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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the fiscal year ended November 30, 2011
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
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For the transition period from to
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Delaware
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36-2517428
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2500 Lake Cook Road, Riverwoods, Illinois 60015
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(224) 405-0900
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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•
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Discover More
card offers 5%
Cashback Bonus
on purchases up to a specified amount, subject to certain limitations, in large retail categories such as gasoline, restaurants and department stores that change throughout the year, and up to 1% unlimited
Cashback Bonus
on all other purchases.
|
•
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Discover Motiva card
provides customers with
Cashback Bonus
for making on-time payments and up to 1% unlimited
Cashback Bonus
on all purchases.
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•
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Miles by Discover
customers receive two miles for every $1 on the first $3,000 in travel and restaurant purchases each year and one mile for every $1 on all other purchases.
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•
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Escape by Discover
customers earn two miles for every $1 on all purchases. This card has a $60 annual fee.
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•
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Discover Open Road card
customers can earn 2%
Cashback Bonus
on the first $250 in gas and restaurant purchases each billing period and up to 1%
Cashback Bonus
on all other purchases.
|
•
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Discover Business card
offers 5%
Cashback Bonus
on the first $2,000 in office supply purchases, 2%
Cashback Bonus
on the first $2,000 in gas purchases each year and up to 1% unlimited
Cashback Bonus
on all other purchases.
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•
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Identity Theft Protection.
The most comprehensive identity theft monitoring product we offer includes an initial credit report, credit bureau report monitoring, prompt alerts that help customers spot possible identity theft quickly, identity theft insurance up to $25,000 to cover certain out-of-pocket expenses due to identity theft, and access to knowledgeable professionals who can provide information about identity theft issues.
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•
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Payment Protection.
This product allows customers to suspend their payments for up to two years, depending on the product, in the event of certain covered events. Different products cover different events, such as unemployment,
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•
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Wallet Protection.
This product offers one-call convenience if a customer's wallet is lost or stolen, including requesting cancellation and replacement of the customer's credit and debit cards, monitoring the customer's credit bureau reports for 90 days, providing up to $100 to replace the customer's wallet and, if needed, giving the customer up to a $1,000 cash advance on his or her Discover card account.
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•
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Credit ScoreTracker.
This product offers customers resources that help them understand and monitor their credit scores. Credit ScoreTracker is specifically designed for score monitoring by alerting customers when their score changes, allowing customers to set a target score and providing resources to help customers understand the factors that may be influencing their scores.
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•
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Extended Warranties.
Discover customers can purchase online service warranties from our extended warranty provider to protect purchases of new electronics and appliances as well as certain other purchases.
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•
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Online account services that allow customers to customize their accounts, choose how and when they pay their bills, create annual account summaries that assist them with budgeting and taxes, research transaction details, initiate transaction disputes, and chat with or email a customer representative;
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•
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Email and mobile text reminders to help customers avoid fees and track big purchases or returns;
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•
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Money management tools like the Spend Analyzer, Paydown Planner and Purchase Planner;
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•
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Secure online account numbers that let customers shop online without ever revealing their actual account numbers; and
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•
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An online portal where customers automatically earn 5-20%
Cashback Bonus
when they shop at well-known online merchants using their Discover card.
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Name
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Age
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Position
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David W. Nelms
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50
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Chairman and Chief Executive Officer
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Roger C. Hochschild
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47
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President and Chief Operating Officer
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|
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R. Mark Graf
|
47
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Executive Vice President and Chief Financial Officer
|
|
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Kathryn McNamara Corley
|
51
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Executive Vice President, General Counsel and Secretary
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|
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Carlos Minetti
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49
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Executive Vice President, President - Consumer Banking and Operations
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|
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Diane E. Offereins
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54
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Executive Vice President, President - Payment Services
|
|
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Mary Oleksiuk
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50
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Senior Vice President and Chief Human Resources Officer
|
|
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James V. Panzarino
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59
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Executive Vice President and Chief Credit Risk Officer
|
|
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Glenn Schneider
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50
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Senior Vice President and Chief Information Officer
|
|
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Harit Talwar
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51
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Executive Vice President, President - U.S. Cards
|
|
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•
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changes in economic variables, such as the availability of consumer credit, the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumer confidence and consumer debt, and investor sentiment;
|
•
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the impact of current, pending and future legislation, regulation, supervisory guidance, and regulatory and legal actions, including those related to financial regulatory reform, consumer financial services practices, and funding, capital and liquidity;
|
•
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the actions and initiatives of current and potential competitors;
|
•
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our ability to manage our expenses;
|
•
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our ability to successfully achieve full card acceptance across our networks and maintain relationships with network participants;
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•
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our ability to sustain and grow our private student loan portfolio;
|
•
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our ability to manage our credit risk, market risk, liquidity risk, operational risk, legal and compliance risk, and strategic risk;
|
•
|
the availability and cost of funding and capital;
|
•
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access to deposit, securitization, equity, debt and credit markets;
|
•
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the impact of rating agency actions;
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•
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the level and volatility of equity prices, commodity prices and interest rates, currency values, investments, other market fluctuations and other market indices;
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•
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losses in our investment portfolio;
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•
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limits on our ability to pay dividends and repurchase our common stock;
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•
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fraudulent activities or material security breaches of key systems;
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•
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our ability to increase or sustain Discover card usage or attract new customers;
|
•
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our ability to attract new merchants and maintain relationships with current merchants;
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•
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the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events;
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•
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our ability to introduce new products or services;
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•
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our ability to manage our relationships with third-party vendors;
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•
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our ability to maintain current technology and integrate new and acquired systems;
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•
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our ability to collect amounts for disputed transactions from merchants and merchant acquirers;
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•
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our ability to attract and retain employees;
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•
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our ability to protect our reputation and our intellectual property;
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•
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difficulty obtaining regulatory approval for, financing, closing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies; and
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•
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new lawsuits, investigations or similar matters or unanticipated developments related to current matters.
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Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
|
Quarter Ended:
|
Stock Price
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Cash Dividends
Declared
|
||
2010
|
High
|
|
Low
|
|
February 28
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$16.78
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$12.58
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$0.02
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May 31
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$16.59
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$12.61
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$0.02
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August 31
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$15.78
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$12.11
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$0.02
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November 30
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$19.16
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|
$14.65
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$0.02
|
|
|
|
|
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2011
|
|
|
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February 28
|
$22.04
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|
$17.86
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$0.02
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May 31
|
$25.76
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|
$20.96
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$0.06
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August 31
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$27.92
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$20.51
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$0.06
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November 30
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$27.32
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$21.44
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$0.06
|
|
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Period
|
Total Number of Shares Purchased
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program
(1)
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|
Maximum Dollar Value of Shares that may yet be purchased under the Plan or Programs
(1)
|
||||||
September 1- 30, 2011
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
3,216,673
|
|
|
$
|
24.09
|
|
|
3,216,673
|
|
|
$
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724,840,266
|
|
Employee transactions
(2)
|
658
|
|
|
$
|
25.14
|
|
|
N/A
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|
N/A
|
|||
October 1 - 31, 2011
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
6,421,601
|
|
|
$
|
23.28
|
|
|
6,421,601
|
|
|
$
|
575,325,815
|
|
Employee transactions
(2)
|
—
|
|
|
$
|
—
|
|
|
N/A
|
|
N/A
|
|||
November 1 - 30, 2011
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
—
|
|
|
$
|
—
|
|
|
—
|
|
$
|
575,325,815
|
|
|
Employee transactions
(2)
|
321
|
|
|
$
|
24.61
|
|
|
N/A
|
|
N/A
|
|||
|
|
|
|
|
|
|
|
||||||
Total
|
|
|
|
|
|
|
|
||||||
Repurchase program
(1)
|
9,638,274
|
|
|
$
|
23.55
|
|
|
9,638,274
|
|
|
$
|
575,325,815
|
|
Employee transactions
(2)
|
979
|
|
|
$
|
24.97
|
|
|
N/A
|
|
N/A
|
|||
|
|
|
|
|
|
|
|
|
Discover
Financial
Services
|
|
S&P
500
Index
|
|
S&P 500
Financials
Index
|
July 2, 2007
|
$100.00
|
|
$100.00
|
|
$100.00
|
November 30, 2007
|
$63.14
|
|
$97.48
|
|
$84.67
|
November 30, 2008
|
$36.89
|
|
$58.99
|
|
$34.60
|
November 30, 2009
|
$56.63
|
|
$72.11
|
|
$40.11
|
November 30, 2010
|
$67.31
|
|
$77.70
|
|
$39.52
|
November 30, 2011
|
$88.26
|
|
$82.07
|
|
$35.11
|
|
For the Years Ended November 30,
|
||||||||||||||||||
|
2011
(1)
|
|
2010
(1)
|
|
2009
|
|
2008
|
|
2007
|
||||||||||
|
(dollars in thousands, except per share amounts)
|
||||||||||||||||||
Statement of Income Data:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest income
|
$
|
6,345,139
|
|
|
$
|
6,146,218
|
|
|
$
|
3,145,080
|
|
|
$
|
2,692,563
|
|
|
$
|
2,584,402
|
|
Interest expense
|
1,484,552
|
|
|
1,582,988
|
|
|
1,251,284
|
|
|
1,288,004
|
|
|
1,223,270
|
|
|||||
Net interest income
|
4,860,587
|
|
|
4,563,230
|
|
|
1,893,796
|
|
|
1,404,559
|
|
|
1,361,132
|
|
|||||
Other income
(2)
|
2,205,174
|
|
|
2,094,999
|
|
|
4,840,595
|
|
|
4,264,458
|
|
|
3,376,682
|
|
|||||
Revenue net of interest expense
|
7,065,761
|
|
|
6,658,229
|
|
|
6,734,391
|
|
|
5,669,017
|
|
|
4,737,814
|
|
|||||
Provision for loan losses
|
1,013,350
|
|
|
3,206,705
|
|
|
2,362,405
|
|
|
1,595,615
|
|
|
733,887
|
|
|||||
Other expense
|
2,541,167
|
|
|
2,182,665
|
|
|
2,251,088
|
|
|
2,415,797
|
|
|
2,478,214
|
|
|||||
Income before income tax expense
|
3,511,244
|
|
|
1,268,859
|
|
|
2,120,898
|
|
|
1,657,605
|
|
|
1,525,713
|
|
|||||
Income tax expense
|
1,284,536
|
|
|
504,071
|
|
|
844,713
|
|
|
594,692
|
|
|
561,514
|
|
|||||
Income from continuing operations
|
2,226,708
|
|
|
764,788
|
|
|
1,276,185
|
|
|
1,062,913
|
|
|
964,199
|
|
|||||
Loss from discontinued operations, net of tax
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
(135,163
|
)
|
|
(375,569
|
)
|
|||||
Net income
(2)
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
1,276,185
|
|
|
$
|
927,750
|
|
|
$
|
588,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income allocated to common stockholders
|
$
|
2,201,759
|
|
|
$
|
667,938
|
|
|
$
|
1,206,965
|
|
|
$
|
910,510
|
|
|
$
|
572,480
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Statement of Financial Condition Data (as of):
|
|
|
|
|
|
|
|
|
|
||||||||||
Loan receivables
(4)
|
$
|
57,336,935
|
|
|
$
|
48,836,413
|
|
|
$
|
23,625,084
|
|
|
$
|
25,216,611
|
|
|
$
|
20,831,117
|
|
Total assets
|
$
|
68,783,937
|
|
|
$
|
60,784,968
|
|
|
$
|
46,020,987
|
|
|
$
|
39,892,382
|
|
|
$
|
37,376,105
|
|
Total stockholders' equity
|
$
|
8,242,211
|
|
|
$
|
6,456,846
|
|
|
$
|
8,435,547
|
|
|
$
|
5,915,823
|
|
|
$
|
5,599,422
|
|
Allowance for loan losses
|
$
|
2,205,196
|
|
|
$
|
3,304,118
|
|
|
$
|
1,757,899
|
|
|
$
|
1,374,585
|
|
|
$
|
759,925
|
|
Long-term borrowings
|
$
|
18,287,178
|
|
|
$
|
17,705,728
|
|
|
$
|
2,428,101
|
|
|
$
|
1,735,383
|
|
|
$
|
2,134,093
|
|
Per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic EPS from continuing operations
|
$
|
4.06
|
|
|
$
|
1.23
|
|
|
$
|
2.39
|
|
|
$
|
2.18
|
|
|
$
|
1.99
|
|
Diluted EPS from continuing operations
|
$
|
4.06
|
|
|
$
|
1.22
|
|
|
$
|
2.38
|
|
|
$
|
2.18
|
|
|
$
|
1.98
|
|
Weighted average shares outstanding (000's)
(5)
|
541,813
|
|
|
544,058
|
|
|
504,540
|
|
|
479,335
|
|
|
477,328
|
|
|||||
Weighted average shares outstanding
(fully diluted) (000's)
(5)
|
542,626
|
|
|
548,760
|
|
|
507,907
|
|
|
479,357
|
|
|
477,988
|
|
|||||
Cash dividends declared
|
$
|
0.20
|
|
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
$
|
0.24
|
|
|
$
|
0.06
|
|
Dividend payout ratio
|
4.92
|
%
|
|
6.52
|
%
|
|
5.02
|
%
|
|
11.01
|
%
|
|
3.02
|
%
|
|||||
Ratios:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Return on average equity
|
30
|
%
|
|
12
|
%
|
|
17
|
%
|
|
16
|
%
|
|
10
|
%
|
|||||
Return on average assets
|
3
|
%
|
|
1
|
%
|
|
3
|
%
|
|
3
|
%
|
|
2
|
%
|
|||||
Average stockholders' equity to average total assets
|
12
|
%
|
|
11
|
%
|
|
18
|
%
|
|
15
|
%
|
|
15
|
%
|
|||||
|
(1)
|
Amounts as of and for the years ended November 30, 2011 and 2010 include securitized loans as a result of the consolidation of the securitization trusts related to a change in accounting principle on December 1, 2009. Amounts prior to December 1, 2009 do not include securitized loans.
|
(2)
|
The years ended November 30, 2009 and 2008 include $1.9 billion pretax ($1.2 billion after tax) and $0.9 billion pretax ($0.5 billion after tax), respectively, of income related to the Visa and MasterCard antitrust litigation settlement, which is included in our Direct Banking segment.
|
(3)
|
2007 includes a $391 million pretax ($279 million after tax) non-cash impairment charge to write-down the intangible assets and goodwill of the Goldfish business, which was sold on March 31, 2008.
|
(4)
|
2011 includes $3.1 billion of student loan receivables acquired with the SLC acquisition and $2.4 billion of student loan receivables acquired from Citibank, N.A.
|
(5)
|
On June 30, 2007, Morgan Stanley distributed to Morgan Stanley stockholders one share of our common stock for every two shares of Morgan Stanley common stock held on June 18, 2007. As a result, on July 2, 2007, we had 477,235,927 shares of common stock outstanding and this share amount is being utilized for the calculation of basic earnings per share (“EPS”) for all periods presented prior to the date of the spin-off. For all periods prior to the spin-off date, the same number of shares is being used for diluted EPS as for basic EPS as none of our common stock was traded prior to July 2, 2007 and none of our equity awards were outstanding for the prior periods.
