Discover 2015 Annual Report Download - page 65

-49-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations should be read in
conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual
report on Form 10-K. Some of the information contained in this discussion and analysis constitutes forward-looking
statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these
forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to,
those discussed below and elsewhere in this annual report on Form 10-K particularly under “Risk Factors” and “Special
Note Regarding Forward-Looking Statements,” which immediately follows “Risk Factors.” Unless otherwise specified,
references to Notes to our consolidated financial statements are to the Notes to our audited consolidated financial
statements as of December 31, 2015 and 2014 and for years ended December 31, 2015, 2014 and 2013.
Introduction and Overview
Discover Financial Services ("DFS") is a direct banking and payment services company. We provide direct
banking products and services and payment services through our subsidiaries. We offer our customers credit card
loans, private student loans, personal loans, home equity loans and deposit products. We also operate the Discover
Network, the PULSE network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network processes
transactions for Discover-branded credit cards and provides payment transaction processing and settlement services.
PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE
network with access to ATMs domestically and internationally, as well as point-of-sale ("POS") terminals at retail
locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of licensees, which
are generally financial institutions, that issue Diners Club branded charge cards and/or provide card acceptance
services. In June 2015, we announced that we are closing the mortgage origination business that we acquired in 2012,
which was part of our Direct Banking segment. This disposition represents the exiting of an ancillary business that will
not have a major impact on our operations.
Our primary revenues consist of interest income earned on loan receivables and fees earned from customers,
merchants and issuers. The primary expenses required to operate our business include funding costs (interest expense),
loan loss provisions, customer rewards and expenses incurred to grow, manage and service our loan receivables and
networks. Our business activities are funded primarily through consumer deposits, securitization of loan receivables and
the issuance of unsecured debt.
Change in Fiscal Year
In December 2012, our board of directors approved a change in our fiscal year end from November 30 to
December 31 of each year. This fiscal year change was effective January 1, 2013. As a result of the change, we had a
one month transition period in December 2012. The results for the one month ended December 31, 2012 is included in
this section.
2015 Highlights
• Net income was $2.3 billion in both the current and prior year.
• Net interest income increased 3.4% compared to the prior year.
• Total loans grew $2.4 billion, or 3.5%, from the prior year to $72.4 billion.
• Net charge-off rate for total loans decreased 3 basis points from the prior year to 2.01% and the total loans
delinquency rate for loans over 30 days past due increased 1 basis point to 1.67%.
• Credit card loans grew $1.8 billion, or 3.1%, to $57.9 billion and Discover card sales volume increased
2.5% from the prior year.
• Net charge-off rate for credit card loans decreased 5 basis points from the prior year to 2.22% and the
credit card delinquency rate for loans over 30 days past due decreased 1 basis point to 1.72%.
• Payment Services transaction dollar volume for the segment was $189.7 billion, down 6% from the prior
year.
• We repurchased approximately 29 million shares, or 6%, of our outstanding common stock for $1.7 billion.