Discover 2011 Annual Report Download - page 65

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2011 Highlights
• Net income in 2011 was $2.2 billion as compared to net income of $765 million in 2010.
• Discover card sales volume showed strong year-over-year growth of 8% totaling $100.1 billion in 2011 as compared to
$92.5 billion in 2010. This growth was driven primarily by an increase in spending by both new and existing customers
partially due to increased marketing.
• The delinquency rate for our credit card loans over 30 days past due improved dramatically during 2011, reaching an all-
time low at November 30, 2011 of 2.39%, which was down from the prior year rate of 4.06%. The primary reason for this
decline was the improvement throughout 2011 in the underlying credit quality of our portfolio as the U.S. economy
stabilized following an extended period of increasing unemployment levels.
• Our total loan portfolio increased 18% year-over-year to $56.6 billion, mainly due to the acquisition of The Student Loan
Corporation ("SLC") in December 2010, which added approximately $3.1 billion of private student loans to our portfolio,
and the acquisition of approximately $2.4 billion of private student loans from Citibank, N.A. ("Citi") in September 2011.
In addition, $1.5 billion is attributed to an increase in credit card loans due to higher volumes and lower charge offs.
• Payment Services continued to produce strong results with pretax income of $166 million, up 18% over the prior year.
Transaction volume for the segment was $177 billion, an increase of 16% as compared to the prior year.
• We repurchased 18 million shares, or approximately 3%, of our outstanding common stock for $425 million in 2011.
2010 and 2009 Highlights
• Our revenues were unfavorably impacted in 2010 by the implementation of certain provisions of the Credit Card
Accountability Responsibility and Disclosure Act of 2009 (the "CARD" Act), which included limitations on our ability to
reprice accounts, the elimination of overlimit fees and a reduction in the amount of standard late fees.
• We settled our antitrust litigation with Visa and MasterCard for $2.75 billion in 2008. Through 2009, we received a total of
$1.9 billion ($1.2 billion after tax) from Visa for its portion of the settlement. At the time of our spin-off, we entered into
an agreement with Morgan Stanley to determine how proceeds from the litigation would be shared, among other things. In
2010, we paid Morgan Stanley a dividend of $775 million under an amendment to that agreement.
Recent Developments
• On December 9, 2011, we entered into definitive agreements to sell substantially all of our remaining $714 million of
federal student loans currently classified as loans held for sale. The majority of these loans were pledged as collateral
against a long-term borrowing and, as part of this transaction, these borrowings are expected to be assumed by the
purchaser. These transactions, which are subject to customary closing conditions, including the receipt of governmental
approvals, are expected to close in February 2012.
• Effective December 16, 2011, we terminated our $2.4 billion unsecured committed credit facility. This facility had no
borrowings against it as of November 30, 2011. For more information, see "- Liquidity and Capital Resources - Liquidity
Management."
• On January 19, 2012, we paid a dividend of $0.10 per share of our common stock, which was an increase from the $0.06
per share dividend that we paid in the previous quarter.
Outlook
Credit performance continued to improve through 2011 as we approached historical lows in delinquency and net charge-
off rates. In 2012, we do not expect reserve releases to continue at previous levels and we anticipate that growth in our loan
portfolio will lead to increases in loan loss reserves. We are focused on growing our card receivables in 2012 through new
account acquisitions and wallet share gains resulting from marketing and advertising efforts as well as increased acceptance by
merchants in the U.S. and major international destinations for U.S. travelers. We are also targeting solid growth and strong
returns in our private student and personal loan portfolios, while continuing to pursue other opportunities to diversify our direct
banking business, such as our pending acquisition of the mortgage origination business of Tree.com, Inc.
We anticipate further total yield compression in 2012 due to the continuing effects of CARD Act implementation, an
increase in promotional offers and the expected growth in personal and private student loans, which tend to carry lower interest
rates than our card receivables. We expect this yield compression to be somewhat offset by continued funding cost
improvements. Funding costs are expected to continue to decline over the next year as we benefit from the interest rate
environment and replace higher-priced time deposits with lower cost borrowings. Net interest margin is expected to remain
relatively stable through 2012. As in 2011, we intend to continue to maintain a strong capital level while targeting investments
for future growth and returning capital to shareholders through dividends and our share repurchase program.
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