
|
34
|
|
|
—
|
|
|
34
|
|
|
34
|
|
|||||
Residential mortgage-backed securities - Agency
|
—
|
|
|
54
|
|
|
—
|
|
|
54
|
|
|
52
|
|
|||||
Held-to-maturity investment securities
|
$
|
1
|
|
|
$
|
88
|
|
|
$
|
—
|
|
|
$
|
89
|
|
|
$
|
87
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
2,584
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,584
|
|
|
$
|
2,584
|
|
Restricted cash
|
$
|
290
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
290
|
|
|
$
|
290
|
|
Net loan receivables
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
62,619
|
|
|
$
|
62,619
|
|
|
$
|
60,455
|
|
Accrued interest receivables
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
—
|
|
|
$
|
500
|
|
|
$
|
500
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits
|
$
|
—
|
|
|
$
|
42,671
|
|
|
$
|
—
|
|
|
$
|
42,671
|
|
|
$
|
42,213
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
327
|
|
|
$
|
—
|
|
|
$
|
327
|
|
|
$
|
327
|
|
Long-term borrowings - owed to securitization investors
|
$
|
—
|
|
|
$
|
14,033
|
|
|
$
|
2,337
|
|
|
$
|
16,370
|
|
|
$
|
15,933
|
|
Other long-term borrowings
|
$
|
—
|
|
|
$
|
2,332
|
|
|
$
|
2
|
|
|
$
|
2,334
|
|
|
$
|
1,733
|
|
Accrued interest payables
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
—
|
|
|
$
|
126
|
|
|
$
|
126
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
Active Markets
for Identical
Assets (Level 1)
|
|
Significant
Other
Observable
Inputs (Level 2)
|
|
Significant
Unobservable
Inputs (Level 3)
|
|
Total
|
|
Carrying
Value
|
||||||||||
Balance at November 30, 2012
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S Treasury securities
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
States and political subdivisions of states
|
—
|
|
|
34
|
|
|
—
|
|
|
34
|
|
|
34
|
|
|||||
Residential mortgage-backed securities - Agency
|
—
|
|
|
55
|
|
|
—
|
|
|
55
|
|
|
53
|
|
|||||
Held-to-maturity investment securities
|
$
|
1
|
|
|
$
|
89
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
88
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
3,926
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,926
|
|
|
$
|
3,926
|
|
Restricted cash
|
$
|
2,344
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,344
|
|
|
$
|
2,344
|
|
Net loan receivables
(1)
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
61,378
|
|
|
$
|
61,378
|
|
|
$
|
58,970
|
|
Accrued interest receivables
|
$
|
—
|
|
|
$
|
466
|
|
|
$
|
—
|
|
|
$
|
466
|
|
|
$
|
466
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits
|
$
|
—
|
|
|
$
|
42,630
|
|
|
$
|
—
|
|
|
$
|
42,630
|
|
|
$
|
42,155
|
|
Short-term borrowings
|
$
|
—
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
284
|
|
|
$
|
284
|
|
Long-term borrowings - owed to securitization investors
|
$
|
—
|
|
|
$
|
16,108
|
|
|
$
|
2,353
|
|
|
$
|
18,461
|
|
|
$
|
17,995
|
|
Other long-term borrowings
|
$
|
—
|
|
|
$
|
2,337
|
|
|
$
|
2
|
|
|
$
|
2,339
|
|
|
$
|
1,734
|
|
Accrued interest payables
|
$
|
—
|
|
|
$
|
128
|
|
|
$
|
—
|
|
|
$
|
128
|
|
|
$
|
128
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net loan receivables excludes mortgage loans held for sale that are measured at fair value on a recurring basis.
|
15.
|
Derivatives and Hedging Activities
|
(1)
|
The foreign exchange forward contracts have notional amounts of EUR
18 million
, GBP
10 million
and SGD
2 million
as of
March 31, 2013
, EUR
18 million
, GBP
9 million
and SGD
2 million
as of
December 31, 2012
, and EUR
18 million
, GBP
8 million
, and SGD
2 million
as of
November 30, 2012
.
|
16.
|
Segment Disclosures
|
•
|
Direct Banking.
The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including home loans, personal loans, student loans, prepaid cards and other consumer lending and deposit products. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, protection products and loan fee income.
|
•
|
Payment Services.
The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s network partners business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club.
|
•
|
Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment.
|
•
|
Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the segments.
|
•
|
The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
•
|
The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.
