Discover 2015 Annual Report Download - page 76

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Earnings Summary
The following table outlines changes in our consolidated statements of income (dollars in millions):
For the Years Ended December 31, 2015 vs. 2014 increase (decrease) 2014 vs. 2013 increase (decrease)
2015 2014 2013 $ % $ %
Interest income .............................................. $ 7,945 $ 7,596 $ 7,064 $ 349 5 % $ 532 8 %
Interest expense ............................................. 1,263 1,134 1,146 129 11 % (12) (1)%
Net interest income .................................... 6,682 6,462 5,918 220 3 % 544 9 %
Provision for loan losses ................................. 1,512 1,443 1,086 69 5 % 357 33 %
Net interest income after provision for loan
losses ..................................................... 5,170 5,019 4,832 151 3 % 187 4 %
Other income ................................................ 2,057 2,015 2,306 42 2 % (291) (13)%
Other expense .............................................. 3,615 3,340 3,194 275 8 % 146 5 %
Income before income tax expense.............. 3,612 3,694 3,944 (82) (2)% (250) (6)%
Income tax expense ....................................... 1,315 1,371 1,474 (56) (4)% (103) (7)%
Net income ............................................... $ 2,297 $ 2,323 $ 2,470 $ (26) (1)% $ (147) (6)%
Net Interest Income
The tables that follow this section have been provided to supplement the discussion below and provide further
analysis of net interest income, net interest margin and the impact of rate and volume changes on net interest income.
Net interest income represents the difference between interest income earned on our interest-earning assets and the
interest expense incurred to finance those assets. We analyze net interest income in total by calculating net interest
margin (net interest income as a percentage of average total loan receivables) and net yield on interest-bearing assets
(net interest income as a percentage of average total interest-earning assets). We also separately consider the impact of
the level of loan receivables and the related interest yield and the impact of the cost of funds related to each of our
funding sources, along with the income generated by our liquidity portfolio, on net interest income.
Our interest-earning assets consist of: (i) cash and cash equivalents, primarily related to amounts on deposit with
the Federal Reserve Bank of Philadelphia, (ii) restricted cash, (iii) investment securities and (iv) loan receivables. Our
interest-bearing liabilities consist primarily of deposits, both direct-to-consumer and brokered, and long-term
borrowings, including amounts owed to securitization investors. Net interest income is influenced by the following:
• 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 the London Interbank Offered Rate;
• 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.
For the Year Ended December 31, 2015 compared to the Year Ended December 31, 2014
Net interest income increased for the year ended December 31, 2015 as compared to the year ended December
31, 2014 primarily driven by higher loan volumes, net of related increases in borrowings. Interest income rose over the
prior year due to growth in credit card, personal and private student loans, partially offset by lower yields on personal