Discover 2011 Annual Report Download - page 81

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69
For the year ended November 30, 2011, the provision for loan losses decreased $2.2 billion as compared to the year
ended November 30, 2010. This decrease was primarily due to improved credit performance, which resulted in a decline in the
level of net charge-offs, discussed in “ - Net Charge-offs” below. Improvements in credit performance were also evidenced by
a decline in the delinquency rate for the year, which was the primary driver of the reduction in the allowance for loan losses. At
November 30, 2011, the allowance for loan losses was $2.2 billion, a decrease of $1.1 billion from November 30, 2010.
For the year ended November 30, 2010, the provision for loan losses decreased $1.9 billion as compared to the year
ended November 30, 2009 on a non-GAAP as-adjusted basis. This decrease was attributable to lower net charge-offs and a
reduction in the allowance for loan losses. The reduction in the allowance for loan losses was due to improved delinquency
statistics, which resulted in lower loan loss reserve rates, as well as a $2.3 billion decline in the level of credit card loans. More
specifically, our allowance at November 30, 2010 was $3.3 billion, a decline of $598 million as compared to November 30,
2009 on a non-GAAP as-adjusted basis. This full-year net reduction in the allowance includes a $305 million increase to the
allowance in the first quarter 2010 upon management's consideration of refined analytics that expanded its ability to identify
loss emergence.
At November 30, 2011, the level of the allowance related to other consumer loans increased by $40 million as compared
to November 30, 2010 mainly due to the increase in private student loan receivables as well as the seasoning of the loan
portfolio. At November 30, 2010, the level of the allowance related to other consumer loans decreased by $16 million as
compared to November 30, 2009. This was largely attributable to a decline in our personal loan reserve rate due to credit
improvement in that portfolio. This was partially offset by a reserve increase related to a higher level of private student loans.
The following table provides changes in our allowance for loan losses for the periods presented (dollars in thousands):
Balance at beginning of period
Additions:
Addition to allowance related to securitized
receivables(2)
Provision for loan losses
Deductions:
Charge-off related to loans sold
Charge-offs:
Discover card
Discover business card
Total credit card loans
Personal loans
Federal student loans
Private student loans
Other
Total other consumer loans
Total charge-offs
Recoveries:
Discover card
Discover business card
Total credit card loans
Personal loans
Private student loans
Other
Total other consumer loans
Total recoveries
Net charge-offs
Balance at end of period
For the Year Ended November 30,
2011
$ 3,304,118
—
1,013,350
—
(2,594,169)
(21,154)
(2,615,323)
(69,273)
—
(7,931)
(1,315)
(78,519)
(2,693,842)
575,838
3,642
579,480
1,985
101
4
2,090
581,570
(2,112,272)
$ 2,205,196
2010
$ 1,757,899
2,144,461
3,206,705
(25,342)
(4,094,236)
(59,986)
(4,154,222)
(92,351)
(719)
(2,783)
(1,018)
(96,871)
(4,251,093)
466,548
3,549
470,097
1,307
38
46
1,391
471,488
(3,779,605)
$ 3,304,118
2009
(Non-GAAP
As-Adjusted1)
$ 2,754,357
—
5,123,030
—
(4,242,494)
(62,115)
(4,304,609)
(68,590)
—
(468)
(22)
(69,080)
(4,373,689)
396,483
1,233
397,716
906
2
38
946
398,662
(3,975,027)
$ 3,902,360
2008
(Non-GAAP
As-Adjusted1)
$ 1,731,655
—
3,476,644
—
(2,832,771)
(19,814)
(2,852,585)
(7,974)
—
(8)
(83)
(8,065)
(2,860,650)
405,844
272
406,116
576
—
16
592
406,708
(2,453,942)
$ 2,754,357
2007
(Non-GAAP
As-Adjusted1)
$ 1,632,291
—
1,896,753
—
(2,201,741)
(2,418)
(2,204,159)
(1,857)
—
—
(25)
(1,882)
(2,206,041)
407,606
35
407,641
988
—
23
1,011
408,652
(1,797,389)
$ 1,731,655
(1) Information related to Discover card and total loans is presented on an adjusted basis. No adjustments have been made for Discover business card, personal loans, federal and
private student loans or other loans. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
(2) On December 1, 2009, upon adoption of the Financial Accounting Standards Board (“FASB”) Statements No. 166 and 167, the Company recorded $2.1 billion allowance for
loan losses related to newly consolidated and reclassified credit card loan receivables.
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