|
•
|
Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
|
|||||||||||
For the Three Months Ended
|
Direct
Banking
|
|
Payment
Services
|
|
Total
|
||||||
March 31, 2012
|
|
|
|
|
|
||||||
Interest income
|
|
|
|
|
|
||||||
Credit card
|
$
|
1,414
|
|
|
$
|
—
|
|
|
$
|
1,414
|
|
Private student loans
|
43
|
|
|
—
|
|
|
43
|
|
|||
PCI student loans
|
77
|
|
|
—
|
|
|
77
|
|
|||
Personal loans
|
84
|
|
|
—
|
|
|
84
|
|
|||
Other
|
23
|
|
|
—
|
|
|
23
|
|
|||
Total interest income
|
1,641
|
|
|
—
|
|
|
1,641
|
|
|||
Interest expense
|
349
|
|
|
—
|
|
|
349
|
|
|||
Net interest income
|
1,292
|
|
|
—
|
|
|
1,292
|
|
|||
Provision for loan losses
|
84
|
|
|
—
|
|
|
84
|
|
|||
Other income
|
429
|
|
|
82
|
|
|
511
|
|
|||
Other expense
|
638
|
|
|
34
|
|
|
672
|
|
|||
Income before income tax expense
|
$
|
999
|
|
|
$
|
48
|
|
|
$
|
1,047
|
|
|
|
|
|
|
|
||||||
For the One Month Ended
|
|
|
|
|
|
||||||
December 31, 2012
|
|
|
|
|
|
||||||
Interest income
|
|
|
|
|
|
||||||
Credit card
|
$
|
510
|
|
|
$
|
—
|
|
|
$
|
510
|
|
Private student loans
|
18
|
|
|
—
|
|
|
18
|
|
|||
PCI student loans
|
24
|
|
|
—
|
|
|
24
|
|
|||
Personal loans
|
34
|
|
|
—
|
|
|
34
|
|
|||
Other
|
9
|
|
|
—
|
|
|
9
|
|
|||
Total interest income
|
595
|
|
|
—
|
|
|
595
|
|
|||
Interest expense
|
103
|
|
|
—
|
|
|
103
|
|
|||
Net interest income
|
492
|
|
|
—
|
|
|
492
|
|
|||
Provision for loan losses
|
178
|
|
|
—
|
|
|
178
|
|
|||
Other income
|
169
|
|
|
31
|
|
|
200
|
|
|||
Other expense
|
224
|
|
|
16
|
|
|
240
|
|
|||
Income before income tax expense
|
$
|
259
|
|
|
$
|
15
|
|
|
$
|
274
|
|
|
|
|
|
|
|
17.
|
Transition Period Financial Information
|
18.
|
Subsequent Events
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Net income for the first quarter of 2013 was $673 million, compared to $650 million for the first quarter of 2012.
|
•
|
Credit card loans grew $2.4 billion to $48.7 billion and Discover card sales volume increased 4% from the prior year.
|
•
|
Credit card loan delinquencies over 30 days past due reached a historic low of 1.77%. Credit card net charge-off rate increased 5 basis points sequentially to 2.36%.
|
•
|
Payment services pretax income was down 2% from the prior year to $47 million. Transaction dollar volume for the segment was $48.8 billion in the quarter, an increase of 2% from the prior year.
|
•
|
We repurchased approximately 6 million shares of common stock for $238 million, reducing our number of shares outstanding by 1% from the prior quarter.
|
•
|
Our capital market activities included issuances of approximately $1.7 billion in public credit card asset backed securities. Discover Bank issued $750 million in senior bank notes.
|
•
|
We received non-objection from the Federal Reserve with respect to our proposed capital actions through March 31, 2014.
|
•
|
Our board of directors approved a new two-year share repurchase program authorizing the repurchase of up to $2.4 billion of our outstanding shares of common stock.
|
•
|
On April 16, 2013, we announced a quarterly cash dividend of $0.20 per share of common stock, payable on May 23, 2013 to holders of record on May 9, 2013.
|
•
|
Also on April 16, 2013, we announced a quarterly cash dividend on our preferred stock in the amount of $16.25 per share, equal to $.40625 per depositary share, payable on June 3, 2013 to holders of record on May 17, 2013.
|
(1)
|
Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment.
|
(2)
|
Represents gross proprietary sales volume on the Discover Network.
|
(3)
|
Represents Discover card activity related to net sales, balance transfers, cash advances and other activity.
|
(4)
|
Represents Discover card activity related to net sales.
|
The following table outlines changes in our condensed consolidated statements of income for the periods presented (dollars in millions):
|
||||||||||||||||||
|
For the Three Months Ended March 31,
|
|
2013 vs. 2012
increase (decrease) |
|
For the One Month Ended December 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$
|
|
%
|
|
2012
|
|||||||||
Interest income
|
$
|
1,708
|
|
|
$
|
1,641
|
|
|
$
|
67
|
|
|
4
|
%
|
|
$
|
595
|
|
Interest expense
|
298
|
|
|
349
|
|
|
(51
|
)
|
|
(15
|
)%
|
|
103
|
|
||||
Net interest income
|
1,410
|
|
|
1,292
|
|
|
118
|
|
|
9
|
%
|
|
492
|
|
||||
Provision for loan losses
|
159
|
|
|
84
|
|
|
75
|
|
|
89
|
%
|
|
178
|
|
||||
Net interest income after provision for loan losses
|
1,251
|
|
|
1,208
|
|
|
43
|
|
|
4
|
%
|
|
314
|
|
||||
Other income
|
582
|
|
|
511
|
|
|
71
|
|
|
14
|
%
|
|
200
|
|
||||
Other expense
|
753
|
|
|
672
|
|
|
81
|
|
|
12
|
%
|
|
240
|
|
||||
Income before income tax expense
|
1,080
|
|
|
1,047
|
|
|
33
|
|
|
3
|
%
|
|
274
|
|
||||
Income tax expense
|
407
|
|
|
397
|
|
|
10
|
|
|
3
|
%
|
|
104
|
|
||||
Net income
|
$
|
673
|
|
|
$
|
650
|
|
|
$
|
23
|
|
|
4
|
%
|
|
$
|
170
|
|
|
|
|
|
|
|
|
|
|
|
•
|
The level and composition of loan receivables, including the proportion of credit card loans to other loans, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates;
|
•
|
The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income;
|
•
|
The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate;
|
•
|
The level and composition of other interest-bearing assets and liabilities, including our liquidity portfolio;
|
•
|
Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the Federal Funds rate and LIBOR;
|
•
|
The effectiveness of interest rate swaps in our interest rate risk management program; and
|
•
|
The difference between the carrying amount and future cash flows expected to be collected on PCI loans.
