Discover 2014 Annual Report Download - page 71

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At December 31, 2014 and December 31, 2013, our delinquency rate for credit card loans over 30 days past
due was 1.73% and 1.72%, respectively. For the year ended December 31, 2014, our net charge-off rate on credit
cards remained relatively flat as compared to the year ended December 31, 2013. Recent loan growth has led to an
increase in reserves required to cover losses from loan seasoning. An increase in reserve requirements combined with
lower recoveries led to an increase in the provision for loan losses for the year ended December 31, 2014, as
compared to the year ended December 31, 2013. For a more detailed discussion on provision for loan losses, see "—
Loan Quality — Provision and Allowance for Loan Losses."
Total other income decreased for the year ended December 31, 2014 as compared to the year ended December
31, 2013 primarily due to a one-time charge to customer rewards costs resulting from the elimination of our current
estimate of customer rewards forfeiture of $178 million, which reduced discount and interchange revenue. Gain on sale
of mortgage loans also decreased, driven primarily by lower mortgage refinance volume due to increased mortgage
interest rates in 2013, as well as changes in product mix. The overall decrease in other income was also attributable to
a decrease in protection product revenue reflecting lower sales volume as we have stopped selling these products.
Total other expense increased for the year ended December 31, 2014 as compared to the year ended December
31, 2013. The increase was primarily due to higher employee compensation costs driven by growth in headcount,
along with higher professional fees related to technology and digital investments. Marketing and business development
costs, and information processing and communications costs also increased due to growth initiatives. The goodwill
impairment of $27 million related to the Discover Home Loans business also contributed to overall increase in total
other expenses. For more information, see Note 7: Goodwill and Intangible Assets to our consolidated financial
statements.
For the Calendar Year Ended December 31, 2013 compared to the Fiscal Year Ended November 30, 2012
Our Direct Banking segment reported pretax income of $3.9 billion for the calendar year ended December 31,
2013, as compared to pretax income of $3.6 billion for the fiscal year ended November 30, 2012.
Loan receivables totaled $65.8 billion at December 31, 2013, which was up from $62.6 billion at December 31,
2012, due to growth in credit card loans and other loan portfolios partially offset by a decrease in PCI loans balances.
The growth in credit card loans was due to growth in customers with revolving balances combined with a continued
improvement in the net principal charge-off rate. The growth within the other loans portfolio was primarily attributable
to organic growth in personal and private student loans. Discover card sales volume was $110.0 billion for the
calendar year ended December 31, 2013, which was an increase of 4% as compared to the fiscal year ended
November 30, 2012. This increase was driven primarily by continued growth in our active customer base combined
with seasonal promotional programs driving incremental sales.
Net interest margin increased for the calendar year ended December 31, 2013 as compared to the fiscal year
ended November 30, 2012. This was primarily driven by decreased funding costs and growth in loan receivables,
partially offset by lower yields on total loan receivables. The decrease in loan receivable yields was driven by growth in
credit card promotional balances and a decline in higher rate balances, partially offset by growth in non-promotional
revolving balances.
Interest income increased during the calendar year ended December 31, 2013 as compared to the fiscal year
ended November 30, 2012 primarily due to higher average balances of credit card loans, personal loans and private
student loans resulting from growth across these products combined with lower credit card loan interest charge-offs. The
increase in interest income from these products was partially offset by a decrease in yield on credit card loan
receivables along with a decrease in PCI student loan volume.
Interest expense declined during the calendar year ended December 31, 2013 as compared to the fiscal year
ended November 30, 2012 primarily due to lower funding costs resulting from maturities of higher interest borrowings
and deposits that were replaced with borrowings and deposits paying low interest rates.
At December 31, 2013, our delinquency rate for credit card loans over 30 days past due was 1.72% as
compared to 1.79% at December 31, 2012, reflective of continuing trends of strong credit performance. For the
calendar year ended December 31, 2013, our net charge-off rate on credit cards declined to 2.21%, as compared to
2.62% for the fiscal year ended November 30, 2012. An increase in reserve requirements partially offset by a decline
in the level of net charge-offs led to an increase in the provision for loan losses for the calendar year ended December
31, 2013, as compared to the fiscal year ended November 30, 2012. For a more detailed discussion on provision for
loan losses, see "— Loan Quality — Provision and Allowance for Loan Losses."