|
|
For the Years Ended November 30,
|
||||||||
|
2011
(1)
|
|
2010
(1)
|
|
2009
|
|
2008
|
|
2007
|
|
|
|
(dollars in thousands)
|
||||||
Selected Statistics:
|
|
|
|
|
|
|
|
|
|
Total Loan Receivables
|
|
|
|
|
|
|
|
|
|
GAAP information:
|
|
|
|
|
|
|
|
|
|
Loan receivables
|
$57,336,935
|
|
$48,836,413
|
|
$23,625,084
|
|
$25,216,611
|
|
$20,831,117
|
Average loan receivables
|
$52,942,622
|
|
$49,909,187
|
|
$26,552,574
|
|
$21,348,493
|
|
$19,947,784
|
Interest yield
|
11.85%
|
|
12.20%
|
|
11.31%
|
|
10.89%
|
|
10.73%
|
Net principal charge-off rate
|
3.99%
|
|
7.57%
|
|
7.45%
|
|
4.59%
|
|
3.40%
|
Delinquency rate (over 30 days)
|
2.30%
|
|
3.89%
|
|
4.92%
|
|
4.35%
|
|
3.26%
|
Delinquency rate (over 90 days)
|
1.14%
|
|
2.04%
|
|
2.58%
|
|
2.06%
|
|
1.51%
|
Non-GAAP as-adjusted information:
|
|
|
|
|
|
|
|
|
|
Loan receivables - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
$50,854,146
|
|
$51,095,278
|
|
$48,180,436
|
Average loan receivables - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
$51,130,117
|
|
$49,011,148
|
|
$46,913,474
|
Interest yield - Non-GAAP as adjusted
|
N/A
|
|
N/A
|
|
12.40%
|
|
12.59%
|
|
12.65%
|
Net principal charge-off rate - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
7.77%
|
|
5.01%
|
|
3.83%
|
Delinquency rate (over 30 days) - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
5.31%
|
|
4.56%
|
|
3.58%
|
Delinquency rate (over 90 days) - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
2.78%
|
|
2.17%
|
|
1.67%
|
Total Credit Card Loan Receivables
|
|
|
|
|
|
|
|
|
|
GAAP information
|
|
|
|
|
|
|
|
|
|
Credit card loan receivables
|
$46,638,625
|
|
$45,156,994
|
|
$20,230,302
|
|
$23,814,307
|
|
$20,579,923
|
Average credit card loan receivables
|
$45,204,829
|
|
$45,616,791
|
|
$24,266,782
|
|
$20,566,864
|
|
$19,845,880
|
Interest yield
|
12.51%
|
|
12.79%
|
|
11.69%
|
|
10.92%
|
|
10.75%
|
Net principal charge-off rate
|
4.50%
|
|
8.08%
|
|
7.87%
|
|
4.73%
|
|
3.41%
|
Delinquency rate (over 30 days)
|
2.39%
|
|
4.06%
|
|
5.52%
|
|
4.55%
|
|
3.28%
|
Delinquency rate (over 90 days)
|
1.20%
|
|
2.12%
|
|
2.92%
|
|
2.16%
|
|
1.53%
|
Non-GAAP as-adjusted information:
|
|
|
|
|
|
|
|
|
|
Credit card loan receivables - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
$47,459,364
|
|
$49,692,974
|
|
$47,929,242
|
Average credit card loan receivables - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
$48,844,325
|
|
$48,229,519
|
|
$46,811,570
|
Interest yield - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
12.63%
|
|
12.63%
|
|
12.66%
|
Net principal charge-off rate - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
8.00%
|
|
5.07%
|
|
3.84%
|
Delinquency rate (over 30 days) - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
5.60%
|
|
4.66%
|
|
3.59%
|
Delinquency rate (over 90 days) - Non-GAAP as-adjusted
|
N/A
|
|
N/A
|
|
2.94%
|
|
2.22%
|
|
1.68%
|
Personal loans
|
|
|
|
|
|
|
|
|
|
GAAP information
|
|
|
|
|
|
|
|
|
|
Personal loan receivables
|
$2,648,051
|
|
$1,877,633
|
|
$1,394,379
|
|
$1,028,093
|
|
$165,529
|
Average personal loan receivables
|
$2,228,226
|
|
$1,592,661
|
|
$1,223,841
|
|
$620,446
|
|
$25,335
|
Interest yield
|
11.94%
|
|
11.41%
|
|
11.38%
|
|
11.57%
|
|
10.81%
|
Net principal charge-off rate
|
3.02%
|
|
5.72%
|
|
5.53%
|
|
1.19%
|
|
3.43%
|
Delinquency rate (over 30 days)
|
0.87%
|
|
1.57%
|
|
2.17%
|
|
1.06%
|
|
0.28%
|
Delinquency rate (over 90 days)
|
0.28%
|
|
0.57%
|
|
0.71%
|
|
0.25%
|
|
0.07%
|
Private Student Loans (excluding PCI)
|
|
|
|
|
|
|
|
|
|
GAAP information
|
|
|
|
|
|
|
|
|
|
Private student loan receivables
|
$2,069,001
|
|
$999,322
|
|
$579,679
|
|
$132,180
|
|
$8,440
|
Average private student loan receivables
|
$1,637,260
|
|
$826,807
|
|
$363,985
|
|
$42,951
|
|
$1,797
|
Interest yield
|
7.04%
|
|
5.75%
|
|
4.73%
|
|
5.85%
|
|
6.07%
|
Net principal charge-off rate
|
0.48%
|
|
0.33%
|
|
0.05%
|
|
0.01%
|
|
—%
|
Delinquency rate (over 30 days)
|
0.63%
|
|
0.50%
|
|
0.13%
|
|
0.09%
|
|
1.05%
|
Delinquency rate (over 90 days)
|
0.14%
|
|
0.14%
|
|
0.03%
|
|
—%
|
|
0.51%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Amounts as of and for the years ended November 30, 2011 and 2010 include securitized loans as a result of the consolidation of the securitization trusts related to a change in accounting principle on December 1, 2009. Amounts under “GAAP information” prior to December 1, 2009 do not include securitized loans.
|
•
|
Consolidation of $22.3 billion of securitized loan receivables and the related debt issued from the trusts to third-party investors;
|
•
|
Reclassification of $4.6 billion of certificated retained interests classified as investment securities to loan receivables;
|
•
|
Recording of a $2.1 billion allowance for loan losses, not previously required under GAAP, for the newly consolidated and reclassified credit card loan receivables;
|
•
|
Derecognition of the remaining $0.1 billion value of the interest-only strip receivable, net of tax, recorded in amounts due from asset securitization and reclassification of the remaining $1.6 billion of amounts due from asset securitization to restricted cash, loan receivables and other assets; and
|
•
|
Recording of net deferred tax assets of $0.8 billion, largely related to establishing an allowance for loan losses on the newly consolidated and reclassified credit card loan receivables.
|
•
|
Settlement income adjustments
- The non-GAAP as-adjusted amounts remove the impact of income received in connection with the settlement of our antitrust litigation with Visa and MasterCard during the years ended November 30, 2009 and 2008, which resulted in unusually large amounts in other income and affect comparability of results between periods.
|
•
|
Special dividend interest adjustments
- The non-GAAP as-adjusted amounts exclude the 2009 interest charge related to our dispute with Morgan Stanley regarding the special dividend agreement, which, among other things, specified how proceeds of the antitrust litigation with Visa and MasterCard were to be shared.
|
•
|
Statements No. 166 and 167 adjustments
- The non-GAAP as-adjusted amounts show how our financial data would have been presented if the trusts used in our securitization activities were consolidated into our financial statements for historical periods prior to fiscal year 2010.
|
•
|
Elimination of interest income and interest expense related to certificated retained interests classified as investment securities and associated intercompany debt;
|
•
|
An adjustment to the provision for loan losses for the change in securitized loan receivables;
|
•
|
Elimination of the revaluation gains or losses associated with the interest-only strip receivable, which was derecognized upon adoption of Statements No. 166 and 167; and
|
•
|
An adjustment to reflect the income tax effects related to these adjustments.
|
|
For the Year Ended November 30, 2009
|
||||||||||||||||||
|
As
Reported
|
|
Securitization
Adjustments
|
|
Managed
|
|
Additional
Adjustments
|
|
Non-GAAP
As-Adjusted
|
||||||||||
|
(dollars in thousands)
|
||||||||||||||||||
Interest income
|
$
|
3,145,080
|
|
|
$
|
3,315,992
|
|
|
$
|
6,461,072
|
|
|
$
|
(25,920
|
)
|
(A)
|
$
|
6,435,152
|
|
Interest expense
|
1,251,284
|
|
|
397,136
|
|
|
1,648,420
|
|
|
(42,921
|
)
|
(B)
|
1,605,499
|
|
|||||
Net interest income
|
1,893,796
|
|
|
2,918,856
|
|
|
4,812,652
|
|
|
17,001
|
|
|
4,829,653
|
|
|||||
Provision for loan losses
|
2,362,405
|
|
|
1,995,936
|
|
|
4,358,341
|
|
|
764,689
|
|
(C)
|
5,123,030
|
|
|||||
Net interest income after provision for loan losses
|
(468,609
|
)
|
|
922,920
|
|
|
454,311
|
|
|
(747,688
|
)
|
|
(293,377
|
)
|
|||||
Antitrust litigation settlement
|
1,891,698
|
|
|
—
|
|
|
1,891,698
|
|
|
(1,891,698
|
)
|
(D)
|
—
|
|
|||||
Other income
|
2,948,897
|
|
|
(922,920
|
)
|
|
2,025,977
|
|
|
160,087
|
|
(E)
|
2,186,064
|
|
|||||
Total other income
|
4,840,595
|
|
|
(922,920
|
)
|
|
3,917,675
|
|
|
(1,731,611
|
)
|
|
2,186,064
|
|
|||||
Total other expense
|
2,251,088
|
|
|
—
|
|
|
2,251,088
|
|
|
(28,992
|
)
|
(F)
|
2,222,096
|
|
|||||
Income (loss) before income tax expense
|
2,120,898
|
|
|
—
|
|
|
2,120,898
|
|
|
(2,450,307
|
)
|
|
(329,409
|
)
|
|||||
Income tax expense (benefit)
|
844,713
|
|
|
—
|
|
|
844,713
|
|
|
(936,838
|
)
|
(G)
|
(92,125
|
)
|
|||||
Net income (loss)
|
$
|
1,276,185
|
|
|
$
|
—
|
|
|
$
|
1,276,185
|
|
|
$
|
(1,513,469
|
)
|
|
$
|
(237,284
|
)
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Elimination of interest income on certificated retained interests previously classified as investment securities and balance transfer fee income previously included in gain/loss on interest-only strip receivable.
|
(B)
|
Elimination of interest expense on certificated retained interests previously classified as investment securities and an interest expense adjustment related to the discount on securitized borrowings.
|
(C)
|
Provision for loan loss on the period-to-period change in securitized loans.
|
(D)
|
Exclusion of settlement proceeds related to the Visa and MasterCard antitrust litigation.
|
(E)
|
Elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts.
|
(F)
|
Exclusion of interest charge related to our dispute with Morgan Stanley regarding the special dividend agreement.
|
(G)
|
Estimated income tax benefit on the pretax loss related to Statement No. 167 adjustments and exclusion of taxes on the Visa/MasterCard antitrust litigation settlement.
|
|
For the Year Ended November 30, 2009
|
||||||||||||||||||
|
As
Reported
|
|
Securitization
Adjustments
|
|
Managed
|
|
Additional
Adjustments
|
|
Non-GAAP As-Adjusted
|
||||||||||
|
(dollars in thousands)
|
||||||||||||||||||
Securitization income
|
$
|
1,879,304
|
|
|
$
|
(1,879,304
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Discount and interchange revenue
|
222,835
|
|
|
761,253
|
|
|
984,088
|
|
|
—
|
|
|
984,088
|
|
|||||
Fee products
|
295,066
|
|
|
108,180
|
|
|
403,246
|
|
|
—
|
|
|
403,246
|
|
|||||
Loan fee income
|
247,267
|
|
|
247,038
|
|
|
494,305
|
|
|
—
|
|
|
494,305
|
|
|||||
Transaction processing revenue
|
125,201
|
|
|
—
|
|
|
125,201
|
|
|
—
|
|
|
125,201
|
|
|||||
Merchant fees
|
44,248
|
|
|
—
|
|
|
44,248
|
|
|
—
|
|
|
44,248
|
|
|||||
Loss on investment securities
|
(3,826
|
)
|
|
—
|
|
|
(3,826
|
)
|
|
—
|
|
|
(3,826
|
)
|
|||||
Antitrust litigation settlement
|
1,891,698
|
|
|
—
|
|
|
1,891,698
|
|
|
(1,891,698
|
)
|
(A)
|
—
|
|
|||||
Other income
|
138,802
|
|
|
(160,087
|
)
|
|
(21,285
|
)
|
|
160,087
|
|
(B)
|
138,802
|
|
|||||
Total other income
|
$
|
4,840,595
|
|
|
$
|
(922,920
|
)
|
|
$
|
3,917,675
|
|
|
$
|
(1,731,611
|
)
|
|
$
|
2,186,064
|
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Exclusion of settlement proceeds related to the Visa and MasterCard antitrust litigation.
|
(B)
|
Elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts.
|
|
For the Year Ended November 30, 2009
|
||||||||||||||||||
|
As
Reported
|
|
Securitization
Adjustments
|
|
Managed
|
|
Additional
Adjustments
|
|
Non-GAAP As-Adjusted
|
||||||||||
|
(dollars in thousands)
|
||||||||||||||||||
Interest income
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card
|
$
|
2,835,767
|
|
|
$
|
3,315,992
|
|
|
$
|
6,151,759
|
|
|
$
|
17,543
|
|
(A)
|
$
|
6,169,302
|
|
Private student loans
|
25,906
|
|
|
—
|
|
|
25,906
|
|
|
—
|
|
|
25,906
|
|
|||||
PCI student loans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Personal loans
|
139,247
|
|
|
—
|
|
|
139,247
|
|
|
—
|
|
|
139,247
|
|
|||||
Other
|
143,062
|
|
|
—
|
|
|
143,062
|
|
|
(43,463
|
)
|
(B)
|
99,599
|
|
|||||
Total interest income
|
3,143,982
|
|
|
3,315,992
|
|
|
6,459,974
|
|
|
(25,920
|
)
|
|
6,434,054
|
|
|||||
Interest expense
|
1,251,062
|
|
|
397,136
|
|
|
1,648,198
|
|
|
(42,921
|
)
|
(C)
|
1,605,277
|
|
|||||
Net interest income
|
1,892,920
|
|
|
2,918,856
|
|
|
4,811,776
|
|
|
17,001
|
|
|
4,828,777
|
|
|||||
Provision for loan losses
|
2,362,405
|
|
|
1,995,936
|
|
|
4,358,341
|
|
|
764,689
|
|
(D)
|
5,123,030
|
|
|||||
Other income
|
4,600,801
|
|
|
(922,920
|
)
|
|
3,677,881
|
|
|
(1,731,611
|
)
|
(E)
|
1,946,270
|
|
|||||
Other expense
|
2,116,962
|
|
|
—
|
|
|
2,116,962
|
|
|
(28,992
|
)
|
(F)
|
2,087,970
|
|
|||||
Income (loss) before income tax expense
|
$
|
2,014,354
|
|
|
$
|
—
|
|
|
$
|
2,014,354
|
|
|
$
|
(2,450,307
|
)
|
(G)
|
$
|
(435,953
|
)
|
|
|
|
|
|
|
|
|
|
|
(A)
|
Elimination of interest income on certificated retained interests previously classified as investment securities.