|
Average Balance Sheet Analysis
(dollars in millions)
|
||||||||||||||||||||||||||||||||
|
For the Three Months Ended March 31,
|
|
For the One Month Ended December 31,
|
|||||||||||||||||||||||||||||
|
2013
|
|
2012
|
|
2012
|
|||||||||||||||||||||||||||
|
Average
Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
|
|
Rate
|
|
Interest
|
|||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and cash equivalents
|
$
|
4,788
|
|
|
0.25
|
%
|
|
$
|
3
|
|
|
$
|
4,583
|
|
|
0.27
|
%
|
|
$
|
3
|
|
|
$
|
2,704
|
|
|
0.25
|
%
|
|
$
|
—
|
|
Restricted cash
|
720
|
|
|
0.10
|
%
|
|
—
|
|
|
555
|
|
|
0.20
|
%
|
|
1
|
|
|
1,400
|
|
|
0.11
|
%
|
|
—
|
|
||||||
Investment securities
|
5,709
|
|
|
1.42
|
%
|
|
20
|
|
|
6,344
|
|
|
1.14
|
%
|
|
18
|
|
|
6,247
|
|
|
1.34
|
%
|
|
7
|
|
||||||
Loan receivables
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card
(2)(3)
|
49,267
|
|
|
11.94
|
%
|
|
1,451
|
|
|
46,604
|
|
|
12.21
|
%
|
|
1,414
|
|
|
50,494
|
|
|
11.92
|
%
|
|
510
|
|
||||||
Personal loans
|
3,344
|
|
|
12.45
|
%
|
|
103
|
|
|
2,762
|
|
|
12.28
|
%
|
|
84
|
|
|
3,290
|
|
|
12.43
|
%
|
|
35
|
|
||||||
Federal student loans
|
—
|
|
|
—
|
%
|
|
—
|
|
|
245
|
|
|
1.64
|
%
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
||||||
Private student loans
|
3,356
|
|
|
7.03
|
%
|
|
58
|
|
|
2,394
|
|
|
7.21
|
%
|
|
43
|
|
|
3,021
|
|
|
7.22
|
%
|
|
18
|
|
||||||
PCI student loans
|
4,633
|
|
|
6.15
|
%
|
|
70
|
|
|
5,146
|
|
|
6.02
|
%
|
|
77
|
|
|
4,724
|
|
|
5.96
|
%
|
|
24
|
|
||||||
Mortgage loans held for sale
|
265
|
|
|
3.15
|
%
|
|
2
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
310
|
|
|
3.05
|
%
|
|
1
|
|
||||||
Other
|
38
|
|
|
6.06
|
%
|
|
1
|
|
|
24
|
|
|
3.65
|
%
|
|
—
|
|
|
38
|
|
|
5.24
|
%
|
|
—
|
|
||||||
Total loan receivables
|
60,903
|
|
|
11.22
|
%
|
|
1,685
|
|
|
57,175
|
|
|
11.39
|
%
|
|
1,619
|
|
|
61,877
|
|
|
11.21
|
%
|
|
588
|
|
||||||
Total interest-earning assets
|
72,120
|
|
|
9.60
|
%
|
|
1,708
|
|
|
68,657
|
|
|
9.61
|
%
|
|
1,641
|
|
|
72,228
|
|
|
9.73
|
%
|
|
595
|
|
||||||
Allowance for loan losses
|
(1,822
|
)
|
|
|
|
|
|
(2,161
|
)
|
|
|
|
|
|
(1,725
|
)
|
|
|
|
|
||||||||||||
Other assets
|
4,362
|
|
|
|
|
|
|
3,967
|
|
|
|
|
|
|
4,234
|
|
|
|
|
|
||||||||||||
Total assets
|
$
|
74,660
|
|
|
|
|
|
|
$
|
70,463
|
|
|
|
|
|
|
$
|
74,737
|
|
|
|
|
|
|||||||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Time deposits
(4)
|
$
|
27,825
|
|
|
2.24
|
%
|
|
154
|
|
|
$
|
26,146
|
|
|
2.84
|
%
|
|
185
|
|
|
$
|
27,849
|
|
|
2.29
|
%
|
|
54
|
|
|||
Money market deposits
|
5,242
|
|
|
0.88
|
%
|
|
11
|
|
|
5,462
|
|
|
0.97
|
%
|
|
13
|
|
|
5,368
|
|
|
0.88
|
%
|
|
4
|
|
||||||
Other interest-bearing savings deposits
|
8,987
|
|
|
0.97
|
%
|
|
21
|
|
|
8,370
|
|
|
1.25
|
%
|
|
26
|
|
|
8,864
|
|
|
1.00
|
%
|
|
7
|
|
||||||
Total interest-bearing deposits
(5)
|
42,054
|
|
|
1.80
|
%
|
|
186
|
|
|
39,978
|
|
|
2.25
|
%
|
|
224
|
|
|
42,081
|
|
|
1.84
|
%
|
|
65
|
|
||||||
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Short-term borrowings
|
240
|
|
|
1.45
|
%
|
|
1
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
283
|
|
|
1.36
|
%
|
|
—
|
|
||||||
Securitized borrowings
|
16,574
|
|
|
1.84
|
%
|
|
75
|
|
|
16,338
|
|
|
2.08
|
%
|
|
85
|
|
|
16,998
|
|
|
1.80
|
%
|
|
26
|
|
||||||
Other long-term borrowings
(4)
|
2,059
|
|
|
7.04
|
%
|
|
36
|
|
|
2,159
|
|
|
7.55
|
%
|
|
40
|
|
|
1,733
|
|
|
7.82
|
%
|
|
12
|
|
||||||
Total borrowings
|
18,873
|
|
|
2.41
|
%
|
|
112
|
|
|
18,497
|
|
|
2.72
|
%
|
|
125
|
|
|
19,014
|
|
|
2.34
|
%
|
|
38
|
|
||||||
Total interest-bearing liabilities
|
60,927
|
|
|
1.99
|
%
|
|
298
|
|
|
