Discover 2015 Annual Report Download - page 80

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Loan Quality
Loan receivables consist of the following (dollars in millions):
December 31, November 30,
2015 2014 2013 2012 2012 2011
Student loans held for sale ......................... $ — $ — $ — $ — $ — $ 714
Loan portfolio
Credit card loans .................................. 57,896 56,128 53,150 51,135 49,642 46,972
Other loans:
Personal loans .................................. 5,490 5,007 4,191 3,296 3,272 2,648
Private student loans.......................... 5,647 4,850 3,969 3,072 3,000 2,069
Mortgage loans held for sale(1) ........... — 122 148 355 322 —
Other ............................................... 236 202 135 38 37 17
Total other loans ........................... 11,373 10,181 8,443 6,761 6,631 4,734
Purchased credit-impaired loans(2) .......... 3,116 3,660 4,178 4,702 4,744 5,250
Total loan portfolio ........................ 72,385 69,969 65,771 62,598 61,017 56,956
Total loan receivables ................ 72,385 69,969 65,771 62,598 61,017 57,670
Allowance for loan losses .......................... (1,869) (1,746) (1,648) (1,788) (1,725) (2,205)
Net loan receivables .................. $ 70,516 $ 68,223 $ 64,123 $ 60,810 $ 59,292 $ 55,465
(1) On June 16, 2015, we announced the closing of our mortgage origination business. Pursuant to that announcement, we sold all mortgage loans held for sale in our
portfolio and ceased originating new mortgages. Note 3: Business Dispositions to our consolidated financial statements for more information.
(2) Represents purchased credit-impaired private student loans. See Note 5: Loan Receivables to our consolidated financial statements for more information regarding
PCI loans.
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. While establishing the
estimate for probable losses requires management judgment, the 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.
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, 2015, the provision for loan losses increased by $69 million, or 5%, as compared to the year ended December 31,
2014. 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 in both periods was primarily due to increasing levels
of net charge-offs combined with the reserve build over the amount of the allowance for loan losses at December 31,
2014 and 2013.
In determining 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-