|
(B)
|
Adjustments to interest income related to balance transfer fee income previously included in gain/loss on interest-only strip receivable.
|
(C)
|
Elimination of interest expense on certificated retained interests previously classified as investment securities and an interest expense adjustment related to the discount on securitized borrowings.
|
(D)
|
Provision for loan loss on the period-to-period change in securitized loans.
|
(E)
|
Exclusion of settlement proceeds related to Visa and MasterCard antitrust litigation and elimination of gain/loss related to revaluation of interest-only strip receivable and cash collateral accounts.
|
(F)
|
Exclusion of interest charge related to our dispute with Morgan Stanley regarding the special dividend agreement.
|
(G)
|
Estimated income tax on the pretax loss related to Statement No. 167 adjustments and exclusion of taxes on the Visa/MasterCard antitrust litigation settlement.
|
|
As of and for the Year Ended November 30,
|
||||||||||
|
2009
|
|
2008
|
|
2007
|
||||||
Total Loan Receivables
|
(dollars in thousands)
|
||||||||||
Loan portfolio
|
|
|
|
|
|
||||||
GAAP
|
$
|
23,625,084
|
|
|
$
|
25,216,611
|
|
|
$
|
20,831,117
|
|
Adjustments for Statement No. 167
|
27,229,062
|
|
|
25,878,667
|
|
|
27,349,319
|
|
|||
Non-GAAP As-Adjusted
|
$
|
50,854,146
|
|
|
$
|
51,095,278
|
|
|
$
|
48,180,436
|
|
|
|
|
|
|
|
|
|
|
|||
Loan receivables
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
23,625,084
|
|
|
$
|
25,216,611
|
|
|
$
|
20,831,117
|
|
Adjustments for Statement No. 167
|
27,229,062
|
|
|
25,878,667
|
|
|
27,349,319
|
|
|||
Non-GAAP As-Adjusted
|
$
|
50,854,146
|
|
|
$
|
51,095,278
|
|
|
$
|
48,180,436
|
|
|
|
|
|
|
|
|
|
|
|||
Allowance for loan losses (beginning of period)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
1,374,585
|
|
|
$
|
759,925
|
|
|
$
|
703,917
|
|
Adjustments for Statement No. 167
|
1,379,772
|
|
|
971,730
|
|
|
928,374
|
|
|||
Non-GAAP As-Adjusted
|
$
|
2,754,357
|
|
|
$
|
1,731,655
|
|
|
$
|
1,632,291
|
|
|
|
|
|
|
|
|
|
|
|||
Provision for loan losses
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
2,362,405
|
|
|
$
|
1,595,615
|
|
|
$
|
733,887
|
|
Adjustments for Statement No. 167
|
2,760,625
|
|
|
1,881,029
|
|
|
1,162,866
|
|
|||
Non-GAAP As-Adjusted
|
$
|
5,123,030
|
|
|
$
|
3,476,644
|
|
|
$
|
1,896,753
|
|
|
|
|
|
|
|
|
|
|
|||
Charge-offs
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
(2,165,653
|
)
|
|
$
|
(1,147,241
|
)
|
|
$
|
(839,092
|
)
|
Adjustments for Statement No. 167
|
(2,208,036
|
)
|
|
(1,713,409
|
)
|
|
(1,366,949
|
)
|
|||
Non-GAAP As-Adjusted
|
$
|
(4,373,689
|
)
|
|
$
|
(2,860,650
|
)
|
|
$
|
(2,206,041
|
)
|
|
|
|
|
|
|
|
|
|
|||
Recoveries
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
186,562
|
|
|
$
|
166,286
|
|
|
$
|
161,213
|
|
Adjustments for Statement No. 167
|
212,100
|
|
|
240,422
|
|
|
247,439
|
|
|||
Non-GAAP As-Adjusted
|
$
|
398,662
|
|
|
$
|
406,708
|
|
|
$
|
408,652
|
|
|
|
|
|
|
|
|
|
|
|||
Net charge-offs
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
(1,979,091
|
)
|
|
$
|
(980,955
|
)
|
|
$
|
(677,879
|
)
|
Adjustments for Statement No. 167
|
(1,995,936
|
)
|
|
(1,472,987
|
)
|
|
(1,119,510
|
)
|
|||
Non-GAAP As-Adjusted
|
$
|
(3,975,027
|
)
|
|
$
|
(2,453,942
|
)
|
|
$
|
(1,797,389
|
)
|
|
|
|
|
|
|
|
|
|
|||
Allowance for loan losses (end of period)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
1,757,899
|
|
|
$
|
1,374,585
|
|
|
$
|
759,925
|
|
Adjustments for Statement No. 167
|
2,144,461
|
|
|
1,379,772
|
|
|
971,730
|
|
|||
Non-GAAP As-Adjusted
|
$
|
3,902,360
|
|
|
$
|
2,754,357
|
|
|
$
|
1,731,655
|
|
|
|
|
|
|
|
|
|
|
|||
Net charge-offs %
|
|
|
|
|
|
|
|
|
|||
GAAP
|
7.45
|
%
|
|
4.59
|
%
|
|
3.40
|
%
|
|||
Adjustments for Statement No. 167
|
0.32
|
|
|
0.42
|
|
|
0.43
|
|
|||
Non-GAAP As-Adjusted
|
7.77
|
%
|
|
5.01
|
%
|
|
3.83
|
%
|
|
As of and for the Year Ended November 30,
|
||||||||||
|
2009
|
|
2008
|
|
2007
|
||||||
Total Loan Receivables
|
(dollars in thousands)
|
||||||||||
Loans not accruing interest
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
190,086
|
|
|
$
|
173,123
|
|
|
$
|
102,286
|
|
Adjustments for Statement No. 167
|
248,192
|
|
|
193,385
|
|
|
154,408
|
|
|||
Non-GAAP As-Adjusted
|
$
|
438,278
|
|
|
$
|
366,508
|
|
|
$
|
256,694
|
|
|
|
|
|
|
|
|
|
|
|||
Delinquency rate (Over 30 Days)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
4.92
|
%
|
|
4.35
|
%
|
|
3.26
|
%
|
|||
Adjustments for Statement No. 167
|
0.39
|
|
|
0.21
|
|
|
0.32
|
|
|||
Non-GAAP As-Adjusted
|
5.31
|
%
|
|
4.56
|
%
|
|
3.58
|
%
|
|||
|
|
|
|
|
|
|
|
|
|||
Delinquency rate (Over 90 Days)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
2.58
|
%
|
|
2.06
|
%
|
|
1.51
|
%
|
|||
Adjustments for Statement No. 167
|
0.20
|
|
|
0.11
|
|
|
0.16
|
|
|||
Non-GAAP As-Adjusted
|
2.78
|
%
|
|
2.17
|
%
|
|
1.67
|
%
|
|||
|
|
|
|
|
|
|
|
|
|||
Delinquency rate (Loans not accruing interest)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
0.80
|
%
|
|
0.69
|
%
|
|
0.49
|
%
|
|||
Adjustments for Statement No. 167
|
0.06
|
|
|
0.03
|
|
|
0.04
|
|
|||
Non-GAAP As-Adjusted
|
0.86
|
%
|
|
0.72
|
%
|
|
0.53
|
%
|
|||
|
|
|
|
|
|
|
|
|
|||
Discover Card
|
|
|
|
|
|
|
|
|
|||
Charge-offs
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
(2,034,458
|
)
|
|
$
|
(1,119,362
|
)
|
|
$
|
(834,792
|
)
|
Adjustments for Statement No. 167
|
(2,208,036
|
)
|
|
(1,713,409
|
)
|
|
(1,366,949
|
)
|
|||
Non-GAAP As-Adjusted
|
$
|
(4,242,494
|
)
|
|
$
|
(2,832,771
|
)
|
|
$
|
(2,201,741
|
)
|
|
|
|
|
|
|
|
|
|
|||
Recoveries
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
184,383
|
|
|
$
|
165,422
|
|
|
$
|
160,167
|
|
Adjustments for Statement No. 167
|
212,100
|
|
|
240,422
|
|
|
247,439
|
|
|||
Non-GAAP As-Adjusted
|
$
|
396,483
|
|
|
$
|
405,844
|
|
|
$
|
407,606
|
|
|
|
|
|
|
|
|
|
|
|||
Total Discover Card Loans
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
19,826,153
|
|
|
$
|
23,348,134
|
|
|
$
|
20,345,787
|
|
Adjustments for Statement No. 167
|
27,229,062
|
|
|
25,878,667
|
|
|
27,349,319
|
|
|||
Non-GAAP As-Adjusted
|
$
|
47,055,215
|
|
|
$
|
49,226,801
|
|
|
$
|
47,695,106
|
|
|
|
|
|
|
|
|
|
|
|||
Allowance for loan losses (end of period)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
1,587,107
|
|
|
$
|
1,285,215
|
|
|
$
|
742,507
|
|
Adjustments for Statement No. 167
|
2,144,461
|
|
|
1,379,771
|
|
|
971,730
|
|
|||
Non-GAAP As-Adjusted
|
$
|
3,731,568
|
|
|
$
|
2,664,986
|
|
|
$
|
1,714,237
|
|
|
|
|
|
|
|
|
|
|
|||
Total Credit Card Loans
|
|
|
|
|
|
|
|
|
|||
Loan receivables
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
20,230,302
|
|
|
$
|
23,814,307
|
|
|
$
|
20,579,923
|
|
Adjustments for Statement No. 167
|
27,229,062
|
|
|
25,878,667
|
|
|
27,349,319
|
|
|||
Non-GAAP As-Adjusted
|
$
|
47,459,364
|
|
|
$
|
49,692,974
|
|
|
$
|
47,929,242
|
|
|
As of and for the Year Ended November 30,
|
||||||||||
|
2009
|
|
2008
|
|
2007
|
||||||
|
(dollars in thousands)
|
||||||||||
Charge-offs
|
|
|
|
|
|
||||||
GAAP
|
$
|
(2,096,573
|
)
|
|
$
|
(1,139,176
|
)
|
|
$
|
(837,210
|
)
|
Adjustments for Statement No. 167
|
(2,208,036
|
)
|
|
(1,713,409
|
)
|
|
(1,366,949
|
)
|
|||
Non-GAAP As-Adjusted
|
$
|
(4,304,609
|
)
|
|
$
|
(2,852,585
|
)
|
|
$
|
(2,204,159
|
)
|
|
|
|
|
|
|
|
|
|
|||
Recoveries
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
185,616
|
|
|
$
|
165,694
|
|
|
$
|
160,202
|
|
Adjustments for Statement No. 167
|
212,100
|
|
|
240,422
|
|
|
247,439
|
|
|||
Non-GAAP As-Adjusted
|
$
|
397,716
|
|
|
$
|
406,116
|
|
|
$
|
407,641
|
|
|
|
|
|
|
|
|
|
|
|||
Net charge-offs
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
(1,910,957
|
)
|
|
$
|
(973,482
|
)
|
|
$
|
(677,008
|
)
|
Adjustments for Statement No. 167
|
(1,995,936
|
)
|
|
(1,472,987
|
)
|
|
(1,119,510
|
)
|
|||
Non-GAAP As-Adjusted
|
$
|
(3,906,893
|
)
|
|
$
|
(2,446,469
|
)
|
|
$
|
(1,796,518
|
)
|
|
|
|
|
|
|
|
|
|
|||
Allowance for loan losses (end of period)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
$
|
1,647,086
|
|
|
$
|
1,317,811
|
|
|
$
|
750,786
|
|
Adjustments for Statement No. 167
|
2,144,461
|
|
|
1,379,772
|
|
|
971,730
|
|
|||
Non-GAAP As-Adjusted
|
$
|
3,791,547
|
|
|
$
|
2,697,583
|
|
|
$
|
1,722,516
|
|
|
|
|
|
|
|
|
|
|
|||
Net charge-offs %
|
|
|
|
|
|
|
|
|
|||
GAAP
|
7.87
|
%
|
|
4.73
|
%
|
|
3.41
|
%
|
|||
Adjustments for Statement No. 167
|
0.13
|
|
|
0.34
|
|
|
0.43
|
|
|||
Non-GAAP As-Adjusted
|
8.00
|
%
|
|
5.07
|
%
|
|
3.84
|
%
|
|||
|
|
|
|
|
|
||||||
Delinquencies (over 30 Days)
|
|
|
|
|
|
||||||
GAAP
|
$
|
1,117,227
|
|
|
$
|
1,082,942
|
|
|
$
|
675,508
|
|
Adjustments for Statement No. 167
|
1,539,462
|
|
|
1,233,581
|
|
|
1,044,014
|
|
|||
Non-GAAP As-Adjusted
|
$
|
2,656,689
|
|
|
$
|
2,316,523
|
|
|
$
|
1,719,522
|
|
|
|
|
|
|
|
||||||
Delinquencies (over 90 Days)
|
|
|
|
|
|
||||||
GAAP
|
$
|
698,610
|
|
|
$
|
594,325
|
|
|
$
|
380,339
|
|
Adjustments for Statement No. 167
|
694,864
|
|
|
508,241
|
|
|
424,075
|
|
|||
Non-GAAP As-Adjusted
|
$
|
1,393,474
|
|
|
$
|
1,102,566
|
|
|
$
|
804,414
|
|
|
|
|
|
|
|
|
|
|
|||
Delinquency Rate (over 30 days)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
5.52
|
%
|
|
4.55
|
%
|
|
3.28
|
%
|
|||
Adjustments for Statement No. 167
|
0.08
|
|
|
0.11
|
|
|
0.31
|
|
|||
Non-GAAP As-Adjusted
|
5.60
|
%
|
|
4.66
|
%
|
|
3.59
|
%
|
|||
|
|
|
|
|
|
|
|
|
|||
Delinquency Rate (over 90 days)
|
|
|
|
|
|
|
|
|
|||
GAAP
|
2.92
|
%
|
|
2.16
|
%
|
|
1.53
|
%
|
|||
Adjustments for Statement No. 167
|
0.02
|
|
|
0.06
|
|
|
0.15
|
|
|||
Non-GAAP As-Adjusted
|
2.94
|
%
|
|
2.22
|
%
|
|
1.68
|
%
|
|||
|
|
|
|
|
|
||||||
Restructured loans
(A)
|
|
|
|
|
|
||||||
GAAP
|
$
|
72,924
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Adjustments for Statement No. 167
|
145,258
|
|
|
—
|
|
|
—
|
|
|||
Non-GAAP As-Adjusted
|
$
|
218,182
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
||||||
Delinquency Rate (Restructured Loans)
(A)
|
|
|
|
|
|
||||||
GAAP
|
0.31
|
%
|
|
—
|
%
|
|
—
|
%
|
|||
Adjustments for Statement No. 167
|
0.15
|
|
|
—
|
|
|
—
|
|
|||
Non-GAAP As-Adjusted
|
0.46
|
%
|
|
—
|
%
|
|
—
|
%
|
(A)
|
Data not available for the years ended November 30, 2008 and 2007.