58,475
|
|
|
2.40
|
%
|
|
349
|
|
|
61,095
|
|
|
1.99
|
%
|
|
103
|
|
||||||
Other liabilities and stockholders’ equity
|
13,733
|
|
|
|
|
|
|
11,988
|
|
|
|
|
|
|
13,642
|
|
|
|
|
|
||||||||||||
Total liabilities and stockholders’ equity
|
$
|
74,660
|
|
|
|
|
|
|
$
|
70,463
|
|
|
|
|
|
|
$
|
74,737
|
|
|
|
|
|
|||||||||
Net interest income
|
|
|
|
|
$
|
1,410
|
|
|
|
|
|
|
$
|
1,292
|
|
|
|
|
|
|
$
|
492
|
|
|||||||||
Net interest margin
(6)
|
|
|
9.39
|
%
|
|
|
|
|
|
9.09
|
%
|
|
|
|
|
|
9.39
|
%
|
|
|
||||||||||||
Net yield on interest-bearing assets
(7)
|
|
|
7.93
|
%
|
|
|
|
|
|
7.57
|
%
|
|
|
|
|
|
8.05
|
%
|
|
|
||||||||||||
Interest rate spread
(8)
|
|
|
7.61
|
%
|
|
|
|
|
|
7.21
|
%
|
|
|
|
|
|
7.74
|
%
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.
|
(2)
|
Interest income on credit card loans includes $41.3 million, $43.8 million and $13.9 million of amortization of balance transfer fees for the three months ended March 31, 2013 and 2012 and the one month ended December 31, 2012, respectively.
|
(3)
|
Includes the impact of interest rate swap agreements used to change a portion of certain floating-rate credit card loan receivables to fixed-rate.
|
(4)
|
Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.
|
(5)
|
Includes the impact of FDIC insurance premiums and special assessments.
|
(6)
|
Net interest margin represents net interest income as a percentage of average total loan receivables.
|
(7)
|
Net yield on interest-bearing assets represents net interest income as a percentage of average total interest-earning assets.
|
(8)
|
Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
|
Rate/Volume Variance Analysis
(1)
|
|||||||||||
|
For the Three Months Ended
March 31, 2013 vs. March 31, 2012
|
||||||||||
|
Volume
|
|
Rate
|
|
Total
|
||||||
Increase/(decrease) in net interest income due to changes in:
|
|
|
|
|
|
||||||
Interest-earning assets:
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
$
|
1
|
|
|
$
|
(1
|
)
|
|
$
|
—
|
|
Restricted cash
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|||
Investment securities
|
(10
|
)
|
|
12
|
|
|
2
|
|
|||
Loan receivables:
|
|
|
|
|
|
||||||
Credit card
|
204
|
|
|
(167
|
)
|
|
37
|
|
|||
Personal loans
|
18
|
|
|
1
|
|
|
19
|
|
|||
Federal student loans
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|||
Private student loans
|
22
|
|
|
(7
|
)
|
|
15
|
|
|||
PCI student loans
|
(17
|
)
|
|
10
|
|
|
(7
|
)
|
|||
Mortgage loans held for sale
|
2
|
|
|
—
|
|
|
2
|
|
|||
Other
|
—
|
|
|
1
|
|
|
1
|
|
|||
Total loan receivables
|
228
|
|
|
(162
|
)
|
|
66
|
|
|||
Total interest income
|
219
|
|
|
(152
|
)
|
|
67
|
|
|||
Interest-bearing liabilities:
|
|
|
|
|
|
||||||
Interest-bearing deposits:
|
|
|
|
|
|
||||||
Time deposits
|
66
|
|
|
(97
|
)
|
|
(31
|
)
|
|||
Money market deposits
|
(1
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|||
Other interest-bearing savings deposits
|
10
|
|
|
(15
|
)
|
|
(5
|
)
|
|||
Total interest-bearing deposits
|
75
|
|
|
(113
|
)
|
|
(38
|
)
|
|||
Borrowings:
|
|
|
|
|
|
||||||
Short-term borrowings
|
1
|
|
|
—
|
|
|
1
|
|
|||
Securitized borrowings
|
7
|
|
|
(17
|
)
|
|
(10
|
)
|
|||
Other long-term borrowings
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|||
Total borrowings
|
6
|
|
|
(19
|
)
|
|
(13
|
)
|
|||
Total interest expense
|
81
|
|
|
(132
|
)
|
|
(51
|
)
|
|||
Net interest income
|
$
|
138
|
|
|
$
|
(20
|
)
|
|
$
|
118
|
|
|
|
|
|
|
|
(1)
|
The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between
March 31, 2013
and
March 31, 2012
based on the percentage of the rate or volume variance to the sum of the two absolute variances.
