Discover 2011 Annual Report Download - page 82

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The following table presents a breakdown of the allowance for loan losses (dollars in thousands):
Discover card
Discover business card
Total credit card loans
Personal loans
Federal student loans
Private student loans
Other
Total other consumer loans
Total allowance for loan losses
For the Years Ended November 30,
2011
$ 2,058,247
11,914
2,070,161
82,075
—
52,740
220
135,035
$ 2,205,196
2010
$ 3,182,603
26,285
3,208,888
76,087
—
18,569
574
95,230
$ 3,304,118
2009
(Non-GAAP
As-Adjusted1)
$ 3,731,568
59,979
3,791,547
95,056
968
13,734
1,055
110,813
$ 3,902,360
2008
(Non-GAAP
As-Adjusted1)
$ 2,664,986
32,597
2,697,583
51,742
142
4,292
598
56,774
$ 2,754,357
2007
(Non-GAAP
As-Adjusted1)
$ 1,714,237
8,279
1,722,516
8,310
4
256
569
9,139
$ 1,731,655
(1) Information related to the allowance on Discover card, total credit card and total loan receivables is presented on an adjusted basis. No adjustments have been made for
Discover business card, federal and private student loans, personal loans or other loans. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
Net Charge-offs
Our net charge-offs include the principal amount of losses charged-off less principal recoveries and exclude charged-off
interest and fees, recoveries of interest and fees and fraud losses. Charged-off and recovered interest and fees are recorded in
interest and loan fee income, respectively, which is effectively a reclassification of the loan loss provision, while fraud losses
are recorded in other expense. Credit card loan receivables are charged-off at the end of the month during which an account
becomes 180 days contractually past due. Closed-end consumer loan receivables are generally charged-off at the end of the
month during which an account becomes 120 days contractually past due. Generally, customer bankruptcies and probate
accounts are charged-off at the end of the month 60 days following the receipt of notification of the bankruptcy or death but not
later than the 180-day or 120-day contractual time frame.
The following table presents amounts and rates of net charge-offs of key loan portfolio segments (dollars in thousands):
Credit card loans
Personal loans
Private student loans
(excluding PCI(2))
For the Years Ended November 30,
2011
$
$ 2,035,843
$ 67,288
$ 7,830
%
4.50%
3.02%
0.48%
2010
$
$ 3,684,125
$ 91,044
$ 2,745
%
8.08%
5.72%
0.33%
2009
(Non-GAAP
As-Adjusted1)
$
$ 3,906,893
$ 67,684
$ 466
%
8.00%
5.53%
0.05%
2008
(Non-GAAP
As-Adjusted1)
$
$ 2,446,469
$ 7,398
$8
%
5.07%
1.19%
0.01%
2007
(Non-GAAP
As-Adjusted1)
$
$ 1,796,518
$ 869
$—
%
3.84%
3.43%
—%
(1) Information related to credit card loan receivables for years prior to 2010 is presented on a non-GAAP as-adjusted basis. No adjustments have been made for personal loan or
private student loan receivables. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
(2) Charge-offs for PCI loans did not result in a charge to earnings during 2011 and are therefore excluded from the calculation. See Note 6: Loan Receivables to our consolidated
financial statements for more information regarding the accounting for charge-offs on PCI loans.
The net charge-off rate on our credit card loan receivables decreased 358 basis points for the year ended November 30,
2011 as compared to the year ended November 30, 2010. The decrease in net charge-offs was attributable to improvement in
both contractual and bankruptcy related charge-offs subsequent to a peak in the level of charge-offs in the first quarter of 2010.
Furthermore, during the year ended November 30, 2011 there were higher levels of recoveries as compared to the same periods
in 2010. As relatively few newly originated student loans had entered repayment in 2011, the net charge-off rate on student
loans remained low in 2011 similar to the prior year.
The amount of charge-offs on credit card loans decreased for the year ended November 30, 2010 compared to the year
ended November 30, 2009 on a non-GAAP as-adjusted basis. The level of contractual and bankruptcy charge-offs had peaked
by the end of the first quarter of 2010 and then declined throughout 2010 as a result of improvement in the economic
environment. However, the net charge-off rate on our credit card loans increased slightly for the year ended November 30, 2010
compared to the year ended November 30, 2009 on a non-GAAP as-adjusted basis due to a lower average level of credit card
loans. The seasoning of our personal loan portfolio led to higher charge-off amounts during the year ended November 30, 2010
as compared to 2009. Similar to 2011, there were low levels of student loans in repayment in 2010 and thus minimal levels of
net charge-offs.
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