Discover 2014 Annual Report Download - page 79

-65-
Loan Quality
Loan receivables consist of the following (dollars in millions):
December 31, November 30,
2014 2013 2012 2012 2011 2010
Student loans held for sale ......................... $ — $ — $ — $ — $ 714 $ 788
Loan portfolio:
Credit card loans .................................. 56,128 53,150 51,135 49,642 46,972 45,502
Other loans:
Personal loans .................................. 5,007 4,191 3,296 3,272 2,648 1,878
Private student loans.......................... 4,850 3,969 3,072 3,000 2,069 999
Mortgage loans held for sale.............. 122 148 355 322 — —
Other ............................................... 202 135 38 37 17 14
Total other loans ........................... 10,181 8,443 6,761 6,631 4,734 2,891
PCI loans(1) ........................................... 3,660 4,178 4,702 4,744 5,250 —
Total loan portfolio ........................ 69,969 65,771 62,598 61,017 56,956 48,393
Total loan receivables ................ 69,969 65,771 62,598 61,017 57,670 49,181
Allowance for loan losses .......................... (1,746) (1,648) (1,788) (1,725) (2,205) (3,304)
Net loan receivables .................. $ 68,223 $ 64,123 $ 60,810 $ 59,292 $ 55,465 $ 45,877
(1) Represents purchased credit-impaired private student loans (see Note 4: Loan Receivables to our consolidated financial statements).
Provision and Allowance for Loan Losses
Provision for loan losses is the expense related to maintaining the allowance for loan losses at an appropriate
level to absorb the estimated probable losses in the loan portfolio at each period end date. Factors that influence the
provision for loan losses include:
• The impact of general economic conditions on the consumer, including unemployment levels, bankruptcy
trends and interest rate movements;
• Changes in consumer spending and payment behaviors;
• Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the
portfolio and maturation of the loan portfolio;
• The level and direction of historical and anticipated loan delinquencies and charge-offs;
• The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and
effectiveness of collection efforts; and
• Regulatory changes or new regulatory guidance.
In calculating the allowance for loan losses, we estimate probable losses separately for segments of the loan
portfolio that have similar risk characteristics. We use a migration analysis to estimate the likelihood that a loan will
progress through the various stages of delinquency. We use other analyses to estimate losses incurred from non-
delinquent accounts which adds to the identification of loss emergence. We use these analyses together as a basis for
determining our allowance for loan losses.
The allowance for loan losses was $1.7 billion at December 31, 2014, which reflects a $98 million reserve build
over the amount of the allowance for loan losses at December 31, 2013. The reserve build, which primarily related to
credit card loan receivables, was due mainly to seasoning of the loan growth and lower recoveries. "Seasoning" refers
to the maturing of a loan portfolio as, in general, growing loan balances do not begin to show signs of credit
deterioration or default until they have been in repayment for some period of time. At December 31, 2013, the
allowance for loan losses was $1.6 billion, which reflected a $140 million reserve release over the amount of the
allowance for loan losses at December 31, 2012. The reserve release, which primarily related to credit card loan
receivables, was driven by continuing favorability in delinquencies resulting in lower charge-offs, both contractual and
bankruptcy, which resulted in lower estimated losses.