Discover 2010 Annual Report Download - page 120

In 2010, the Company decided to sell all of its remaining federal student loans. It sold $1.5 billion of federal student
loans to the U.S. Department of Education (“DOE”) under the Ensuring Continued Access to Student Loans Act of 2008
(“ECASLA”) and at November 30, 2010, had reclassified all remaining federal student loans as held for sale. As a result,
the Company recorded a loss of $23.1 million as a reduction of other income to record the loans at lower of cost or
market.
Also in 2010, the Company sold $48.1 million and $46.7 million of Discover business card loans and other loans,
respectively, to third parties. Related to these sales, the Company charged off $25.3 million to the allowance for loan
losses.
The following table provides changes in the Company’s allowance for loan losses for the years ended November 30,
2010, 2009 and 2008 (dollars in thousands):
For the Years Ended November 30,
2010 2009 2008
Balance at beginning of year.................................................................................................................... $ 1,757,899 $ 1,374,585 $ 759,925
Addition to allowance related to securitized receivables(1) ............................................................................. 2,144,461 0 0
Additions:
Provision for loan losses ....................................................................................................................... 3,206,705 2,362,405 1,595,615
Deductions:
Charge-off related to loans sold............................................................................................................. (25,342) 0 0
Charge-offs:
Discover card.................................................................................................................................. (4,094,236) (2,034,458) (1,119,362)
Discover business card...................................................................................................................... (59,986) (62,115) (19,814)
Total credit card loans ................................................................................................................... (4,154,222) (2,096,573) (1,139,176)
Personal loans................................................................................................................................. (92,351) (68,590) (7,974)
Federal student loans........................................................................................................................ (719) 0 0
Private student loans......................................................................................................................... (2,783) (468) (8)
Other............................................................................................................................................. (1,018) (22) (83)
Total other consumer loans............................................................................................................. (96,871) (69,080) (8,065)
Total charge-offs ....................................................................................................................... (4,251,093) (2,165,653) (1,147,241)
Recoveries:
Discover card.................................................................................................................................. 466,548 184,383 165,422
Discover business card...................................................................................................................... 3,549 1,233 272
Total credit card loans ................................................................................................................... 470,097 185,616 165,694
Personal loans................................................................................................................................. 1,307 906 576
Private student loans......................................................................................................................... 38 2 0
Other............................................................................................................................................. 46 38 16
Total other consumer loans............................................................................................................. 1,391 946 592
Total recoveries......................................................................................................................... 471,488 186,562 166,286
Net charge-offs......................................................................................................................... (3,779,605) (1,979,091) (980,955)
Balance at end of year ............................................................................................................................ $ 3,304,118 $ 1,757,899 $ 1,374,585
(1) Upon adoption of Statements No. 166 and 167, the Company recorded a $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables. See
Note 2: Change in Accounting Principle for more information.
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