Discover 2009 Annual Report Download - page 76

For the Year Ended November 30, 2009 compared to the Year Ended November 30, 2008
For the year ended November 30, 2009, net interest income grew $489.2 million, or 35%, compared to the year
ended November 30, 2008. During the same periods, our net interest margin and interest rate spread increased to
4.74% and 3.90%, respectively, up from 4.20% and 3.40%, respectively. A higher average level of on-balance sheet
loans was the largest factor driving the increased net interest income, which, along with other factors, is discussed below.
The higher average level of on-balance sheet loans at November 30, 2009 compared to November 30, 2008, was due
to retaining more loan receivables on-balance sheet throughout 2009 as securitized receivables matured; however, our
ending loan receivable balance declined from 2008 to 2009 as we had securitization transactions in the later half of
2009 resulting in a lower level of on-balance sheet loan receivables at year end.
Interest income on credit card loans grew $590.0 million from the year ended November 30, 2008 as a result of
retaining more loan receivables on-balance sheet as securitized receivables matured, as well as an increase in the interest
yield of 77 basis points. The increase in yield was the result of higher interest rates on standard balances and a
substantial reduction in promotional rate balances. This was partially offset by higher interest charge-offs due to the
deterioration in the current economic environment as well as a higher average level of on-balance sheet loans.
Interest income on other consumer loans increased $88.8 million from 2008 reflecting growth in both personal and
student loans partially offset by a 283 basis point decrease in interest yield. The yield decreased as the proportion of
student loans, which bear lower interest rates than personal loans, as a component of total other consumer loans
increased.
Interest income on cash and cash equivalents and other assets decreased $247.6 million from 2008 reflecting the
unfavorable impact of the lower interest rate environment on our liquidity reserve and amounts due from asset
securitization.
The changes in interest expense had a minimal impact on net interest income as lower cost of funds was largely offset
by a higher level of deposit funding. Beginning in the second half of 2008, we increased our deposit issuance in order to
fund more loan receivables on-balance sheet as a result of securitization maturities. Since that time, benchmark interest
rates have declined, also driving down deposit rates. These lower deposit rates contributed to a 59 basis point decline in
the cost of deposit funding in 2009 compared to 2008.
For the Year Ended November 30, 2008 compared to the Year Ended November 30, 2007
For the year ended November 30, 2008, net interest income grew $43.4 million, or 3%, compared to the year ended
November 30, 2007. During the same periods, our net interest margin and interest rate spread decreased to 4.20% and
3.40%, respectively, down from 4.82% and 3.87%, respectively.
Interest income on credit card loans grew $111.5 million from the year ended November 30, 2007, as a result of
retaining more loan receivables on-balance sheet as securitized receivables matured, in addition to a 17 basis point
increase in interest yield. This increase in yield was driven by the inclusion of $70.1 million of balance transfer fees in
interest income beginning in the third quarter of 2008. This was partially offset by rising interest charge-offs due to the
deterioration in the economic environment as well as a higher level of on-balance sheet loans.
Interest income on other consumer loans increased $73.3 million from the year ended November 30, 2007 reflecting
growth in both personal and student loans, in addition to a 388 basis point increase in interest yield. The yield increased
due to higher rates on newly issued personal loans.
Interest income on cash and cash equivalents and other assets decreased $117.5 million from the year ended
November 30, 2007, reflecting the unfavorable impact of the lower interest rate environment on our liquidity reserve and
amounts due from asset securitization.
Interest expense increased $64.7 million, or 5%, largely due to our higher average funding levels in 2008, partially
offset by a 61 basis point decrease to 4.66% in our cost of funds for the year ended November 30, 2008 as a result of
the lower interest rate environment, and the repayment of short-term borrowings due to our former parent company prior
to our spin-off.
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