|
|
For the Year Ended November 30, 2009
|
|||||||||
|
Average
Balances
|
|
Interest
Income/Expense
|
|
Yield
|
|||||
|
(dollars in thousands)
|
|||||||||
Average restricted cash
|
|
|
|
|
|
|||||
GAAP
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
Adjustments for Statement No. 167
|
2,438,438
|
|
|
18,195
|
|
|
0.75
|
|
||
Non-GAAP As-Adjusted
|
$
|
2,438,438
|
|
|
$
|
18,195
|
|
|
0.75
|
%
|
|
|
|
|
|
|
|
|
|
||
Average investment securities
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
1,581,387
|
|
|
$
|
68,694
|
|
|
4.34
|
%
|
Adjustments for Statement No. 167
|
(1,096,270
|
)
|
|
(43,464
|
)
|
|
0.86
|
|
||
Non-GAAP As-Adjusted
|
$
|
485,117
|
|
|
$
|
25,230
|
|
|
5.20
|
%
|
|
|
|
|
|
|
|
|
|
||
Average credit card loan receivables
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
24,266,782
|
|
|
$
|
2,835,767
|
|
|
11.69
|
%
|
Adjustments for Statement No. 167
|
24,577,543
|
|
|
3,333,536
|
|
|
0.94
|
|
||
Non-GAAP As-Adjusted
|
$
|
48,844,325
|
|
|
$
|
6,169,303
|
|
|
12.63
|
%
|
|
|
|
|
|
|
|
|
|
||
Average total loan receivables
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
26,552,574
|
|
|
$
|
3,004,284
|
|
|
11.31
|
%
|
Adjustments for Statement No. 167
|
24,577,543
|
|
|
3,333,536
|
|
|
1.09
|
|
||
Non-GAAP As-Adjusted
|
$
|
51,130,117
|
|
|
$
|
6,337,820
|
|
|
12.40
|
%
|
|
|
|
|
|
|
|
|
|
||
Average other interest-earning assets
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
2,338,438
|
|
|
$
|
18,195
|
|
|
0.78
|
%
|
Adjustments for Statement No. 167
|
(2,338,438
|
)
|
|
(18,195
|
)
|
|
(0.78
|
)
|
||
Non-GAAP As-Adjusted
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
||
Average total interest-earning assets
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
39,989,758
|
|
|
$
|
3,145,080
|
|
|
7.86
|
%
|
Adjustments for Statement No. 167
|
23,581,273
|
|
|
3,290,072
|
|
|
2.26
|
|
||
Non-GAAP As-Adjusted
|
$
|
63,571,031
|
|
|
$
|
6,435,152
|
|
|
10.12
|
%
|
|
|
|
|
|
|
|
|
|
||
Average allowance for loan losses
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
(1,808,493
|
)
|
|
|
|
|
|
|
|
Adjustments for Statement No. 167
|
(1,741,736
|
)
|
|
|
|
|
|
|
||
Non-GAAP As-Adjusted
|
$
|
(3,550,229
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Average other assets (non-interest bearing)
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
4,053,270
|
|
|
|
|
|
|
|
|
Adjustments for Statement No. 167
|
(913,561
|
)
|
|
|
|
|
|
|
||
Non-GAAP As-Adjusted
|
$
|
3,139,709
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Average total assets
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
42,234,535
|
|
|
|
|
|
|
|
|
Adjustments for Statement No. 167
|
20,925,976
|
|
|
|
|
|
|
|
||
Non-GAAP As-Adjusted
|
$
|
63,160,511
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
Average securitized borrowings
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
—
|
|
|
$
|
—
|
|
|
—
|
%
|
Adjustments for Statement No. 167
|
22,720,700
|
|
|
354,215
|
|
|
1.56
|
|
||
Non-GAAP As-Adjusted
|
$
|
22,720,700
|
|
|
$
|
354,215
|
|
|
1.56
|
%
|
|
|
|
|
|
|
|
|
|
||
Average total borrowings
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
2,486,187
|
|
|
$
|
64,200
|
|
|
2.58
|
%
|
Adjustments for Statement No. 167
|
22,720,700
|
|
|
354,215
|
|
|
(0.92
|
)
|
||
Non-GAAP As-Adjusted
|
$
|
25,206,887
|
|
|
$
|
418,415
|
|
|
1.66
|
%
|
|
|
|
|
|
|
|
|
|
||
Average total interest-bearing liabilities
|
|
|
|
|
|
|
|
|
||
GAAP
|
$
|
31,609,777
|
|
|
$
|
1,251,284
|
|
|
3.96
|
%
|
Adjustments for Statement No. 167
|
22,720,700
|
|
|
354,215
|
|
|
(1.00
|
)
|
||
Non-GAAP As-Adjusted
|
$
|
54,330,477
|
|
|
$
|
1,605,499
|
|
|
2.96
|
%
|
|
For the Year Ended
November 30, 2009
|
||
|
Average Balances
|
||
|
(dollars in thousands, except where noted)
|
||
Average other liabilities and stockholders' equity (non-interest earning)
|
|
||
GAAP
|
$
|
10,624,758
|
|
Adjustments for Statement No. 167
|
(1,794,724
|
)
|
|
Non-GAAP As-Adjusted
|
$
|
8,830,034
|
|
|
|
|
|
Average total liabilities and stockholders' equity
|
|
|
|
GAAP
|
$
|
42,234,535
|
|
Adjustments for Statement No. 167
|
20,925,976
|
|
|
Non-GAAP As-Adjusted
|
$
|
63,160,511
|
|
|
|
|
|
|
|
||
|
Ratios and Other Amounts
|
||
Net interest margin
|
|
|
|
GAAP
|
7.13
|
%
|
|
Adjustments for Statement No. 167
|
2.32
|
|
|
Non-GAAP As-Adjusted
|
9.45
|
%
|
|
|
|
|
|
Net yield on interest-earning assets
|
|
|
|
GAAP
|
4.74
|
%
|
|
Adjustments for Statement No. 167
|
2.86
|
|
|
Non-GAAP As-Adjusted
|
7.60
|
%
|
|
|
|
|
|
Interest rate spread
|
|
|
|
GAAP
|
3.90
|
%
|
|
Adjustments for Statement No. 167
|
3.26
|
|
|
Non-GAAP As-Adjusted
|
7.16
|
%
|
|
|
|
|
|
Amortization of balance transfer fees in interest income on credit card loans
(dollars in millions)
|
|
|
|
GAAP
|
$
|
128
|
|
Adjustments for Statement No. 167
|
59
|
|
|
Non-GAAP As-Adjusted
|
$
|
187
|
|
|
For the Year Ended November 30,
|
||||||
|
2008
|
|
2007
|
||||
|
(dollars in thousands)
|
||||||
Total average loan receivables
|
|
|
|
||||
GAAP
|
$
|
21,348,493
|
|
|
$
|
19,947,784
|
|
Adjustments for Statement No. 167
|
27,662,655
|
|
|
26,965,690
|
|
||
Non-GAAP As-Adjusted
|
$
|
49,011,148
|
|
|
$
|
46,913,474
|
|
|
|
|
|
|
|||
Total loans interest yield
|
|
|
|
|
|||
GAAP
|
10.89
|
%
|
|
10.73
|
%
|
||
Adjustments for Statement No. 167
|
1.70
|
|
|
1.92
|
|
||
Non-GAAP As-Adjusted
|
12.59
|
%
|
|
12.65
|
%
|
||
|
|
|
|
|
|||
Total average credit card loan receivables
|
|
|
|
|
|||
GAAP
|
$
|
20,566,864
|
|
|
$
|
19,845,880
|
|
Adjustments for Statement No. 167
|
27,662,655
|
|
|
26,965,690
|
|
||
Non-GAAP As-Adjusted
|
$
|
48,229,519
|
|
|
$
|
46,811,570
|
|
|
|
|
|
|
|||
Credit card interest yield
|
|
|
|
|
|||
GAAP
|
10.92
|
%
|
|
10.75
|
%
|
||
Adjustments for Statement No. 167
|
1.71
|
|
|
1.91
|
|
||
Non-GAAP As-Adjusted
|
12.63
|
%
|
|
12.66
|
%
|
•
|
Net income in 2011 was $2.2 billion as compared to net income of $765 million in 2010.
|
•
|
Discover card sales volume showed strong year-over-year growth of 8% totaling $100.1 billion in 2011 as compared to $92.5 billion in 2010. This growth was driven primarily by an increase in spending by both new and existing customers partially due to increased marketing.
|
•
|
The delinquency rate for our credit card loans over 30 days past due improved dramatically during 2011, reaching an all-time low at November 30, 2011 of 2.39%, which was down from the prior year rate of 4.06%. The primary reason for this decline was the improvement throughout 2011 in the underlying credit quality of our portfolio as the U.S. economy stabilized following an extended period of increasing unemployment levels.
|
•
|
Our total loan portfolio increased 18% year-over-year to $56.6 billion, mainly due to the acquisition of The Student Loan Corporation ("SLC") in December 2010, which added approximately $3.1 billion of private student loans to our portfolio, and the acquisition of approximately $2.4 billion of private student loans from Citibank, N.A. ("Citi") in September 2011. In addition, $1.5 billion is attributed to an increase in credit card loans due to higher volumes and lower charge offs.
|
•
|
Payment Services continued to produce strong results with pretax income of $166 million, up 18% over the prior year. Transaction volume for the segment was $177 billion, an increase of 16% as compared to the prior year.
|
•
|
We repurchased 18 million shares, or approximately 3%, of our outstanding common stock for $425 million in 2011.
|
•
|
Our revenues were unfavorably impacted in 2010 by the implementation of certain provisions of the Credit Card Accountability Responsibility and Disclosure Act of 2009 (the "CARD" Act), which included limitations on our ability to reprice accounts, the elimination of overlimit fees and a reduction in the amount of standard late fees.
|
•
|
We settled our antitrust litigation with Visa and MasterCard for $2.75 billion in 2008. Through 2009, we received a total of $1.9 billion ($1.2 billion after tax) from Visa for its portion of the settlement. At the time of our spin-off, we entered into an agreement with Morgan Stanley to determine how proceeds from the litigation would be shared, among other things. In 2010, we paid Morgan Stanley a dividend of $775 million under an amendment to that agreement.
|
•
|
On December 9, 2011, we entered into definitive agreements to sell substantially all of our remaining $714 million of federal student loans currently classified as loans held for sale. The majority of these loans were pledged as collateral against a long-term borrowing and, as part of this transaction, these borrowings are expected to be assumed by the purchaser. These transactions, which are subject to customary closing conditions, including the receipt of governmental approvals, are expected to close in February 2012.
|
•
|
Effective December 16, 2011, we terminated our $2.4 billion unsecured committed credit facility. This facility had no borrowings against it as of November 30, 2011. For more information, see "- Liquidity and Capital Resources - Liquidity Management."
|
•
|
On January 19, 2012, we paid a dividend of $0.10 per share of our common stock, which was an increase from the $0.06 per share dividend that we paid in the previous quarter.
|
(1)
|
The 2009 Direct Banking segment information is presented on a non-GAAP as-adjusted basis. No adjustments have been made to the Payment Services segment. See reconciliations in “ —Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(1)
|
Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment.
|
(2)
|
Represents gross proprietary sales volume on the Discover Network.
|
(3)
|
Represents Discover card activity related to net sales, balance transfers, cash advances and fee-based products.
|
(4)
|
Represents Discover card activity related to net sales.
|
The following table outlines changes in our consolidated statements of income for the periods presented (dollars in thousands):
|
||||||||||||||||||||||||||
|
For the Year Ended November 30,
|
|
2011 vs. 2010
increase (decrease)
|
|
2010 vs. 2009
increase (decrease)
|
|
||||||||||||||||||||
|
2011
|
|
2010
|
|
2009
(Non-GAAP
As-Adjusted
1
)
|
|
$
|
|
%
|
|
$
|
|
%
|
|
||||||||||||
Interest income
|
$
|
6,345,139
|
|
|
$
|
6,146,218
|
|
|
$
|
6,435,152
|
|
|
$
|
198,921
|
|
|
3
|
%
|
|
$
|
(288,934
|
)
|
|
(4
|
)%
|
|
Interest expense
|
1,484,552
|
|
|
1,582,988
|
|
|
1,605,499
|
|
|
(98,436
|
)
|
|
(6
|
)%
|
|
(22,511
|
)
|
|
(1
|
)%
|
|
|||||
Net interest income
|
4,860,587
|
|
|
4,563,230
|
|
|
4,829,653
|
|
|
297,357
|
|
|
7
|
%
|
|
(266,423
|
)
|
|
(6
|
)%
|
|
|||||
Provision for loan losses
|
1,013,350
|
|
|
3,206,705
|
|
|
5,123,030
|
|
|
(2,193,355
|
)
|
|
(68
|
)%
|
|
(1,916,325
|
)
|
|
(37
|
)%
|
|
|||||
Net interest income (loss) after provision for loan losses
|
3,847,237
|
|
|
1,356,525
|
|
|
(293,377
|
)
|
|
2,490,712
|
|
|
NM
|
|
|
1,649,902
|
|
|
NM
|
|
|
|||||
Other income
|
2,205,174
|
|
|
2,094,999
|
|
|
2,186,064
|
|
|
110,175
|
|
|
5
|
%
|
|
(91,065
|
)
|
|
(4
|
)%
|
|
|||||
Other expense
|
2,541,167
|
|
|
2,182,665
|
|
|
2,222,096
|
|
|
358,502
|
|
|
16
|
%
|
|
(39,431
|
)
|
|
(2
|
)%
|
|
|||||
Income (loss) before income tax expense
|
3,511,244
|
|
|
1,268,859
|
|
|
(329,409
|
)
|
|
2,242,385
|
|
|
NM
|
|
|
1,598,268
|
|
|
NM
|
|
|
|||||
Income tax expense (benefit)
|
1,284,536
|
|
|
504,071
|
|
|
(92,125
|
)
|
|
780,465
|
|
|
NM
|
|
|
596,196
|
|
|
NM
|
|
|
|||||
Net income (loss)
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
(237,284
|
)
|
|
$
|
1,461,920
|
|
|
NM
|
|
|
$
|
1,002,072
|
|
|
NM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
•
|
The level and composition of loan receivables, including the proportion of credit card loans to other consumer loans, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates;
|
•
|
The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income;
|
•
|
The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate;
|
•
|
The level and composition of other interest-bearing assets and liabilities, including our liquidity investment portfolio;
|
•
|
Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the Federal Funds rate and LIBOR;
|
•
|
The effectiveness of interest rate swaps in our interest rate risk management program; and
|
•
|
The difference between the carrying amount and future cash flows expected to be collected on PCI loans.