|
|
|
|
|
|
|
||||||
|
March 31, 2013
|
|
December 31, 2012
|
|
November 30, 2012
|
||||||
Mortgage loans held for sale
|
$
|
311
|
|
|
$
|
355
|
|
|
$
|
322
|
|
Loan portfolio:
|
|
|
|
|
|
||||||
Credit card loans:
|
|
|
|
|
|
||||||
Discover card
|
48,451
|
|
|
50,929
|
|
|
49,436
|
|
|||
Discover business card
|
204
|
|
|
206
|
|
|
206
|
|
|||
Total credit card loans
|
48,655
|
|
|
51,135
|
|
|
49,642
|
|
|||
Other loans:
|
|
|
|
|
|
||||||
Personal loans
|
3,395
|
|
|
3,296
|
|
|
3,272
|
|
|||
Private student loans
|
3,426
|
|
|
3,072
|
|
|
3,000
|
|
|||
Other
|
36
|
|
|
38
|
|
|
37
|
|
|||
Total other loans
|
6,857
|
|
|
6,406
|
|
|
6,309
|
|
|||
PCI student loans
(1)
|
4,561
|
|
|
4,702
|
|
|
4,744
|
|
|||
Total loan portfolio
|
60,073
|
|
|
62,243
|
|
|
60,695
|
|
|||
Total loan receivables
|
60,384
|
|
|
62,598
|
|
|
61,017
|
|
|||
Allowance for loan losses
|
(1,634
|
)
|
|
(1,788
|
)
|
|
(1,725
|
)
|
|||
Net loan receivables
|
$
|
58,750
|
|
|
$
|
60,810
|
|
|
$
|
59,292
|
|
|
|
|
|
|
|
(1)
|
Represents purchased credit-impaired private student loans which do not have a related allowance for loan losses or charge-offs (see Note 4: Loan Receivables to our condensed consolidated financial statements).
|
•
|
The impact of general economic conditions on the consumer, including unemployment levels, bankruptcy trends and interest rate movements;
|
•
|
Changes in consumer spending and payment behaviors;
|
•
|
Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the portfolio;
|
•
|
The level and direction of historical and anticipated loan delinquencies and charge-offs;
|
•
|
The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and effectiveness of collection efforts; and
|
•
|
Regulatory changes or new regulatory guidance.
|
(1)
|
Charge-offs for PCI loans did not result in a charge to earnings during any of the years presented and are therefore excluded from the calculation. See Note 4: Loan Receivables to our condensed consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans.
|
The following table presents the amounts and delinquency rates of key loan products that are 30 and 90 days or more delinquent, loan receivables that are not accruing interest, regardless of delinquency and restructured loans (dollars in millions):
|
||||||||||||||||||||
|
March 31, 2013
|
|
December 31, 2012
|
|
November 30, 2012
|
|||||||||||||||
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|||||||||
Loans 30 days delinquent or more:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Credit card loans
|
$
|
862
|
|
|
1.77
|
%
|
|
$
|
917
|
|
|
1.79
|
%
|
|
$
|
925
|
|
|
1.86
|
%
|
Personal loans
|
$
|
26
|
|
|
0.76
|
%
|
|
$
|
26
|
|
|
0.77
|
%
|
|
$
|
25
|
|
|
0.76
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
51
|
|
|
1.48
|
%
|
|
$
|
37
|
|
|
1.22
|
%
|
|
$
|
32
|
|
|
1.07
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans 90 days delinquent or more:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Credit card loans
|
$
|
442
|
|
|
0.91
|
%
|
|
$
|
460
|
|
|
0.90
|
%
|
|
$
|
451
|
|
|
0.91
|
%
|
Personal loans
|
$
|
7
|
|
|
0.22
|
%
|
|
$
|
8
|
|
|
0.23
|
%
|
|
$
|
8
|
|
|
0.23
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
19
|
|
|
0.54
|
%
|
|
$
|
9
|
|
|
0.29
|
%
|
|
$
|
8
|
|
|
0.27
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Loans not accruing interest
|
$
|
200
|
|
|
0.36
|
%
|
|
$
|
192
|
|
|
0.33
|
%
|
|
$
|
198
|
|
|
0.35
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Restructured loans:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Credit card loans
(2)
|
$
|
1,246
|
|
|
2.56
|
%
|
|
$
|
1,309
|
|
|
2.56
|
%
|
|
$
|
1,332
|
|
|
2.68
|
%
|
Personal loans
(3)
|
$
|
23
|
|
|
0.68
|
%
|
|
$
|
21
|
|
|
0.65
|
%
|
|
$
|
21
|
|
|
0.64
|
%
|
Private student loans (excluding PCI loans
(1)
)
(4)
|
$
|
19
|
|
|
0.56
|
%
|
|
$
|
16
|
|
|
0.53
|
%
|
|
$
|
15
|
|
|
0.50
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes PCI loans which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because we are recognizing interest income on a pool of loans, it is all considered to be performing.
