Discover 2015 Annual Report Download - page 42

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Item 1A. Risk Factors
You should carefully consider each of the following risks described below and all of the other information in this
annual report on Form 10-K in evaluating us. Our business, financial condition, cash flows and/or results of operations
could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to
any of these risks. This annual report on Form 10-K also contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a
result of certain factors, including the risks faced by us described below and elsewhere in this annual report on Form
10-K. See “Special Note Regarding Forward-Looking Statements,” which immediately follows the risks below.
Current Economic and Regulatory Environment
Economic conditions have had and could have a material adverse effect on our business, results of operations and
financial condition.
As a provider of consumer financial services, our business, results of operations and financial condition are
subject to the United States and global economic environment. Although the economy has continued to improve
generally with respect to employment and housing market conditions, the improvement has not been at a rapid pace. A
customer's ability and willingness to repay us can be negatively impacted by economic conditions and other payment
obligations. We are continuing to experience a period of historical lows in our delinquency and charge-off rates and
we expect that these rates will be increasing over time. The over 30 days delinquency rate for total loan receivables
was 1.67% at December 31, 2015, up from 1.66% at December 31, 2014. The full-year net charge-off rate for total
loan receivables was 2.01% for the year ended December 31, 2015, down from 2.04% for the year ended December
31, 2014.
Economic conditions also can reduce the usage of credit cards in general and the average purchase amount of
transactions industry-wide, including our cards, which reduces interest income and transaction fees. We rely heavily on
interest income from our credit card business to generate earnings. Our interest income from credit card loans was
$6.6 billion for the year ended December 31, 2015, which was 76% of net revenues (defined as net interest income
plus other income), compared to $6.4 billion for the year ended December 31, 2014, which was 75% of net revenues.
Economic conditions combined with a competitive marketplace have resulted and could continue to result in slow loan
growth, resulting in reduced revenue from our core direct banking business.
Financial regulatory developments have and will continue to significantly impact the environment for the financial
services industry, which could adversely impact our business, results of operations and financial condition.
The Dodd-Frank Act contains comprehensive provisions governing the practices and oversight of financial
institutions and other participants in the financial markets. The Dodd-Frank Act regulates financial firms, including
Discover, through a variety of measures, including increased capital and liquidity requirements, limits on leverage and
enhanced supervisory authority. Federal banking regulators have issued and continue to propose new regulations and
supervisory guidance under the Dodd-Frank Act and otherwise, and have been increasing their examination and
enforcement activities. We expect regulators to continue addressing concerns through public enforcement actions
against financial institutions or non-public supervisory actions or findings.
The impact of the evolving regulatory environment on our business and operations depends upon a number of
factors including the supervisory priorities and actions of the Federal Reserve, the FDIC and the CFPB, the actions of our
competitors and other marketplace participants, and the behavior of consumers. Regulatory developments, findings and
ratings have and could continue to negatively impact our business strategies or require us to: limit, exit or change our
business practices, restructure our products in ways that we may not currently anticipate, limit our product offerings,
invest more management time and resources in compliance efforts, limit the fees we can charge for services, or limit our
ability to pursue certain business opportunities and obtain related required regulatory approvals. For example, the
Federal Reserve and the FDIC enforcement actions related to our anti-money laundering program have caused us to
change our processes and incur significant expenses. For additional information regarding bank regulatory limitations
on acquisitions and investments, see "Business — Supervision and Regulation — Acquisitions and Investments." See also
Note 20: Litigation and Regulatory Matters to our consolidated financial statements for more information on recent
matters affecting Discover. Regulatory developments could also impact our strategies, the value of our assets, or
otherwise adversely affect our businesses.