|
Average Balance Sheet Analysis
|
||||||||||||||||||||||||||||||||
|
2011
|
|
2010
|
|
2009 (Non-GAAP As-Adjusted
1
)
|
|||||||||||||||||||||||||||
|
Average
Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
|
|
Rate
|
|
Interest
|
|||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and cash equivalents
|
$
|
3,920,401
|
|
|
0.24
|
%
|
|
$
|
9,569
|
|
|
$
|
9,628,759
|
|
|
0.25
|
%
|
|
$
|
24,319
|
|
|
$
|
8,854,380
|
|
|
0.56
|
%
|
|
$
|
50,024
|
|
Restricted cash
|
1,179,733
|
|
|
0.14
|
%
|
|
1,672
|
|
|
2,124,343
|
|
|
0.16
|
%
|
|
3,419
|
|
|
2,438,438
|
|
|
0.75
|
%
|
|
18,195
|
|
||||||
Other short-term investments
|
153,013
|
|
|
1.07
|
%
|
|
1,639
|
|
|
235,549
|
|
|
1.03
|
%
|
|
2,435
|
|
|
662,979
|
|
|
0.59
|
%
|
|
3,883
|
|
||||||
Investment securities
|
5,660,114
|
|
|
1.05
|
%
|
|
59,365
|
|
|
1,688,453
|
|
|
1.55
|
%
|
|
26,222
|
|
|
485,117
|
|
|
5.20
|
%
|
|
25,230
|
|
||||||
Loan receivables
(2)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card
(3)(4)
|
45,204,829
|
|
|
12.51
|
%
|
|
5,654,088
|
|
|
45,616,791
|
|
|
12.79
|
%
|
|
5,836,002
|
|
|
48,844,325
|
|
|
12.63
|
%
|
|
6,169,303
|
|
||||||
Personal loans
|
2,228,226
|
|
|
11.94
|
%
|
|
266,081
|
|
|
1,592,661
|
|
|
11.41
|
%
|
|
181,653
|
|
|
1,223,841
|
|
|
11.38
|
%
|
|
139,247
|
|
||||||
Federal student loans
(5)
|
753,666
|
|
|
1.58
|
%
|
|
11,904
|
|
|
1,817,990
|
|
|
1.23
|
%
|
|
22,439
|
|
|
626,422
|
|
|
1.39
|
%
|
|
8,698
|
|
||||||
Private student loans
|
1,637,260
|
|
|
7.04
|
%
|
|
115,307
|
|
|
826,807
|
|
|
5.75
|
%
|
|
47,518
|
|
|
363,985
|
|
|
4.73
|
%
|
|
17,208
|
|
||||||
PCI student loans
|
3,104,504
|
|
|
7.25
|
%
|
|
225,096
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
||||||
Other
|
14,137
|
|
|
2.95
|
%
|
|
418
|
|
|
54,938
|
|
|
4.02
|
%
|
|
2,211
|
|
|
71,544
|
|
|
4.70
|
%
|
|
3,364
|
|
||||||
Total loan receivables
|
52,942,622
|
|
|
11.85
|
%
|
|
6,272,894
|
|
|
49,909,187
|
|
|
12.20
|
%
|
|
6,089,823
|
|
|
51,130,117
|
|
|
12.40
|
%
|
|
6,337,820
|
|
||||||
Total interest-earning assets
|
63,855,883
|
|
|
9.94
|
%
|
|
6,345,139
|
|
|
63,586,291
|
|
|
9.67
|
%
|
|
6,146,218
|
|
|
63,571,031
|
|
|
10.12
|
%
|
|
6,435,152
|
|
||||||
Allowance for loan losses
|
(2,710,377
|
)
|
|
|
|
|
|
(3,870,545
|
)
|
|
|
|
|
|
(3,550,229
|
)
|
|
|
|
|
||||||||||||
Other assets
|
3,791,077
|
|
|
|
|
|
|
3,978,625
|
|
|
|
|
|
|
3,139,709
|
|
|
|
|
|
||||||||||||
Total assets
|
$
|
64,936,583
|
|
|
|
|
|
|
$
|
63,694,371
|
|
|
|
|
|
|
63,160,511
|
|
|
|
|
|
||||||||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Time deposits
(6)
|
$
|
25,477,735
|
|
|
3.34
|
%
|
|
849,743
|
|
|
$
|
27,274,405
|
|
|
3.82
|
%
|
|
1,042,683
|
|
|
24,748,485
|
|
|
4.51
|
%
|
|
1,116,816
|
|
||||
Money market deposits
|
4,656,321
|
|
|
1.23
|
%
|
|
57,314
|
|
|
4,303,762
|
|
|
1.36
|
%
|
|
58,745
|
|
|
4,091,867
|
|
|
1.59
|
%
|
|
64,902
|
|
||||||
Other interest-bearing savings deposits
|
5,996,123
|
|
|
1.33
|
%
|
|
79,719
|
|
|
2,980,286
|
|
|
1.65
|
%
|
|
49,076
|
|
|
283,238
|
|
|
1.89
|
%
|
|
5,366
|
|
||||||
Total interest-bearing deposits
(7)
|
36,130,179
|
|
|
2.73
|
%
|
|
986,776
|
|
|
34,558,453
|
|
|
3.33
|
%
|
|
1,150,504
|
|
|
29,123,590
|
|
|
4.08
|
%
|
|
1,187,084
|
|
||||||
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Short-term borrowings
|
127,840
|
|
|
0.10
|
%
|
|
133
|
|
|
410
|
|
|
0.24
|
%
|
|
1
|
|
|
837,452
|
|
|
0.30
|
%
|
|
2,538
|
|
||||||
Securitized borrowings
|
15,968,420
|
|
|
2.10
|
%
|
|
335,143
|
|
|
17,247,078
|
|
|
1.58
|
%
|
|
272,535
|
|
|
22,720,700
|
|
|
1.56
|
%
|
|
354,215
|
|
||||||
Other long-term borrowings
(6)
|
2,467,806
|
|
|
6.58
|
%
|
|
162,500
|
|
|
2,736,017
|
|
|
5.85
|
%
|
|
159,948
|
|
|
1,648,735
|
|
|
3.74
|
%
|
|
61,662
|
|
||||||
Total borrowings
|
18,564,066
|
|
|
2.68
|
%
|
|
497,776
|
|
|
19,983,505
|
|
|
2.16
|
%
|
|
432,484
|
|
|
25,206,887
|
|
|
1.66
|
%
|
|
418,415
|
|
||||||
Total interest-bearing liabilities
|
54,694,245
|
|
|
2.71
|
%
|
|
1,484,552
|
|
|
54,541,958
|
|
|
2.90
|
%
|
|
1,582,988
|
|
|
54,330,477
|
|
|
2.96
|
%
|
|
1,605,499
|
|
||||||
Other liabilities and stockholders’ equity
|
10,242,338
|
|
|
|
|
|
|
9,152,413
|
|
|
|
|
|
|
8,830,034
|
|
|
|
|
|
||||||||||||
Total liabilities and stockholders’ equity
|
$
|
64,936,583
|
|
|
|
|
|
|
$
|
63,694,371
|
|
|
|
|
|
|
63,160,511
|
|
|
|
|
|
||||||||||
Net interest income
|
|
|
|
|
$
|
4,860,587
|
|
|
|
|
|
|
$
|
4,563,230
|
|
|
|
|
|
|
$
|
4,829,653
|
|
|||||||||
Net interest margin
(8)
|
|
|
9.18
|
%
|
|
|
|
|
|
9.14
|
%
|
|
|
|
|
|
9.45
|
%
|
|
|
||||||||||||
Net yield on interest-bearing assets
(9)
|
|
|
7.61
|
%
|
|
|
|
|
|
7.18
|
%
|
|
|
|
|
|
7.60
|
%
|
|
|
||||||||||||
Interest rate spread
(10)
|
|
|
7.23
|
%
|
|
|
|
|
|
6.77
|
%
|
|
|
|
|
|
7.16
|
%
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Information related to restricted cash, investment securities, credit card loan receivables, allowance for loan losses, other assets, securitized borrowings, other long-term borrowings and other liabilities and stockholders' equity are presented on a non-GAAP as-adjusted basis. No adjustments have been made for cash and cash equivalents, other short-term investments, other loan receivables, interest-bearing deposits, short-term borrowings and other long-term borrowings. See “ - Reconciliations of GAAP to Non-GAAP As Adjusted Data.”
|
(2)
|
Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.
|
(3)
|
Interest income on credit card loans includes $225 million, $173 million and $187 million on a non-GAAP as-adjusted basis of amortization of balance transfer fees for the years ended November 30, 2011, 2010 and 2009 respectively.
|
(4)
|
Includes the impact of interest rate swap agreements used to change a portion of certain floating-rate credit card loan receivables to fixed-rates.
|
(5)
|
Includes federal student loans held for sale.
|
(6)
|
Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.
|
(7)
|
Includes the impact of FDIC insurance premiums and special assessments, and all periods reflect management's product allocation methodology as of fourth quarter 2011.
|
(8)
|
Net interest margin represents net interest income as a percentage of average total loan receivables.
|
(9)
|
Net yield on interest-bearing assets represents net interest income as a percentage of average total interest-earning assets.
|
(10)
|
Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
|
Rate/Volume Variance Analysis
(1)
|
|||||||||||||||||||||||
|
2011 vs. 2010
|
|
2010 vs. 2009
|
||||||||||||||||||||
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
||||||||||||
Increase/(decrease) in net interest income due to changes in:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-earning assets:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
(13,959
|
)
|
|
$
|
(791
|
)
|
|
$
|
(14,750
|
)
|
|
$
|
4,045
|
|
|
$
|
(29,750
|
)
|
|
$
|
(25,705
|
)
|
Restricted cash
|
(1,377
|
)
|
|
(370
|
)
|
|
(1,747
|
)
|
|
(2,085
|
)
|
|
(12,691
|
)
|
|
(14,776
|
)
|
||||||
Other short-term investments
|
(881
|
)
|
|
85
|
|
|
(796
|
)
|
|
(3,379
|
)
|
|
1,931
|
|
|
(1,448
|
)
|
||||||
Investment securities
|
44,085
|
|
|
(10,942
|
)
|
|
33,143
|
|
|
28,364
|
|
|
(27,372
|
)
|
|
992
|
|
||||||
Loan receivables:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Credit card
|
(52,366
|
)
|
|
(129,548
|
)
|
|
(181,914
|
)
|
|
(412,055
|
)
|
|
78,754
|
|
|
(333,301
|
)
|
||||||
Personal loans
|
75,537
|
|
|
8,891
|
|
|
84,428
|
|
|
42,066
|
|
|
340
|
|
|
42,406
|
|
||||||
Federal student loans
|
(15,623
|
)
|
|
5,088
|
|
|
(10,535
|
)
|
|
15,024
|
|
|
(1,283
|
)
|
|
13,741
|
|
||||||
Private student loans
|
55,115
|
|
|
12,674
|
|
|
67,789
|
|
|
25,915
|
|
|
4,395
|
|
|
30,310
|
|
||||||
PCI student loans
|
225,096
|
|
|
—
|
|
|
225,096
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Other
|
(1,319
|
)
|
|
(474
|
)
|
|
(1,793
|
)
|
|
(711
|
)
|
|
(442
|
)
|
|
(1,153
|
)
|
||||||
Total loan receivables
|
286,440
|
|
|
(103,369
|
)
|
|
183,071
|
|
|
(329,761
|
)
|
|
81,764
|
|
|
(247,997
|
)
|
||||||
Total interest income
|
314,308
|
|
|
(115,387
|
)
|
|
198,921
|
|
|
(302,816
|
)
|
|
13,882
|
|
|
(288,934
|
)
|
||||||
Interest-bearing liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-bearing deposits:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Time deposits
|
(65,703
|
)
|
|
(127,237
|
)
|
|
(192,940
|
)
|
|
107,010
|
|
|
(181,143
|
)
|
|
(74,133
|
)
|
||||||
Money market deposits
|
4,597
|
|
|
(6,028
|
)
|
|
(1,431
|
)
|
|
3,234
|
|
|
(9,391
|
)
|
|
(6,157
|
)
|
||||||
Other interest-bearing savings deposits
|
41,626
|
|
|
(10,983
|
)
|
|
30,643
|
|
|
44,503
|
|
|
(793
|
)
|
|
43,710
|
|
||||||
Total interest-bearing deposits
|
(19,480
|
)
|
|
(144,248
|
)
|
|
(163,728
|
)
|
|
154,747
|
|
|
(191,327
|
)
|
|
(36,580
|
)
|
||||||
Borrowings:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Short-term borrowings
|
134
|
|
|
(2
|
)
|
|
132
|
|
|
(2,123
|
)
|
|
(414
|
)
|
|
(2,537
|
)
|
||||||
Securitized borrowings
|
(21,427
|
)
|
|
84,035
|
|
|
62,608
|
|
|
(86,431
|
)
|
|
4,751
|
|
|
(81,680
|
)
|
||||||
Other long-term borrowings
|
(16,545
|
)
|
|
19,097
|
|
|
2,552
|
|
|
53,016
|
|
|
45,270
|
|
|
98,286
|
|
||||||
Total borrowings
|
(37,838
|
)
|
|
103,130
|
|
|
65,292
|
|
|
(35,538
|
)
|
|
49,607
|
|
|
14,069
|
|
||||||
Total interest expense
|
(57,318
|
)
|
|
(41,118
|
)
|
|
(98,436
|
)
|
|
119,209
|
|
|
(141,720
|
)
|
|
(22,511
|
)
|
||||||
Net interest income
|
$
|
371,626
|
|
|
$
|
(74,269
|
)
|
|
$
|
297,357
|
|
|
$
|
(422,025
|
)
|
|
$
|
155,602
|
|
|
$
|
(266,423
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between November 30, 2011, November 30, 2010 and November 30, 2009 on a non-GAAP as-adjusted basis, based on the percentage of the rate or volume variance to the sum of the two absolute variances.
|
|
For the Years Ended November 30,
|
||||||||||||||||||
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
||||||||||
|
2011
|
|
2010
|
|
(Non-GAAP
As-Adjusted
1
)
|
|
(Non-GAAP
As-Adjusted
1
)
|
|
|
(Non-GAAP
As-Adjusted
1
)
|
|
||||||||
Loans held for sale
|
$
|
714,180
|
|
|
$
|
788,101
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Loan portfolio:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Discover card
|
46,419,544
|
|
|
44,904,267
|
|
|
47,055,215
|
|
|
49,226,801
|
|
|
47,695,106
|
|
|||||
Discover business card
|
219,081
|
|
|
252,727
|
|
|
404,149
|
|
|
466,173
|
|
|
234,136
|
|
|||||
Total credit card loans
|
46,638,625
|
|
|
45,156,994
|
|
|
47,459,364
|
|
|
49,692,974
|
|
|
47,929,242
|
|
|||||
Other consumer loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
|
2,648,051
|
|
|
1,877,633
|
|
|
1,394,379
|
|
|
1,028,093
|
|
|
165,529
|
|
|||||
Federal student loans
|
—
|
|
|
—
|
|
|
1,352,587
|
|
|
167,749
|
|
|
4,380
|
|
|||||
Private student loans
|
2,069,001
|
|
|
999,322
|
|
|
579,679
|
|
|
132,180
|
|
|
8,440
|
|
|||||
Other
|
16,690
|
|
|
14,363
|
|
|
68,137
|
|
|
74,282
|
|
|
72,845
|
|
|||||
Total other consumer loans
|
4,733,742
|
|
|
2,891,318
|
|
|
3,394,782
|
|
|
1,402,304
|
|
|
251,194
|
|
|||||
PCI student loans
(2)
|
5,250,388
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total loan portfolio
|
56,622,755
|
|
|
48,048,312
|
|
|
50,854,146
|
|
|
51,095,278
|
|
|
48,180,436
|
|
|||||
Total loan receivables
|
57,336,935
|
|
|
48,836,413
|
|
|
50,854,146
|
|
|
51,095,278
|
|
|
48,180,436
|
|
|||||
Allowance for loan losses
|
(2,205,196
|
)
|
|
(3,304,118
|
)
|
|
(3,902,360
|
)
|
|
(2,754,357
|
)
|
|
(1,731,655
|
)
|
|||||
Net loan receivables
|
$
|
55,131,739
|
|
|
$
|
45,532,295
|
|
|
$
|
46,951,786
|
|
|
$
|
48,340,921
|
|
|
$
|
46,448,781
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Discover card loan balances and the allowance for loan losses are presented on a non-GAAP as-adjusted basis. No adjustments have been made to loans held for sale, Discover business card, personal loans, federal or private student loans or other loans. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(2)
|
Represents purchased credit-impaired private student loans which do not have a related allowance for loan losses or charge-offs (see Note 6: Loan Receivables to our consolidated financial statements).