|
(2)
|
Restructured credit card loans include $53 million, $54 million and $56 million at March 31, 2013, December 31, 2012 and November 30, 2012, respectively, that are also included in loans over 90 days delinquent or more.
|
(3)
|
Restructured personal loans include
$1 million
,
$2 million
and
$1 million
at March 31, 2013, December 31, 2012 and November 30, 2012, respectively, that are also included in loans over 90 days delinquent or more.
|
(4)
|
Restructured private student loans include
$2 million
,
$2 million
and
$2 million
at March 31, 2013, December 31, 2012 and November 30, 2012, respectively, that are also included in loans over 90 days delinquent or more.
|
|
For the Three Months Ended March 31,
|
|
2013 vs. 2012 increase
(decrease)
|
|
For the One Month Ended December 31,
|
|||||||||||||
2013
|
|
2012
|
|
$
|
|
%
|
|
2012
|
||||||||||
Discount and interchange revenue
(1)
|
$
|
263
|
|
|
$
|
240
|
|
|
$
|
23
|
|
|
10
|
%
|
|
$
|
82
|
|
Protection products revenue
|
88
|
|
|
103
|
|
|
(15
|
)
|
|
(15
|
)%
|
|
33
|
|
||||
Loan fee income
|
81
|
|
|
81
|
|
|
—
|
|
|
—
|
%
|
|
29
|
|
||||
Transaction processing revenue
|
53
|
|
|
49
|
|
|
4
|
|
|
8
|
%
|
|
18
|
|
||||
Gain (loss) on investments
|
3
|
|
|
—
|
|
|
3
|
|
|
NM
|
|
|
2
|
|
||||
Gain on origination and sale of mortgage loans
|
51
|
|
|
—
|
|
|
51
|
|
|
NM
|
|
|
17
|
|
||||
Other income
|
43
|
|
|
38
|
|
|
5
|
|
|
13
|
%
|
|
19
|
|
||||
Total other income
|
$
|
582
|
|
|
$
|
511
|
|
|
$
|
71
|
|
|
14
|
%
|
|
$
|
200
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Net of rewards, including
Cashback Bonus
rewards, of $229 million, $231 million and $123 million for the
three
months ended
March 31, 2013
,
March 31, 2012
and the one month ended
December 31, 2012
, respectively.
|
|
For the Three Months Ended March 31,
|
|
2013 vs. 2012
increase
(decrease)
|
|
For the One Month Ended December 31,
|
|||||||||||||
|
2013
|
|
2012
|
|
$
|
|
%
|
|
2012
|
|||||||||
Employee compensation and benefits
|
$
|
290
|
|
|
$
|
246
|
|
|
$
|
44
|
|
|
18
|
%
|
|
$
|
87
|
|
Marketing and business development
|
169
|
|
|
128
|
|
|
41
|
|
|
32
|
%
|
|
51
|
|
||||
Information processing and communications
|
78
|
|
|
72
|
|
|
6
|
|
|
8
|
%
|
|
25
|
|
||||
Professional fees
|
104
|
|
|
104
|
|
|
—
|
|
|
—
|
%
|
|
34
|
|
||||
Premises and equipment
|
19
|
|
|
18
|
|
|
1
|
|
|
6
|
%
|
|
8
|
|
||||
Other expense
|
93
|
|
|
104
|
|
|
(11
|
)
|
|
(11
|
)%
|
|
35
|
|
||||
Total other expense
|
$
|
753
|
|
|
$
|
672
|
|
|
$
|
81
|
|
|
12
|
%
|
|
$
|
240
|
|
|
|
|
|
|
|
|
|
|
|
The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate:
|
||||||||
|
For the Three Months Ended March 31,
|
|
For the One Month Ended December 31,
|
|||||
|
2013
|
|
2012
|
|
2012
|
|||
U.S. federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
U.S. state and local income taxes and other income taxes, net of U.S. federal income tax benefits
|
3.3
|
|
|
3.3
|
|
|
3.2
|
|
Other
|
(0.6
|
)
|
|
(0.4
|
)
|
|
(0.1
|
)
|
Effective income tax rate
|
37.7
|
%
|
|
37.9
|
%
|
|
38.1
|
%
|
|
|
|
|
|
|
|
Total
|
|
Three
Months
or Less
|
|
Over Three
Months
Through Six
Months
|
|
Over Six
Months
Through
Twelve
Months
|
|
Over Twelve
Months
|
|
Indeterminate
|
||||||||||||
Certificates of deposit in amounts less than $100,000
(1)
|
$
|
21,111
|
|
|
$
|
2,935
|
|
|
$
|
3,216
|
|
|
$
|
3,332
|
|
|
$
|
11,628
|
|
|
$
|
—
|
|
Certificates of deposit in amounts of $100,000 to less than $250,000
(1)
|
5,613
|
|
|
511
|
|
|
855
|
|
|
1,442
|
|
|
2,805
|
|
|
—
|
|
||||||
Certificates of deposit in amounts of $250,000
(1)
or greater
|
1,328
|
|
|
104
|
|
|
178
|
|
|
349
|
|
|
697
|
|
|
—
|
|
||||||
Savings deposits, including money market deposit accounts
(2)
|
14,203
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
14,203
|
|
||||||
Total interest-bearing deposits
|
$
|
42,255
|
|
|
$
|
3,550
|
|
|
$
|
4,249
|
|
|
$
|
5,123
|
|
|
$
|
15,130
|
|
|
$
|
14,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
$100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.
