Discover 2009 Annual Report Download - page 68

Segments
We manage our business activities in two segments: Direct Banking, formerly referred to as U.S. Card, and Payment
Services, formerly referred to as Third-Party Payments. We have changed the names of our segments to better reflect the
nature of the products and services included in our segments. The composition of each segment, however, has not
changed.
In compiling the segment results that follow, our Direct Banking segment bears all overhead costs that are not
specifically associated with a particular segment and all costs associated with Discover Network marketing, servicing and
infrastructure, with the exception of an allocation of direct and incremental costs driven by our Payment Services segment.
Direct Banking. Our Direct Banking segment includes Discover card-branded credit cards issued to individuals and
small businesses on the Discover Network and other consumer products and services, including personal loans, student
loans, prepaid cards and other consumer lending and deposit products offered through our Discover Bank subsidiary.
Payment Services. Our Payment Services segment includes the PULSE Network (“PULSE”), an automated teller
machine, debit and electronic funds transfer network; Diners Club, a global payments network; and our third-party
issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties.
The following table presents segment data on a managed basis and a reconciliation to a GAAP presentation (dollars in
thousands):
Managed Basis GAAP Basis
For the Years Ended November 30,
Direct
Banking
Payment
Services(1) Total
Securitization
Adjustment(2) Total
2009
Interest income.............................................................................................. $6,459,974 $ 1,098 $6,461,072 $(3,315,992) $3,145,080
Interest expense ............................................................................................ 1,648,198 222 1,648,420 (397,136) 1,251,284
Net interest income .................................................................................... 4,811,776 876 4,812,652 (2,918,856) 1,893,796
Provision for loan losses ................................................................................. 4,358,341 — 4,358,341 (1,995,936) 2,362,405
Other income(3) ............................................................................................. 3,677,881 239,794 3,917,675 922,920 4,840,595
Other expense .............................................................................................. 2,116,962 134,126 2,251,088 — 2,251,088
Income from continuing operations before income tax expense.......................... $2,014,354 $106,544 $2,120,898 $ — $2,120,898
2008
Interest income.............................................................................................. $6,542,664 $ 3,165 $6,545,829 $(3,853,266) $2,692,563
Interest expense ............................................................................................ 2,356,836 83 2,356,919 (1,068,915) 1,288,004
Net interest income .................................................................................... 4,185,828 3,082 4,188,910 (2,784,351) 1,404,559
Provision for loan losses ................................................................................. 3,068,604 — 3,068,604 (1,472,989) 1,595,615
Other income(3) ............................................................................................. 2,773,896 179,200 2,953,096 1,311,362 4,264,458
Other expense .............................................................................................. 2,314,926 100,871 2,415,797 — 2,415,797
Income from continuing operations before income tax expense.......................... $1,576,194 $ 81,411 $1,657,605 $ — $1,657,605
2007
Interest income.............................................................................................. $6,376,298 $ 2,376 $6,378,674 $(3,794,272) $2,584,402
Interest expense ............................................................................................ 2,741,109 19 2,741,128 (1,517,858) 1,223,270
Net interest income .................................................................................... 3,635,189 2,357 3,637,546 (2,276,414) 1,361,132
Provision for loan losses ................................................................................. 1,853,395 — 1,853,395 (1,119,508) 733,887
Other income ............................................................................................... 2,101,076 118,700 2,219,776 1,156,906 3,376,682
Other expense .............................................................................................. 2,394,117 84,097 2,478,214 — 2,478,214
Income from continuing operations before income tax expense.......................... $1,488,753 $ 36,960 $1,525,713 $ — $1,525,713
(1) Diners Club was acquired on June 30, 2008.
(2) The Securitization Adjustment column presents the effects of loan securitizations by recharacterizing as securitization income the portions of the following items that relate to the securitized loans:
interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income.
(3) The years ended November 30, 2009 and 2008 include $1.9 billion and $0.9 billion, respectively, of income related to the Visa and MasterCard antitrust litigation settlement, which is included in
our Direct Banking segment. See “Legal Proceedings.”
-56-