|
•
|
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;
|
•
|
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.
|
(1)
|
Information related to Discover card and total loans is presented on an adjusted basis. No adjustments have been made for Discover business card, personal loans, federal and private student loans or other loans. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(2)
|
On December 1, 2009, upon adoption of the Financial Accounting Standards Board (“FASB”) Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.
|
(1)
|
Information related to the allowance on Discover card, total credit card and total loan receivables is presented on an adjusted basis. No adjustments have been made for Discover business card, federal and private student loans, personal loans or other loans. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(1)
|
Information related to credit card loan receivables for years prior to 2010 is presented on a non-GAAP as-adjusted basis. No adjustments have been made for personal loan or private student loan receivables. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(2)
|
Charge-offs for PCI loans did not result in a charge to earnings during 2011 and are therefore excluded from the calculation. See Note 6: Loan Receivables to our consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans.
|
The following table presents the amounts and delinquency rates of key loan portfolio segments that are 30 and 90 days or more delinquent, loan receivables that are not accruing interest, regardless of delinquency and restructured loans (dollars in thousands):
|
||||||||||||||||||||||||||||||||||
|
For the Years Ended November 30,
|
|||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
2009
|
|
2008
|
|
2007
|
|||||||||||||||||||||
|
2011
|
|
2010
|
|
(Non-GAAP
As-Adjusted
2
)
|
|
(Non-GAAP
As-Adjusted
2
)
|
|
(Non-GAAP
As-Adjusted
2
)
|
|||||||||||||||||||||||||
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|||||||||||||||
Loans 30 days
delinquent or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
|
$
|
1,116,851
|
|
|
2.39
|
%
|
|
$
|
1,831,119
|
|
|
4.06
|
%
|
|
$
|
2,656,689
|
|
|
5.60
|
%
|
|
$
|
2,316,523
|
|
|
4.66
|
%
|
|
$
|
1,719,522
|
|
|
3.59
|
%
|
Personal loans
|
$
|
22,966
|
|
|
0.87
|
%
|
|
$
|
29,486
|
|
|
1.57
|
%
|
|
$
|
30,210
|
|
|
2.17
|
%
|
|
$
|
10,859
|
|
|
1.06
|
%
|
|
$
|
466
|
|
|
0.28
|
%
|
Private student loans(excluding PCI loans
(1)
)
|
$
|
13,065
|
|
|
0.63
|
%
|
|
$
|
5,030
|
|
|
0.50
|
%
|
|
$
|
491
|
|
|
0.13
|
%
|
|
$
|
37
|
|
|
0.09
|
%
|
|
$
|
19
|
|
|
1.05
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans 90 days
delinquent or more:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
|
$
|
559,674
|
|
|
1.20
|
%
|
|
$
|
958,216
|
|
|
2.12
|
%
|
|
$
|
1,393,474
|
|
|
2.94
|
%
|
|
$
|
1,102,566
|
|
|
2.22
|
%
|
|
$
|
804,414
|
|
|
1.68
|
%
|
Personal loans
|
$
|
7,362
|
|
|
0.28
|
%
|
|
$
|
10,670
|
|
|
0.57
|
%
|
|
$
|
9,839
|
|
|
0.71
|
%
|
|
$
|
2,582
|
|
|
0.25
|
%
|
|
$
|
110
|
|
|
0.07
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
2,992
|
|
|
0.14
|
%
|
|
$
|
1,408
|
|
|
0.14
|
%
|
|
$
|
97
|
|
|
0.03
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
9
|
|
|
0.51
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans not accruing interest
|
$
|
207,138
|
|
|
0.40
|
%
|
|
$
|
325,900
|
|
|
0.68
|
%
|
|
$
|
438,278
|
|
|
0.86
|
%
|
|
$
|
366,508
|
|
|
0.72
|
%
|
|
$
|
256,694
|
|
|
0.53
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Restructured loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
(3)(4)
|
$
|
1,216,738
|
|
|
2.61
|
%
|
|
$
|
305,344
|
|
|
0.68
|
%
|
|
$
|
218,182
|
|
|
0.46
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Personal loans
|
$
|
7,635
|
|
|
0.29
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
5,439
|
|
|
0.26
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
$
|
—
|
|
|
—
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes PCI loans which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because we are recognizing interest income on a pool of loans, it is all considered to be performing.
|
(2)
|
Information related to credit card loan receivables for years prior to 2010 is presented on a non-GAAP as-adjusted basis. No adjustments have been made for personal loan or private student loan receivables. See reconciliation in “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(3)
|
Restructured loans include $37.9 million, $35.0 million and $9.7 million for the years ended November 30, 2011, 2010 and 2009, respectively, that are also included in loans over 90 days delinquent or more.
|
(4)
|
Data not available for the years ended November 30, 2008 and 2007.
|
|
Due One
Year or
Less
|
|
Due After
One Year
Through
Five Years
|
|
Due After
Five Years
|
|
Total
|
||||||||
Credit card loans
|
$
|
14,892,116
|
|
|
$
|
24,928,752
|
|
|
$
|
6,817,757
|
|
|
$
|
46,638,625
|
|
Personal loans
|
27,703
|
|
|
1,939,777
|
|
|
680,571
|
|
|
2,648,051
|
|
||||
Private student loans (excluding PCI)
|
306,492
|
|
|
220,587
|
|
|
1,541,922
|
|
|
2,069,001
|
|
||||
PCI private student loans
|
14,068
|
|
|
311,456
|
|
|
4,924,864
|
|
|
5,250,388
|
|
||||
Other consumer loans
|
273
|
|
|
12
|
|
|
16,405
|
|
|
16,690
|
|
||||
Total loan portfolio
|
$
|
15,240,652
|
|
|
$
|
27,400,584
|
|
|
$
|
13,981,519
|
|
|
$
|
56,622,755
|
|
|
|
|
|
|
|
|
|
(1)
|
Because of the uncertainty regarding loan repayment patterns, the above amounts have been calculated using contractually required minimum payments. Historically, actual loan repayments have been higher than such minimum payments and, therefore, the above amounts may not necessarily be indicative of our actual loan repayments.
|
|
For the Years Ended November 30,
|
|
2011 vs. 2010
increase
(decrease)
|
|
2010 vs. 2009
increase
(decrease)
|
||||||||||||||||||||
|
|
|
|
2009
|
|
|
|
|
|
|
|
|
|||||||||||||
2011
|
|
2010
|
|
(Non-GAAP
As-Adjusted
1
)
|
|
$
|
|
%
|
|
$
|
|
%
|
|||||||||||||
Discount and interchange revenue
(2)
|
$
|
1,083,847
|
|
|
$
|
1,055,359
|
|
|
$
|
984,088
|
|
|
$
|
28,488
|
|
|
3
|
%
|
|
$
|
71,271
|
|
|
7
|
%
|
Fee products
|
428,193
|
|
|
412,497
|
|
|
403,246
|
|
|
15,696
|
|
|
4
|
%
|
|
9,251
|
|
|
2
|
%
|
|||||
Loan fee income
|
338,147
|
|
|
339,797
|
|
|
494,305
|
|
|
(1,650
|
)
|
|
—
|
%
|
|
(154,508
|
)
|
|
(31
|
)%
|
|||||
Transaction processing revenue
|
179,989
|
|
|
149,946
|
|
|
125,201
|
|
|
30,043
|
|
|
20
|
%
|
|
24,745
|
|
|
20
|
%
|
|||||
Merchant fees
|
16,184
|
|
|
28,461
|
|
|
44,248
|
|
|
(12,277
|
)
|
|
(43
|
)%
|
|
(15,787
|
)
|
|
(36
|
)%
|
|||||
(Loss) gain on investments
|
(3,622
|
)
|
|
19,131
|
|
|
(3,826
|
)
|
|
(22,753
|
)
|
|
(119
|
)%
|
|
22,957
|
|
|
NM
|
|
|||||
Other income
|
162,436
|
|
|
89,808
|
|
|
138,802
|
|
|
72,628
|
|
|
81
|
%
|
|
(48,994
|
)
|
|
(35
|
)%
|
|||||
Total other income
|
$
|
2,205,174
|
|
|
$
|
2,094,999
|
|
|
$
|
2,186,064
|
|
|
$
|
110,175
|
|
|
5
|
%
|
|
$
|
(91,065
|
)
|
|
(4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
See “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
(2)
|
Net of rewards, including
Cashback Bonus
rewards, of $879 million, $738 million and $670 million for the years ended
November 30, 2011
,
2010
and
2009
respectively.
|
(1)
|
See “ - Reconciliations of GAAP to Non-GAAP As-Adjusted Data.”
|
The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate:
|
||||||||
|
For the Year Ended November 30,
|
|||||||
|
2011
|
|
2010
|
|
2009
|
|||
U.S. federal statutory income tax rate
|
35.0
|
%
|
|
35.0
|
%
|
|
35.0
|
%
|
U.S. state and local income taxes and other income taxes, net of U.S. federal income tax benefits
|
2.4
|
|
|
4.1
|
|
|
4.1
|
|
Valuation allowance - capital loss
|
(0.6
|
)
|
|
—
|
|
|
1.1
|
|
Other
|
(0.2
|
)
|
|
0.6
|
|
|
(0.4
|
)
|
Effective income tax rate
|
36.6
|
%
|
|
39.7
|
%
|
|
39.8
|
%
|
|
Total
|
|
Three Months
or Less
|
|
Over Three
Months
Through Six
Months
|
|
Over Six
Months
Through
Twelve
Months
|
|
Over Twelve
Months
|
||||||||||
Certificates of deposit in amounts less than $100,000
(1)
|
$
|
20,114,121
|
|
|
$
|
2,185,259
|
|
|
$
|
2,805,104
|
|
|
$
|
4,079,327
|
|
|
$
|
11,044,431
|
|
Certificates of deposit in amounts of $100,000 to less than $250,000
(1)
|
5,290,405
|
|
|
736,464
|
|
|
601,541
|
|
|
1,360,325
|
|
|
2,592,075
|
|
|||||
Certificates of deposit in amounts of $250,000
(1)
or greater
|
1,189,779
|
|
|
226,874
|
|
|
134,194
|
|
|
290,787
|
|
|
537,924
|
|
|||||
Savings deposits, including money market deposit accounts
|
12,869,582
|
|
|
12,869,582
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total interest-bearing deposits
|
$
|
39,463,887
|
|
|
$
|
16,018,179
|
|
|
$
|
3,540,839
|
|
|
$
|
5,730,439
|
|
|
$
|
14,174,430
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
$100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000.
|
|
Total
|
|
Less Than
One Year
|
|
One Year
Through
Three Years
|
|
Four Years
Through
Five Years
|
|
After Five
Years
|
||||||||||
Scheduled maturities of long-term borrowings—owed to credit card securitization investors
|
$
|
13,293,481
|
|
|
$
|
3,325,989
|
|
|
$
|
7,967,989
|
|
|
$
|
999,639
|
|
|
$
|
999,864
|
|
|
November 30, 2011
|
||
|
Maximum Daily Balance During the Period
|
||
Overnight Federal Funds purchased
|
$
|
265,000
|
|
Overnight repurchase agreements
|
50,414
|
|
(1)
|
A “sf” in the rating denotes an identification for structured finance product ratings that was implemented for these products by the rating agencies as of September 2010.
|
(2)
|
All Class C notes are currently held by subsidiaries of Discover Bank and therefore, are not publicly rated.
|
(1)
|
Cash-in-process is excluded from cash and cash equivalents for liquidity purposes.
|
(2)
|
The weighted average life of our investment securities available for sale was approximately 29 months and 24 months as of November 30, 2011 and 2010, respectively.
|
(3)
|
See "
—
Funding Sources
—
Additional Funding Sources" for additional information.
|
(4)
|
This credit facility was terminated on December 16, 2011. There were no outstanding borrowings as of November 30, 2011.
|
(5)
|
Excludes $276 million and $1.5 billion of investments accounted for in the liquidity portfolio that were pledged to the Federal Reserve as of
November 30, 2011
and
November 30, 2010
, respectively.
|
(1)
|
Deposits do not include interest charges.
|
(2)
|
See Note 11: Borrowings to the consolidated financial statements for further discussion. Total future payment of interest charges for the floating rate notes is estimated to be $429 million as of November 30, 2011, utilizing the current interest rates as of that date.
|
(3)
|
Purchase obligations for goods and services include payments under, among other things, consulting, outsourcing, data, advertising, sponsorship, software license, telecommunications agreements and global acceptance contracts. Purchase obligations also include payments under rewards program agreements with merchants. Purchase obligations at November 30, 2011 reflect the minimum purchase obligation under legally binding contracts with contract terms that are both fixed and determinable. These amounts exclude obligations for goods and services that already have been incurred and are reflected on our consolidated statement of financial condition.
|
(4)
|
Other liabilities include our expected future contributions to our pension and postretirement benefit plans, Discover Bank's agreement with Citi to purchase private student loans and the contingent liability associated with our equity method securities.