|
(2)
|
Represents deposits with no contractual maturity.
|
|
Total
|
|
Less Than
One Year
|
|
One Year
Through
Three Years
|
|
Four Years
Through
Five Years
|
|
After Five
Years
|
||||||||||
Scheduled maturities of long-term borrowings—owed to credit card securitization investors
|
$
|
14,681
|
|
|
$
|
4,587
|
|
|
$
|
6,245
|
|
|
$
|
2,849
|
|
|
$
|
1,000
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
An “sf” in the rating denotes rating agency identification for structured finance product ratings.
|
(2)
|
All Class C notes are currently held by subsidiaries of Discover Bank and, therefore, are not publicly rated.
|
(1)
|
Cash-in-process is excluded from cash and cash equivalents for liquidity purposes.
|
(2)
|
See "—Funding Sources—Additional Funding Sources" for additional information.
|
(3)
|
Excludes $105 million, $146 million and $154 million of investments accounted for in the liquidity portfolio that were pledged to the Federal Reserve as of
March 31, 2013
,
December 31, 2012
and
November 30, 2012
, respectively.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 1.
|
Legal Proceedings
|
Item 1A.
|
Risk Factors
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
Period
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program
(1)
|
|
Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs
(1)
|
||||||
December 1- 31, 2012
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
311,167
|
|
|
$
|
38.56
|
|
|
311,167
|
|
|
$
|
790,552,775
|
|
Employee transactions
(2)
|
—
|
|
|
$
|
—
|
|
|
N/A
|
|
N/A
|
|||
January 1 - 31, 2013
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
2,227,455
|
|
|
$
|
39.07
|
|
|
2,227,455
|
|
|
$
|
703,516,845
|
|
Employee transactions
(2)
|
569,511
|
|
|
$
|
39.52
|
|
|
N/A
|
|
N/A
|
|||
February 1 - 28, 2013
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
1,872,165
|
|
|
$
|
38.98
|
|
|
1,872,165
|
|
|
$
|
630,531,002
|
|
Employee transactions
(2)
|
622
|
|
|
$
|
38.45
|
|
|
N/A
|
|
N/A
|
|||
March 1 - 31, 2013
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
1,848,364
|
|
|
$
|
42.08
|
|
|
1,848,364
|
|
|
$
|
2,366,900,502
|
|
Employee transactions
(2)
|
1,624
|
|
|
$
|
39.08
|
|
|
N/A
|
|
N/A
|
|||
|
|
|
|
|
|
|
|
||||||
Total
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
6,259,151
|
|
|
$
|
39.91
|
|
|
6,259,151
|
|
|
$
|
2,366,900,502
|
|
Employee transactions
(2)
|
571,757
|
|
|
$
|
39.52
|
|
|
N/A
|
|
N/A
|
Item 3.
|
Defaults Upon Senior Securities
|
Item 4.
|
Mine Safety Disclosures
|
Item 5.
|
Other Information
|
Item 6.
|
Exhibits
|
|
Discover Financial Services
(Registrant)
|
||
|
|
|
|
|
By:
|
|
/s/ R. M
ARK
G
RAF
|
|
|
|
R. Mark Graf
Executive Vice President and Chief Financial Officer
|
Exhibit
Number
|
|
Description
|
|
|
|
4.1
|
|
Fiscal and Paying Agency Agreement between Discover Bank and U.S. Bank National Association dated as of February 21, 2013 (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on February 21, 2013 and incorporated herein by reference thereto).
|
|
|
|
10.1
|
|
Form 2013 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan
|
|
|
|
10.2
|
|
Form 2013 Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
|
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101.INS
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XBRL Instance Document.
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101.SCH
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XBRL Taxonomy Extension Schema Document.
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document.
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document.
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document.
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document.
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1.
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Restricted Stock Units Generally.
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3
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2.
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Vesting Schedule and Conversion.
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3
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3.
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Special Provisions for Certain “Specified Employees”.
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4
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4.
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Dividend Equivalent Payments.
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4
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5.
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Death; Disability; Retirement.
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4
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6.
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Reduction in Force.
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5
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7.
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Change in Control.
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5
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8.
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Termination of Employment.
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6
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9.
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Forfeiture/Cancellation/Clawback of RSU Awards Under Certain Circumstances.
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6
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10.
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Tax and Other Withholding Obligations.
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8
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11.
