Discover 2014 Annual Report Download - page 80
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-66-
The provision for loan losses is the amount of expense realized after considering the level of net charge-offs in the
period and the required amount of allowance for loan losses at the balance sheet date. For the year ended December
31, 2014, the provision for loan losses increased by $357 million, or 33%, as compared to the year ended December
31, 2013. The increase was primarily due to increasing levels of net charge-offs combined with the reserve build
discussed above. For the calendar year ended December 31, 2013, the provision for loan losses increased by $238
million, or 28%, as compared to the fiscal year ended November 30, 2012. The increase was due to lower levels of
reserve releases during the calendar year ended December 31, 2013 as compared to the fiscal year ended November
30, 2012, partially offset by a decrease in net charge-offs. For the one month ended December 31, 2012, the provision
for loan losses was $178 million, which included a reserve build of $63 million. This reserve build was due to an
increase in the forecast for net charge-offs due to loan growth. For the fiscal year ended November 30, 2012, a
reduction in reserve requirements led to a decrease in the provisions for loan losses of $165 million or 16%.
At December 31, 2014, the level of the allowance related to personal loans and student loans increased as
compared to December 31, 2013 due to loan growth and continued seasoning of the portfolios. For student loans,
payments are not required while the borrower is still in school; therefore, this loan portfolio matures at a slower pace
than our other loan portfolios. The level of allowance related to other loans was unchanged for the period.
At December 31, 2013, the level of the allowance related to personal loans increased as compared to
December 31, 2012 due to loan growth and continued seasoning of the portfolio. The level of allowance attributable to
student loans for the same period increased, primarily due to a PCI student loan impairment recorded as a result of
revisions to credit loss assumptions for the underlying loans. In addition, the allowance related to student loans
increased due to growth and continued seasoning of the portfolio. The level of allowance related to other loans at
December 31, 2013 as compared to December 31, 2012 increased by $16 million driven primarily by provision
charges on a small number of loans to Diners Club licensees.