|
|
November 30,
2011 |
|
November 30,
2010 |
||||
|
(dollars in thousands,
except share amounts)
|
||||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
2,849,843
|
|
|
$
|
5,098,733
|
|
Restricted cash
|
1,285,820
|
|
|
1,363,758
|
|
||
Other short-term investments
|
—
|
|
|
375,000
|
|
||
Investment securities:
|
|
|
|
||||
Available-for-sale (amortized cost of $6,019,927 and $4,989,958 at November 30, 2011 and November 30, 2010, respectively)
|
6,107,831
|
|
|
5,002,579
|
|
||
Held-to-maturity (fair value of $96,042 and $70,195 at November 30, 2011 and November 30, 2010, respectively)
|
98,222
|
|
|
72,816
|
|
||
Total investment securities
|
6,206,053
|
|
|
5,075,395
|
|
||
Loan receivables:
|
|
|
|
||||
Loans held for sale
|
714,180
|
|
|
788,101
|
|
||
Loan portfolio:
|
|
|
|
||||
Credit card
|
46,638,625
|
|
|
45,156,994
|
|
||
Other
|
4,733,742
|
|
|
2,891,318
|
|
||
Purchased credit-impaired loans
|
5,250,388
|
|
|
—
|
|
||
Total loan portfolio
|
56,622,755
|
|
|
48,048,312
|
|
||
Total loan receivables
|
57,336,935
|
|
|
48,836,413
|
|
||
Allowance for loan losses
|
(2,205,196
|
)
|
|
(3,304,118
|
)
|
||
Net loan receivables
|
55,131,739
|
|
|
45,532,295
|
|
||
Premises and equipment, net
|
483,250
|
|
|
460,732
|
|
||
Goodwill
|
255,421
|
|
|
255,421
|
|
||
Intangible assets, net
|
188,018
|
|
|
188,973
|
|
||
Other assets
|
2,383,793
|
|
|
2,434,661
|
|
||
Total assets
|
$
|
68,783,937
|
|
|
$
|
60,784,968
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
||||
Deposits:
|
|
|
|
||||
Interest-bearing deposit accounts
|
$
|
39,463,887
|
|
|
$
|
34,309,839
|
|
Non-interest bearing deposit accounts
|
113,575
|
|
|
103,544
|
|
||
Total deposits
|
39,577,462
|
|
|
34,413,383
|
|
||
Short-term borrowings
|
50,000
|
|
|
—
|
|
||
Long-term borrowings
|
18,287,178
|
|
|
17,705,728
|
|
||
Accrued expenses and other liabilities
|
2,627,086
|
|
|
2,209,011
|
|
||
Total liabilities
|
60,541,726
|
|
|
54,328,122
|
|
||
Commitments, contingencies and guarantees (Notes 17, 20, and 21)
|
|
|
|
||||
Stockholders’ Equity:
|
|
|
|
||||
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 549,748,783 and 547,128,270 shares issued at November 30, 2011 and November 30, 2010, respectively
|
5,497
|
|
|
5,471
|
|
||
Additional paid-in capital
|
3,507,754
|
|
|
3,435,318
|
|
||
Retained earnings
|
5,243,318
|
|
|
3,126,488
|
|
||
Accumulated other comprehensive loss
|
(51,679
|
)
|
|
(82,548
|
)
|
||
Treasury stock, at cost; 20,918,354 and 2,446,506 shares at November 30, 2011 and November 30, 2010, respectively
|
(462,679
|
)
|
|
(27,883
|
)
|
||
Total stockholders’ equity
|
8,242,211
|
|
|
6,456,846
|
|
||
Total liabilities and stockholders’ equity
|
$
|
68,783,937
|
|
|
$
|
60,784,968
|
|
|
November 30,
2011 |
|
November 30,
2010 |
||||
|
(dollars in thousands)
|
||||||
Assets
|
|
|
|
||||
Restricted cash
|
$
|
1,274,175
|
|
|
$
|
1,363,758
|
|
Credit card loan receivables
|
33,815,860
|
|
|
34,452,989
|
|
||
Purchased credit-impaired loans
|
2,839,871
|
|
|
—
|
|
||
Allowance for loan losses allocated to securitized loan receivables
|
(1,510,730
|
)
|
|
(2,431,399
|
)
|
||
Other assets
|
33,724
|
|
|
24,083
|
|
||
Liabilities
|
|
|
|
||||
Long-term borrowings
|
$
|
15,842,512
|
|
|
$
|
14,919,400
|
|
Accrued interest payable
|
13,184
|
|
|
11,758
|
|
|
For the Year Ended November 30,
|
||||||||||
|
2011
|
|
2010
|
|
2009
|
||||||
|
(dollars in thousands, except per share amounts)
|
||||||||||
Interest income:
|
|
|
|
|
|
||||||
Credit card loans
|
$
|
5,654,088
|
|
|
$
|
5,836,002
|
|
|
$
|
2,835,767
|
|
Other loans
|
618,806
|
|
|
253,821
|
|
|
168,517
|
|
|||
Investment securities
|
59,365
|
|
|
26,222
|
|
|
68,694
|
|
|||
Other interest income
|
12,880
|
|
|
30,173
|
|
|
72,102
|
|
|||
Total interest income
|
6,345,139
|
|
|
6,146,218
|
|
|
3,145,080
|
|
|||
Interest expense:
|
|
|
|
|
|
||||||
Deposits
|
986,776
|
|
|
1,150,504
|
|
|
1,187,084
|
|
|||
Short-term borrowings
|
133
|
|
|
1
|
|
|
2,538
|
|
|||
Long-term borrowings
|
497,643
|
|
|
432,483
|
|
|
61,662
|
|
|||
Total interest expense
|
1,484,552
|
|
|
1,582,988
|
|
|
1,251,284
|
|
|||
Net interest income
|
4,860,587
|
|
|
4,563,230
|
|
|
1,893,796
|
|
|||
Provision for loan losses
|
1,013,350
|
|
|
3,206,705
|
|
|
2,362,405
|
|
|||
Net interest income after provision for loan losses
|
3,847,237
|
|
|
1,356,525
|
|
|
(468,609
|
)
|
|||
Other income:
|
|
|
|
|
|
||||||
Securitization income
|
—
|
|
|
—
|
|
|
1,879,304
|
|
|||
Discount and interchange revenue, net
|
1,083,847
|
|
|
1,055,359
|
|
|
222,835
|
|
|||
Fee product revenue
|
428,193
|
|
|
412,497
|
|
|
295,066
|
|
|||
Loan fee income
|
338,147
|
|
|
339,797
|
|
|
247,267
|
|
|||
Transaction processing revenue
|
179,989
|
|
|
149,946
|
|
|
125,201
|
|
|||
Merchant fees
|
16,184
|
|
|
28,461
|
|
|
44,248
|
|
|||
Gain (loss) on investments
|
(3,622
|
)
|
|
19,131
|
|
|
(3,826
|
)
|
|||
Antitrust litigation settlement
|
—
|
|
|
—
|
|
|
1,891,698
|
|
|||
Other income
|
162,436
|
|
|
89,808
|
|
|
138,802
|
|
|||
Total other income
|
2,205,174
|
|
|
2,094,999
|
|
|
4,840,595
|
|
|||
Other expense:
|
|
|
|
|
|
||||||
Employee compensation and benefits
|
914,344
|
|
|
802,649
|
|
|
827,683
|
|
|||
Marketing and business development
|
537,486
|
|
|
463,086
|
|
|
406,020
|
|
|||
Information processing and communications
|
263,741
|
|
|
258,111
|
|
|
289,209
|
|
|||
Professional fees
|
415,275
|
|
|
342,648
|
|
|
321,329
|
|
|||
Premises and equipment
|
71,128
|
|
|
70,274
|
|
|
73,014
|
|
|||
Other expense
|
339,193
|
|
|
245,897
|
|
|
333,833
|
|
|||
Total other expense
|
2,541,167
|
|
|
2,182,665
|
|
|
2,251,088
|
|
|||
Income before income tax expense
|
3,511,244
|
|
|
1,268,859
|
|
|
2,120,898
|
|
|||
Income tax expense
|
1,284,536
|
|
|
504,071
|
|
|
844,713
|
|
|||
Net income
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
1,276,185
|
|
Net income allocated to common stockholders
|
$
|
2,201,759
|
|
|
$
|
667,938
|
|
|
$
|
1,206,965
|
|
Basic earnings per share
|
$
|
4.06
|
|
|
$
|
1.23
|
|
|
$
|
2.39
|
|
Diluted earnings per share
|
$
|
4.06
|
|
|
$
|
1.22
|
|
|
$
|
2.38
|
|
Dividends paid per share
|
$
|
0.20
|
|
|
$
|
0.08
|
|
|
$
|
0.12
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Treasury
Stock
|
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|||||||||||||||||||||
|
(dollars and shares in thousands)
|
||||||||||||||||||||||||||||||||
Balance at November 30, 2008
|
—
|
|
|
$
|
—
|
|
|
480,517
|
|
|
$
|
4,805
|
|
|
$
|
2,938,657
|
|
|
$
|
3,046,956
|
|
|
$
|
(66,338
|
)
|
|
$
|
(8,257
|
)
|
|
$
|
5,915,823
|
|
Adoption of the measurement date provision of ASC 715 (FASB Statement No. 158), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,110
|
)
|
|
—
|
|
|
—
|
|
|
(1,110
|
)
|
|||||||
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,276,185
|
|
|
—
|
|
|
—
|
|
|
1,276,185
|
|
|||||||
Adjustments related to investment securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,527
|
)
|
|
—
|
|
|
|
||||||||
Adjustments related to pension and postretirement benefits, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,953
|
)
|
|
—
|
|
|
|
||||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(88,480
|
)
|
|
—
|
|
|
(88,480
|
)
|
|||||||
Total comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,187,705
|
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11,385
|
)
|
|
(11,385
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
135
|
|
|
1
|
|
|
1,157
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,158
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
4,093
|
|
|
42
|
|
|
42,929
|
|
|
120
|
|
|
—
|
|
|
—
|
|
|
43,091
|
|
|||||||
Income tax deficiency on stock based compensation plans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,601
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(18,601
|
)
|
|||||||
Issuance of common stock
|
—
|
|
|
—
|
|
|
60,054
|
|
|
600
|
|
|
533,222
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
533,822
|
|
|||||||
Dividends paid—common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(59,877
|
)
|
|
—
|
|
|
—
|
|
|
(59,877
|
)
|
|||||||
Issuance of preferred stock
|
1,225
|
|
|
1,148,691
|
|
|
—
|
|
|
—
|
|
|
75,867
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,224,558
|
|
|||||||
Accretion of preferred stock discount
|
—
|
|
|
9,375
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(9,375
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Dividends—preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43,880
|
)
|
|
—
|
|
|
—
|
|
|
(43,880
|
)
|
|||||||
Special dividend - Morgan Stanley
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(335,757
|
)
|
|
—
|
|
|
—
|
|
|
(335,757
|
)
|
|||||||
Balance at November 30, 2009
|
1,225
|
|
|
$
|
1,158,066
|
|
|
544,799
|
|
|
$
|
5,448
|
|
|
$
|
3,573,231
|
|
|
$
|
3,873,262
|
|
|
$
|
(154,818
|
)
|
|
$
|
(19,642
|
)
|
|
$
|
8,435,547
|
|
Adoption of ASC 810 (FASB Statement No. 167), net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,411,117
|
)
|
|
78,561
|
|
|
—
|
|
|
(1,332,556
|
)
|
|||||||
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
764,788
|
|
|
—
|
|
|
—
|
|
|
764,788
|
|
|||||||
Adjustments related to investment securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,894
|
)
|
|
—
|
|
|
|
||||||||
Adjustments related to cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,525
|
|
|
—
|
|
|
|
||||||||
Adjustments related to pension and postretirement benefits, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
78
|
|
|
—
|
|
|
|
|
|||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,291
|
)
|
|
—
|
|
|
(6,291
|
)
|
|||||||
Total comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
758,497
|
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(8,241
|
)
|
|
(8,241
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
82
|
|
|
1
|
|
|
1,127
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,128
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,247
|
|
|
22
|
|
|
36,169
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
36,191
|
|
|||||||
Income tax deficiency on stock based compensation plans
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,209
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3,209
|
)
|
|||||||
Dividends paid—common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(43,899
|
)
|
|
—
|
|
|
—
|
|
|
(43,899
|
)
|
|||||||
Accretion of preferred stock discount
|
—
|
|
|
66,492
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(66,492
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Dividends—preferred stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(23,811
|
)
|
|
—
|
|
|
—
|
|
|
(23,811
|
)
|
|||||||
Redemption of preferred stock
|
(1,225
|
)
|
|
(1,224,558
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,224,558
|
)
|
|||||||
Repurchase of stock warrant
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172,000
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(172,000
|
)
|
|||||||
Special dividend—Morgan Stanley
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
33,757
|
|
|
—
|
|
|
—
|
|
|
33,757
|
|
|||||||
Balance at November 30, 2010
|
—
|
|
|
$
|
—
|
|
|
547,128
|
|
|
$
|
5,471
|
|
|
$
|
3,435,318
|
|
|
$
|
3,126,488
|
|
|
$
|
(82,548
|
)
|
|
$
|
(27,883
|
)
|
|
$
|
6,456,846
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,226,708
|
|
|
—
|
|
|
—
|
|
|
2,226,708
|
|
|||||||
Adjustments related to investment securities, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
46,967
|
|
|
—
|
|
|
|
||||||||
Adjustments related to cash flow hedges, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,480
|
|
|
—
|
|
|
|
||||||||
Adjustments related to pension and postretirement benefits, net of tax
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20,578
|
)
|
|
—
|
|
|
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30,869
|
|
|
—
|
|
|
30,869
|
|
|||||||
Total comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,257,577
|
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(434,796
|
)
|
|
(434,796
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
54
|
|
|
1
|
|
|
1,225
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,226
|
|
|||||||
Common stock issued and stock based compensation expense
|
—
|
|
|
—
|
|
|
2,567
|
|
|
25
|
|
|
71,211
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
71,236
|
|
|||||||
Dividends paid—common stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(109,878
|
)
|
|
—
|
|
|
—
|
|
|
(109,878
|
)
|
|||||||
Balance at November 30, 2011
|
—
|
|
|
$
|
—
|
|
|
549,749
|
|
|
$
|
5,497
|
|
|
$
|
3,507,754
|
|
|
$
|
5,243,318
|
|
|
$
|
(51,679
|
)
|
|
$
|
(462,679
|
)
|
|
$
|
8,242,211
|
|
|
For the Year Ended November 30,
|
||||||||||
|
2011
|
|
2010
|
|
2009
|
||||||
|
(dollars in thousands)
|
||||||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
1,276,185
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Provision for loan losses
|
1,013,350
|
|
|
3,206,705
|
|
|
2,362,405
|
|
|||
Deferred income taxes
|
232,013
|
|
|
112,581
|
|
|
(61,995
|
)
|
|||
Depreciation and amortization on premises and equipment
|
89,390
|
|
|
89,166
|
|
|
97,930
|
|
|||
Amortization of deferred revenues
|
(254,654
|
)
|
|
(194,567
|
)
|
|
(133,384
|
)
|
|||
Other depreciation and amortization
|
(69,317
|
)
|
|
82,839
|
|
|
105,562
|
|
|||
Loss (gain) on investments
|
3,622
|
|
|
(19,131
|
)
|
|
9,239
|
|
|||
Loss on equity method and other investments
|
5,301
|
|
|
—
|
|
|
—
|
|
|||
Loss on premises and equipment
|
3,242
|
|
|
1,955
|
|
|
6,436
|
|
|||
(Gain) loss on loans sold and held for sale
|
(4,646
|
)
|
|
23,307
|
|
|
—
|
|
|||
Stock-based compensation expense
|
43,777
|
|
|
37,081
|
|
|
44,249
|
|
|||
Gain on purchase of business
|
(6,835
|
)
|
|
—
|
|
|
—
|
|
|||
Net principal disbursed on loans originated for sale
|
—
|
|
|
(142,184
|
)
|
|
—
|
|
|||
Proceeds from sales of loans originated for sale
|
—
|
|
|
142,670
|
|
|
—
|
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
Decrease in amounts due from asset securitization
|
—
|
|
|
—
|
|
|
541,549
|
|
|||
Increase in other assets
|
(21,938
|
)
|
|
(201,105
|
)
|
|
(104,724
|
)
|
|||
Increase (decrease) in accrued expenses and other liabilities
|
349,602
|
|
|
(31,519
|
)
|
|
(545,560
|
)
|
|||
Net cash provided by operating activities
|
3,609,615
|
|
|
3,872,586
|
|
|
3,597,892
|
|
|||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Maturities of other short-term investments
|
375,000
|
|
|
1,350,000
|
|
|
919,700
|
|
|||
Purchases of other short-term investments
|
—
|
|
|
(375,000
|
)
|
|
(2,269,700
|
)
|
|||
Maturities and sales of available-for-sale investment securities
|
1,327,418
|
|
|
723,032
|
|
|
423,014
|
|
|||
Purchases of available-for-sale investment securities
|
(2,400,220
|
)
|
|
(5,285,756
|
)
|
|
(683,980
|
)
|
|||
Maturities of held-to-maturity investment securities
|
18,482
|
|
|
21,587
|
|
|
8,286
|
|
|||
Purchases of held-to-maturity investment securities
|
(1,950
|
)
|
|
(1,099
|
)
|
|
(1,269
|
)
|
|||
Proceeds from sale of loans originated for investment
|
28,797
|
|
|
1,469,436
|
|
|
—
|
|
|||
Net principal disbursed on loans originated for investment
|
(3,969,555
|
)
|
|
(3,089,034
|
)
|
|
(7,403,826
|
)
|
|||
Purchase of loan receivables
|
(3,165,086
|
)
|
|
—
|
|
|
—
|
|
|||
Purchase of business, net of cash acquired
|
(401,158
|
)
|
|
—
|
|
|
—
|
|
|||
Purchase of other investments
|
(108,905
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from securitization
|
—
|
|
|
—
|
|
|
3,542,850
|
|
|||
Decrease (increase) in restricted cash—special dividend escrow
|
—
|
|
|
643,311
|
|
|
(643,311
|
)
|
|||
Decrease (increase) in restricted cash—other
|
284,174
|
|
|
(124,998
|
)
|
|
—
|
|
|||
Proceeds from sale of premises and equipment
|
3,013
|
|
|
245
|
|
|
1,249
|
|
|||
Purchases of premises and equipment
|
(111,560
|
)
|
|
(54,676
|
)
|
|
(53,793
|
)
|
|||
Net cash used for investing activities
|
(8,121,550
|
)
|
|
(4,722,952
|
)
|
|
(6,160,780
|
)
|
|||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Proceeds from issuance of preferred stock and warrant
|
—
|
|
|
—
|
|
|
1,224,558
|
|
|||
Net increase (decrease) in short-term borrowings
|
50,000
|
|
|
—
|
|
|
(500,000
|
)
|
|||
Proceeds from issuance of securitized debt
|
3,700,000
|
|
|
1,800,000
|
|
|
—
|
|
|||
Maturities of securitized debt
|
(5,745,525
|
)
|
|
(9,310,528
|
)
|
|
—
|
|
|||
Proceeds from issuance of other long-term borrowings
|
—
|
|
|
1,003,427
|
|
|
1,098,194
|
|
|||
Repayment of long-term borrowings and bank notes
|
(361,613
|
)
|
|
(635,912
|
)
|
|
(404,211
|
)
|
|||
Proceeds from issuance of common stock
|
22,646
|
|
|
1,323
|
|
|
533,822
|
|
|||
Purchases of treasury stock
|
(434,796
|
)
|
|
(8,241
|
)
|
|
(11,385
|
)
|
|||
Net increase in deposits
|
5,141,906
|
|
|
1,343,673
|
|
|
3,572,520
|
|
|||
Proceeds from acquisition of deposits
|
—
|
|
|
976,627
|
|
|
—
|
|
|||
Redemption of preferred stock
|
—
|
|
|
(1,224,558
|
)
|
|
—
|
|
|||
Repurchase of warrant
|
—
|
|
|
(172,000
|
)
|
|
—
|
|
|||
Dividend paid to Morgan Stanley
|
—
|
|
|
(775,000
|
)
|
|
—
|
|
|||
Dividends paid on common and preferred stock
|
(109,573
|
)
|
|
(70,431
|
)
|
|
(101,034
|
)
|
|||
Net cash provided by (used for) financing activities
|
2,263,045
|
|
|
(7,071,620
|
)
|
|
5,412,464
|
|
|||
Net decrease (increase) in cash and cash equivalents
|
(2,248,890
|
)
|
|
(7,921,986
|
)
|
|
2,849,576
|
|
|||
Cash and cash equivalents, at beginning of period
|
5,098,733
|
|
|
13,020,719
|
|
|
10,171,143
|
|
|||
Cash and cash equivalents, at end of period
|
$
|
2,849,843
|
|
|
$
|
5,098,733
|
|
|
$
|
13,020,719
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Interest expense
|
$
|
1,342,429
|
|
|
$
|
1,452,051
|
|
|
$
|
1,266,427
|
|
Income taxes, net of income tax refunds
|
$
|
906,112
|
|
|
$
|
169,045
|
|
|
$
|
913,988
|
|
Non-cash transactions:
|
|
|
|
|
|
||||||
Assumption of SLC debt
|
$
|
2,921,372
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Acquisition of certificated beneficial interests in DCENT and DCMT, net of maturities
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,561,139
|
|
Special dividend—Morgan Stanley
|
$
|
—
|
|
|
$
|
33,757
|
|
|
$
|
(335,757
|
)
|
1.
