Discover 2010 Annual Report Download - page 77

connection with implementing the provisions of the CARD Act. Other income in 2010 also included a $23 million charge
related to the decision we made in 2010 to sell our remaining federal student loans. This decrease was partially offset by
an increase in discount and interchange revenue and a $19.6 million gain related to the liquidation of collateral
supporting the asset-backed commercial paper notes of Golden Key U.S. LLC (“Golden Key”).
Other expenses decreased during 2010 as compared to 2009 as adjusted as the impact of the cost containment
initiatives begun in 2009, particularly those related to employee compensation and benefits and information processing
and communications, largely offset the impact of higher marketing expenses. Additionally, the first quarter of 2010
benefited from a $29 million expense reversal related to the payment to Morgan Stanley under an amendment to the
special dividend agreement, while the second quarter of 2009 included a $20 million restructuring charge related to a
reduction in force.
For the Year Ended November 30, 2009 compared to the Year Ended November 30, 2008
Our Direct Banking segment had reported pretax income of $2.0 billion in the year ended November 30, 2009 as
compared to reported pretax income of $1.6 billion in the year ended November 30, 2008. The Direct Banking segment
had an as adjusted pretax loss of $436 million in 2009 as compared to an as adjusted pretax income of $400 million in
2008.
Rising unemployment and bankruptcy levels adversely impacted customer delinquencies and charge-offs in 2009,
resulting in a 5.31% over 30 days delinquency rate at November 30, 2009 as adjusted, up from 4.56% at
November 30, 2008 as adjusted. For the year ended November 30, 2009 as adjusted, the total net charge-off rate was
7.77%, up 276 basis points from the year ended November 30, 2008 as adjusted. The provision for loan losses
increased for the year ended November 30, 2009 as adjusted compared to 2008 as adjusted, as a result of higher
charge-offs and a higher reserve rate, reflective of the economic environment during 2009.
Discover card sales volume was down for the year ended November 30, 2009 as compared to 2008 reflecting lower
gas prices and a general decline in consumer spending. Loan receivables of $50.9 billion at November 30, 2009 as
adjusted were relatively unchanged from November 30, 2008 as adjusted as lower payments from our credit card
customers and growth in both student and personal loans were largely offset by lower balance transfer activity and sales
volume.
Net interest income increased in 2009 as adjusted compared to 2008 as adjusted due to the impact of higher interest
rates earned on standard balances, a substantial reduction in promotional rate balances and lower interest rates on
borrowings, partially offset by higher interest charge-offs.
Other income decreased during 2009 as adjusted as compared to 2008 as adjusted, primarily due a decrease in loan
fee income partially offset by increases in discount and interchange revenue, fee product revenue and lower losses on
investment securities.
Other expense decreased during 2009 as adjusted compared to 2008, reflecting the impact of lower marketing and
litigation expenses along with cost containment initiatives, such as a reduction of headcount. Additionally, other expenses
in 2008 were lower due to a $39 million benefit related to the curtailment of our pension plan.
Payment Services
For the Year Ended November 30, 2010 compared to the Year Ended November 30, 2009
Our Payment Services segment reported pretax income of $141 million for the year ended November 30, 2010, up
$35 million as compared to the year ended November 30, 2009. Revenues were up $28 million as a result of increased
volumes from new and existing clients, as well as higher margins from transactions on the PULSE network. Expenses were
down $8 million primarily due to transaction processing cost reduction initiatives as well as a lower level of international
marketing investments.
Transaction dollar volume for the year ended November 30, 2010 was $152 billion, an increase of 8% compared to
the year ended November 30, 2009. The increase in transaction dollar volume was driven by higher volumes from all
three contributors of our payments business, particularly PULSE volume. The number of transactions on the PULSE network
increased by 15% for the year ended November 30, 2010 as compared to 2009.
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