Discover 2010 Annual Report Download - page 12

Part I. |Item 1. Business
Introduction
Discover Financial Services is a direct banking and payment services company. We are a bank holding company
under the Bank Holding Company Act of 1956, subject to oversight, regulation and examination by the Board of
Governors of the Federal Reserve System (the “Federal Reserve”). We are also a financial holding company under the
Gramm-Leach-Bliley Act.
We offer credit cards, student loans, personal loans and deposit products through our Discover Bank subsidiary.
Although we have historically offered both federal and private student loans, in 2010 we decided to sell all our remaining
federal student loans. We had $48.8 billion in loan receivables and $20.6 billion in deposits issued through
direct-to-consumer channels and affinity relationships at November 30, 2010. We operate the Discover Network, our
credit card payments network; the PULSE network (“PULSE”), our automated teller machine (“ATM”), debit and electronic
funds transfer network; and Diners Club International (“Diners Club”), our global payments network.
Acquisition of The Student Loan Corporation
We recently expanded our private student loan business as part of our direct banking strategy. On December 31,
2010, we acquired The Student Loan Corporation (“SLC”) in a merger transaction for $600 million. We received a
purchase price closing adjustment in the form of a cash payment of approximately $234 million from Citibank, N.A.
(“Citibank”), the 80% owner of SLC before the merger, resulting in a net cash outlay of approximately $366 million for
the acquisition of SLC. In the transaction, we acquired SLC’s ongoing private student loan business and approximately
$4.2 billion of private student loans and other assets, along with assuming approximately $3.4 billion of SLC’s existing
asset-backed securitization debt funding and other liabilities. We acquired the loans and other assets at an 8.5%
discount, which will be applied to balance sheet items through purchase accounting entries. SLC is now a wholly-owned
subsidiary of Discover Bank. The acquisition significantly increased the size of our private student loan portfolio, which
was $1.0 billion at November 30, 2010. In addition, the acquisition has provided us with a developed student loan
business platform, additional school relationships, experienced personnel and SLC’s website.
Available Information
We make available free of charge through our internet site http://www.discoverfinancial.com, our annual reports on
Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 4 and 5 filed by or
on behalf of directors, executive officers and certain large stockholders, and any amendments to those documents filed or
furnished pursuant to the Securities Exchange Act of 1934. These filings will become available as soon as reasonably
practicable after they are electronically filed with or furnished to the Securities and Exchange Commission (the “SEC”).
In addition, the following information is available on the Investor Relations page of our website: (i) Corporate
Governance Policies; (ii) Code of Ethics and Business Conduct; and (iii) charters of the Audit and Risk, Compensation,
and Nominating and Governance Committees of our board of directors. These documents are also available in print
without charge to any person who requests them by writing or telephoning our principal executive offices: Discover
Financial Services, Office of the Corporate Secretary, 2500 Lake Cook Road, Riverwoods, Illinois 60015, U.S.A.,
telephone number [phone].
Operating Model
We manage our business activities in two segments: Direct Banking and Payment Services. Our Direct Banking
segment includes Discover card-branded credit cards issued to individuals and small businesses on the Discover Network
and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer
lending and deposit products offered through our Discover Bank subsidiary. Our Payment Services segment includes
PULSE, Diners Club and our third-party issuing business, which includes credit, debit and prepaid cards issued on the
Discover Network by third parties.
We are principally engaged in providing products and services to customers in the United States, although the royalty
revenue we receive from Diners Club licensees is derived from sources outside of the United States. For quantitative
information concerning our geographic distribution, see Note 6: Loan Receivables to our consolidated financial
statements and for quantitative information concerning our royalty revenue, see Note 16: Other Income and Other
Expense.
-1-