Discover 2011 Annual Report Download - page 72

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For the Year Ended November 30, 2010 compared to the Year Ended November 30, 2009
Our Direct Banking segment had pretax income of $1.1 billion for the year ended November 30, 2010 as compared to a
reported pretax income of $2.0 billion (which included $1.9 billion in income from the settlement of our antitrust litigation) and
a non-GAAP as-adjusted pretax loss of $436 million for the year ended 2009.
Discover card sales volume was up for the year ended November 30, 2010 as compared to 2009 reflecting higher
average spend per customer and a continued increase in merchant acceptance. Loan receivables totaled $48.8 billion at
November 30, 2010, which was down from $50.9 billion at November 30, 2009 on a non-GAAP as-adjusted basis, reflecting a
decline in credit card loans and federal student loans, partially offset by an increase in personal loans and private student loans.
Although sales volumes increased, credit card loans declined as a result of a reduction in promotional rate balances and an
increase in the payment rate. In 2010, we sold $1.5 billion in federal student loans to the U.S. Department of Education and
classified the remaining $788 million of federal student loan balances as held for sale.
Net interest income declined during 2010 as compared to 2009 on a non-GAAP as-adjusted basis, largely due to a
decline in the average level of credit card loan receivables as well as a lower net interest margin. The decline in net interest
margin is reflective of the impact of legislative changes on credit card yield and an increase in the average level of lower rate
student loan balances, partially offset by higher interest rates earned on standard balances and fewer promotional rate balances.
At November 30, 2010, our over 30 days delinquency rate was 3.89% as compared to 5.31% at November 30, 2009 on a
non-GAAP as-adjusted basis, reflective of continued improvement in credit performance. For the year ended November 30,
2010, our net charge-off rate declined to 7.57%, compared to 7.77% for the year ended November 30, 2009 on a non-GAAP as-
adjusted basis. Provision for loan losses for the year ended November 30, 2010 was lower as compared to November 30, 2009
on a non-GAAP as-adjusted basis primarily due to a reduction in the loan loss reserve rate and a decline in the level of net
charge-offs.
Total other income decreased in 2010 as compared to 2009 on a non-GAAP as-adjusted basis primarily due to the
discontinuance of overlimit fees on consumer credit card loans beginning in February 2010 and a decline in late fees beginning
in August 2010 in connection with implementing the provisions of the CARD Act. Other income in 2010 also included a $23
million charge related to the decision we made in 2010 to sell our remaining federal student loans. This decrease was partially
offset by an increase in discount and interchange revenue and a $19.6 million gain related to the liquidation of collateral
supporting our Golden Key investment.
Total other expense decreased during 2010 as compared to 2009 on a non-GAAP as-adjusted basis, as the impact of the
cost containment initiatives begun in 2009, particularly those related to employee compensation and benefits and information
processing and communications, largely offset the impact of higher marketing expenses. Additionally, the first quarter of 2010
benefited from a $29 million expense reversal related to the payment to Morgan Stanley under an amendment to the special
dividend agreement, while the second quarter of 2009 included a $20 million restructuring charge related to a reduction in
force.
Payment Services
For the Year Ended November 30, 2011 compared to the Year Ended November 30, 2010
Our Payment Services segment reported pretax income of $166 million for the year ended November 30, 2011, up $25
million as compared to the same period during 2010 as a result of higher volumes and margins from transactions on the PULSE
network. Expenses increased due to higher employee compensation due to higher headcount and investments related to
enhancing our processing capacity.
Transaction dollar volume increased $25 billion for the year ended November 30, 2011 as compared to the year ended
November 30, 2010, primarily driven by increased PULSE volume. The number of transactions on the PULSE network
increased by 16% for the year ended November 30, 2011, as compared to the same period in 2010.
For the Year Ended November 30, 2010 compared to the Year Ended November 30, 2009
Our Payment Services segment reported pretax income of $141 million for the year ended November 30, 2010, up $35
million as compared to the year ended November 30, 2009. Revenues were up $28 million as a result of increased volumes
from new and existing clients, as well as higher margins from transactions on the PULSE network. Expenses were down $8
million primarily due to transaction processing cost reduction initiatives as well as a lower level of international marketing
investments.
Transaction dollar volume for the year ended November 30, 2010 was $152 billion, an increase of 8% compared to the
year ended November 30, 2009. The increase in transaction dollar volume was driven by higher volumes from all three
contributors of our payments business, particularly PULSE volume. The number of transactions on the PULSE network
increased by 15% for the year ended November 30, 2010 as compared to 2009.
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