Discover 2014 Annual Report Download - page 72

-58-
Total other income increased for the calendar year ended December 31, 2013 as compared to the fiscal year
ended November 30, 2012 primarily due to an increase in discount and interchange revenue, which was driven by an
increase in sales volume. Gain on sale of mortgage loans also increased, reflecting a full year of activity for the
calendar year ended December 31, 2013 as compared to a partial year of activity for the fiscal year ended November
30, 2012, due to the acquisition and integration of assets of Home Loan Center in June of 2012. The overall increase in
other income was partially offset by a decrease in protection product revenue reflecting lower sales volume as we have
stopped selling these products. Loan fee income also decreased due to lower levels of delinquencies which resulted in a
lower level of loan fees being generated. Additionally, the increase was partially offset by decrease in refinance
mortgage loan volume due to increasing interest rates during 2013.
Total other expense increased for the calendar year ended December 31, 2013 as compared to the fiscal year
ended November 30, 2012 primarily due to an increase in employee compensation costs driven by increased
headcount. Marketing and business development costs also increased due to growth initiatives. Higher information
processing and communication expenses also contributed to the increase as a result of higher software maintenance,
licenses, and technology expenses due to growth initiatives. The overall expense increase was partially offset by legal
expenses associated with the consent order that Discover Bank entered into with the FDIC and CFPB, for which there
was no equivalent impact in 2013.
Payment Services
For the Year Ended December 31, 2014 compared to the Year Ended December 31, 2013
Our Payment Services segment reported pretax income of $89 million for the year ended December 31, 2014,
up $9 million as compared to the year ended December 31, 2013, primarily as the result of a decrease in loan losses
related to certain Diners Club licensee loans and other expense, partially offset by a decrease in other income. The
decrease in other expense was primarily due to non-recurring expenses incurred in 2013 related to our purchase of the
Diners Club Italy licensee and financial assistance to facilitate the purchase of the Slovenian licensee by a European
bank. The decrease in other expense was partially offset by a fair value adjustment of $21 million resulting from
recording Diners Club Italy as held-for-sale in 2014. The decrease in other income was primarily driven by a decrease
in transaction processing revenue reflecting the impact of merchant rerouting and lower rates.
Transaction dollar volume increased $5.8 billion for the year ended December 31, 2014 as compared to the
year ended December 31, 2013, primarily driven by a growth in PULSE network volume. The number of transactions
processed on the PULSE network increased slightly for the year ended December 31, 2014 as compared to the year
ended December 31, 2013.
We have been working with our European Diners Club licensees with regard to their ability to maintain financing
sufficient to support business operations. We may provide additional support in the future, including loans, facilitating
transfer of ownership, or acquiring assets or licenses, which may cause us to incur losses. The licensees that we
currently consider to be of concern accounted for approximately 4% of Diners Club revenue for the year ended
December 31, 2014. In addition, Diners Club has $151 million of non-amortizable intangible assets at December 31,
2014. While we determined that none of these intangibles are presently impaired, to the extent that we are unable to
maintain Diners Club revenues at appropriate levels, we may be exposed to a non-cash impairment loss on these assets
that, when recognized, could have a material adverse impact on our results of operations.
For the Calendar Year Ended December 31, 2013 compared to the Fiscal Year Ended November 30, 2012
Our Payment Services segment reported pretax income of $80 million for the calendar year ended December 31,
2013, down $101 million as compared to the fiscal year ended November 30, 2012, primarily as the result of an
increase in other expense and to a lesser extent a decrease in other income. The increase in other expense was
primarily due to an increase in expenses attributable to support of our Diners Club network and in employee
compensation reflecting an increase in headcount. The decrease in other income was primarily driven by a decrease in
transaction processing revenue reflecting the impact of merchant rerouting and lower rates.
Transaction dollar volume decreased $862 million for the calendar year ended December 31, 2013 as compared
to the fiscal year ended November 30, 2012, primarily driven by a reduction in Diners Club volume due to the impact
of currency exchange rates, partially offset by an increase in Network Partners volume.
As previously disclosed, we have been working with our European Diners Club licensees with regard to their
ability to maintain financing sufficient to support business operations. For example, we have provided loans to certain