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Satisfaction of Obligations.
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8
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12.
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Nontransferability.
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8
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13.
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Designation of a Beneficiary.
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9
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14.
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Ownership and Possession.
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9
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15.
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Securities Law Matters.
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9
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16.
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Compliance with Laws and Regulations.
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9
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17.
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No Entitlements.
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10
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18.
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Consents Under Local Law.
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10
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19.
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Award Modification.
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10
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20.
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Severability.
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11
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21.
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Successors.
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11
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22.
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Governing Law.
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11
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23.
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Section 409A.
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11
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24.
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Defined Terms.
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12
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1.
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Restricted Stock Units Generally
.
|
2.
|
Vesting Schedule and Conversion
.
|
3.
|
Special Provisions for Certain “Specified Employees”
.
|
4.
|
Dividend Equivalent Payments
.
|
5.
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Death; Disability; Retirement
.
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6.
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Reduction in Force
.
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7.
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Change in Control
.
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8.
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Termination of Employment
.
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9.
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Forfeiture/Cancellation/Clawback of RSU Awards Under Certain Circumstances
.
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10.
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Tax and Other Withholding Obligations
.
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11.
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Satisfaction of Obligations
.
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12.
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Nontransferability
.
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13.
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Designation of a Beneficiary
.
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14.
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Ownership and Possession
.
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15.
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Securities Law Matters
.
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16.
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Compliance with Laws and Regulations
.
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17.
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No Entitlements
.
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18.
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Consents Under Local Law
.
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19.
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Award Modification
.
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20.
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Severability
.
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21.
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Successors
.
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22.
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Governing Law
.
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23.
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Section 409A.
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24.
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Defined Terms
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Beneficiary(ies) Name
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Relationship
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Percentage
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(1)
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(2)
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(3)
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(4)
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1
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Performance Stock Units Generally.
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3
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2
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Performance Measures.
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3
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3
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Vesting Schedule and Conversion.
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3
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4
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Special Provisions for Certain "Specified Employees".
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4
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5
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Dividend Equivalent Payments.
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4
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6
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Death; Disability; Retirement.
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5
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7
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Reduction in Force.
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6
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8
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Change in Control.
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6
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9
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Termination of Employment.
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7
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10
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Forfeiture/Cancellation/Clawback of PSU Awards Under Certain Circumstances.
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7
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11
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Tax and Other Withholding Obligations.
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9
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12
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Satisfaction of Obligations.
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9
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13
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Nontransferability.
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10
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14
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Designation of a Beneficiary.
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10
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15
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Ownership and Possession.
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10
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16
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Securities Law Matters.
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11
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17
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Compliance with Laws and Regulations.
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11
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18
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No Entitlements.
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11
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19
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Consents Under Local Law.
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12
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20
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Award Modification.
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12
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21
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Severability.
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12
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22
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Successors.
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12
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23
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Governing Law.
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13
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24
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Section 409A.
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13
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25
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Defined Terms.
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13
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1.
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Performance Stock Units Generally
.
|
2.
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Performance Measures
.
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3.
|
Vesting Schedule and Conversion
.
|
4.
|
Special Provisions for Certain “Specified Employees”
.
|
5.
|
Dividend Equivalent Payments
.
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6.
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Death; Disability; Retirement
.
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7.
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Reduction in Force.
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8.
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Change in Control
.
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9.
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Termination of Employment
.
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10.
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Forfeiture/Cancellation/Clawback of PSU Awards Under Certain Circumstances.
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11.
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Tax and Other Withholding Obligations
.
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12.
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Satisfaction of Obligations
.
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13.
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Nontransferability
.
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14.
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Designation of a Beneficiary
.
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15.
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Ownership and Possession
.
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16.
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Securities Law Matters
.
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17.
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Compliance with Laws and Regulations
.
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18.
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No Entitlements
.
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19.
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Consents Under Local Law
.
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20.
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Award Modification
.
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21.
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Severability
.
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22.
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Successors
.
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23.
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Governing Law
.
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24.
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Section 409A.
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25.
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Defined Terms
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Discover EPS Performance*
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Target Award Multiplier
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Lower than $[ ]
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—
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$[ ] (threshold)
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—
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$[ ]
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0.5
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$[ ] (target)
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1.0
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$[ ] (maximum)
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1.5
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Greater than $[ ]
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1.5
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Beneficiary(ies) Name
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Relationship
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Percentage
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(1)
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(2)
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(3)
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(4)
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1.
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I have reviewed this Quarterly Report on Form 10-Q of Discover Financial Services (the “registrant”);
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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/s/ DAVID W. NELMS
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David W. Nelms
Chairman of the Board and
Chief Executive Officer
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1.
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I have reviewed this Quarterly Report on Form 10-Q of Discover Financial Services (the “registrant”);
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a)
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b)
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c)
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Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d)
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Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
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5.
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The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
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a)
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
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b)
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
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/s/ R. MARK GRAF
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R. Mark Graf
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Executive Vice President and Chief Financial Officer
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1.
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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2.
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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/s/ DAVID W. NELMS
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David W. Nelms
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Chairman of the Board and Chief Executive Officer
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/s/ R. MARK GRAF
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R. Mark Graf
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Executive Vice President and Chief Financial Officer
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