|
Background and Basis of Presentation
|
2.
|
Change in Accounting Principle
|
•
|
Consolidation of
$22.3 billion
of securitized loan receivables and the related debt issued from the trusts to third-party investors;
|
•
|
Consolidation of
$0.1 billion
of cash collateral accounts and the associated debt issued from the trusts;
|
•
|
Reclassification of
$2.3 billion
of held-to-maturity investment securities to loan receivables;
|
•
|
Reclassification of
$2.3 billion
of available-for-sale investment securities to loan receivables and reversal of
$0.1 billion
, net of tax, of related unrealized losses previously recorded in other comprehensive income;
|
•
|
Recording of a
$2.1 billion
allowance for loan losses, not previously required under GAAP, for the newly consolidated and reclassified credit card loan receivables;
|
•
|
Reversal of all amounts recorded in amounts due from asset securitization through (i) derecognition of the remaining
$0.1 billion
value of the interest-only strip receivable, net of tax, (ii) reclassification of
$0.8 billion
of cash collateral accounts and
$0.3 billion
of accumulated collections to restricted cash, (iii) reclassification of
$0.2 billion
to unbilled accrued interest receivable, and (iv) reclassification of
$0.3 billion
of billed accrued interest receivable to loan receivables; and
|
•
|
Recording of net deferred tax assets of
$0.8 billion
, largely related to establishing an allowance for loan losses on the newly consolidated and reclassified credit card loan receivables.
|
3.
|
Summary of Significant Accounting Policies
|
4.
|
Business Combinations
|
(1)
|
Based on the final SLC closing balance sheet, the Company accrued a
$35 million
liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a
$7 million
increase in the Trust Certificate Purchase Price and a
$28 million
reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011.
|
5.
|
Investments
|
(1)
|
Upon adoption of Statements No. 166 and 167, the amount outstanding at November 30, 2009 was reclassified to loan receivables. See Note 2: Change in Accounting Principle for more information.
|
(2)
|
Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC).
|
(3)
|
During the year ended November 30, 2011, commercial advances and other Community Reinvestment Act related loan funds were reclassified to be included in Other Consumer Loans within the statement of financial condition.
|
(1)
|
Available-for-sale investment securities are reported at fair value.
|
(2)
|
Held-to-maturity investment securities are reported at amortized cost.
|
(3)
|
Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period.
|
(4)
|
Included in other debt securities at
November 30, 2010
are commercial advances of
$7.9 million
related to the Company’s Community Reinvestment Act strategies. During the year ended November 30, 2011, commercial advances and other Community Reinvestment Act related loan funds were reclassified to be included in Other Consumer Loans within the statement of financial condition.
|
(1)
|
Available-for-sale investment securities are reported at fair value.
|
(2)
|
Held-to-maturity investment securities are reported at amortized cost.
|
|
One Year
or
Less
|
|
After One
Year
Through
Five Years
|
|
After Five
Years
Through
Ten Years
|
|
After Ten
Years
|
|
Total
|
|||||
Available-for-sale investment securities
(1)
|
|
|
|
|
|
|
|
|
|
|||||
U.S Treasury securities
|
0.37
|
%
|
|
1.23
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1.09
|
%
|
U.S government agency securities
|
0.47
|
%
|
|
1.43
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1.16
|
%
|
Credit card asset-backed securities of other issuers
|
2.56
|
%
|
|
3.47
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.04
|
%
|
Corporate debt securities
|
0.58
|
%
|
|
0.78
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.62
|
%
|
Total available-for-sale investment securities
|
0.65
|
%
|
|
1.39
|
%
|
|
—
|
%
|
|
—
|
%
|
|
1.18
|
%
|
Held-to-maturity investment securities
|
|
|
|
|
|
|
|
|
|
|||||
U.S. Treasury securities
|
0.07
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.07
|
%
|
State and political subdivisions of states
|
—
|
%
|
|
2.74
|
%
|
|
5.42
|
%
|
|
4.71
|
%
|
|
4.60
|
%
|
Residential mortgage-backed securities
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
To-be-announced securities
(2)
|
3.73
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
3.73
|
%
|
Total held-to-maturity investment securities
|
3.69
|
%
|
|
2.74
|
%
|
|
5.42
|
%
|
|
4.83
|
%
|
|
4.19
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted average yield for available-for-sale investment securities is calculated based on the amortized cost.
|
(2)
|
The weighted average yield for to-be-announced securities is calculated based on yield applicable to the underlying investment rather than the forward contract.
|
6.
|
Loan Receivables
|
|
November 30,
2011 |
|
November 30,
2010 |
||||
Loans held for sale
(1)
|
$
|
714,180
|
|
|
$
|
788,101
|
|
Loan portfolio:
|
|
|
|
||||
Credit card loans:
|
|
|
|
||||
Discover card
(2)
|
46,419,544
|
|
|
44,904,267
|
|
||
Discover business card
|
219,081
|
|
|
252,727
|
|
||
Total credit card loans
|
46,638,625
|
|
|
45,156,994
|
|
||
Other consumer loans:
|
|
|
|
||||
Personal loans
|
2,648,051
|
|
|
1,877,633
|
|
||
Private student loans
|
2,069,001
|
|
|
999,322
|
|
||
Other
|
16,690
|
|
|
14,363
|
|
||
Total other consumer loans
|
4,733,742
|
|
|
2,891,318
|
|
||
PCI student loans
(3)
|
5,250,388
|
|
|
—
|
|
||
Total loan portfolio
|
56,622,755
|
|
|
48,048,312
|
|
||
Total loan receivables
|
57,336,935
|
|
|
48,836,413
|
|
||
Allowance for loan losses
|
(2,205,196
|
)
|
|
(3,304,118
|
)
|
||
Net loan receivables
|
$
|
55,131,739
|
|
|
$
|
45,532,295
|
|
|
|
|
|
(1)
|
Amount represents federal student loans. At
November 30, 2011
and
November 30, 2010
,
$446.6 million
and
$500.2 million
of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing. On December 9, 2011, Discover Bank entered into definitive agreements to sell these loans. As a part of this transaction, these borrowings are expected to be assumed by the purchaser. At
November 30, 2011
, loans held for sale decreased as compared to
2010
due to repayments of
$50.4 million
, sales proceeds of
$28.2 million
and a gain of
$4.7 million
.
|
(2)
|
Amounts include
$18.5 billion
and
$19.5 billion
underlying investors’ interest in trust assets at
November 30, 2011
and
November 30, 2010
, respectively, and
$15.4 billion
and
$14.9 billion
in seller’s interest at
November 30, 2011
and
November 30, 2010
, respectively. See Note 7: Credit Card and Student Loan Securitization Activities for further information.
|
(3)
|
Amount includes
$2.8 billion
of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 7: Credit Card and Student Loan Securitization Activities. Of the remaining
$2.5 billion
that were not pledged as collateral, approximately
$12.8 million
represents loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed.
|
(1)
|
Consumer credit card loans that are 90 or more days delinquent and accruing interest include
$37.9 million
and
$35 million
of loans accounted for as troubled debt restructurings at
November 30, 2011
and
November 30, 2010
, respectively.
|
(2)
|
The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was
$44.7 million
for the year ended
November 30, 2011
. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. These amounts were estimated based on customers' current balances and most recent rates.
|
(3)
|
Amount also excludes federal student loans that are held for sale.
|
Net Charge-Offs:
|
For the Year Ended
|
|||||
|
November 30, 2011
|
|||||
|
Net
Charge-offs
|
|
Net Charge-off
Rate
|
|||
|
|
|
|
|||
Credit card loans:
|
|
|
|
|||
Discover card
|
$
|
2,018,331
|
|
|
4.49
|
%
|
Discover business card
|
17,512
|
|
|
7.41
|
%
|
|
Total credit card loans
|
2,035,843
|
|
|
4.50
|
%
|
|
Other consumer loans:
|
|
|
|
|||
Personal loans
|
67,288
|
|
|
3.02
|
%
|
|
Private student loans (excluding PCI)
(1)
|
7,830
|
|
|
0.48
|
%
|
|
Other
|
1,311
|
|
|
9.27
|
%
|
|
Total other consumer loans (excluding PCI)
|
76,429
|
|
|
1.65
|
%
|
|
Net charge-offs as a percentage of total loans (excluding PCI)
|
$
|
2,112,272
|
|
|
4.24
|
%
|
Net charge-offs as a percentage of total loans (including PCI)
|
$
|
2,112,272
|
|
|
3.99
|
%
|
|
|
|
|
(1)
|
The private student loan charge-off rate is calculated as net charge-offs as a percentage of private student loans in repayment.
|
|
Credit Risk Profile by FICO
Score
|
||
|
660 and Above
|
|
Less than 660
or No Score
|
Discover card
(1)
|
81%
|
|
19%
|
Discover business card
(1)
|
89%
|
|
11%
|
Private student loans (excluding PCI)
(2)
|
95%
|
|
5%
|
Personal loans
|
97%
|
|
3%
|
|
|
|
|
(1)
|
During September 2011, the Company began using FICO scores derived from a more current credit scoring model as one factor to assess the credit and default risk of our card portfolio. As a result of this change, the FICO scores generally increased.
|
(2)
|
PCI loans are discussed under the heading "Purchased Credit-Impaired Loans".
|
|
|
For the Year Ended November 30,
|
||||||||||
|
|
2011
|
|
2010
|
|
2009
|
||||||
Balance at beginning of period
|
|
$
|
3,304,118
|
|
|
$
|
1,757,899
|
|
|
$
|
1,374,585
|
|
Additions:
|
|
|
|
|
|
|
||||||
Addition to allowance related to securitized receivables
(1)
|
|
—
|
|
|
2,144,461
|
|
|
—
|
|
|||
Provision for loan losses
|
|
1,013,350
|
|
|
3,206,705
|
|
|
2,362,405
|
|
|||
Deductions:
|
|
|
|
|
|
|
||||||
Charge-offs related to loans sold
|
|
—
|
|
|
(25,342
|
)
|
|
—
|
|
|||
Charge-offs:
|
|
|
|
|
|
|
||||||
Discover card
|
|
(2,594,169
|
)
|
|
(4,094,236
|
)
|
|
(2,034,458
|
)
|
|||
Discover business card
|
|
(21,154
|
)
|
|
(59,986
|
)
|
|
(62,115
|
)
|
|||
Total credit card loans
|
|
(2,615,323
|
)
|
|
(4,154,222
|
)
|
|
(2,096,573
|
)
|
|||
Personal loans
|
|
(69,273
|
)
|
|
(92,351
|
)
|
|
(68,590
|
)
|
|||
Federal student loans
|
|
—
|
|
|
(719
|
)
|
|
—
|
|
|||
Private student loans
|
|
(7,931
|
)
|
|
(2,783
|
)
|
|
(468
|
)
|
|||
Other
|
|
(1,315
|
)
|
|
(1,018
|
)
|
|
(22
|
)
|
|||
Total other consumer loans
|
|
(78,519
|
)
|
|
(96,871
|
)
|
|
(69,080
|
)
|
|||
Total charge-offs
|
|
(2,693,842
|
)
|
|
(4,251,093
|
)
|
|
(2,165,653
|
)
|
|||
Recoveries:
|
|
|
|
|
|
|
||||||
Discover card
|
|
575,838
|
|
|
466,548
|
|
|
184,383
|
|
|||
Discover business card
|
|
3,642
|
|
|
3,549
|
|
|
1,233
|
|
|||
Total credit card loans
|
|
579,480
|
|
|
470,097
|
|
|
185,616
|
|
|||
Personal loans
|
|
1,985
|
|
|
1,307
|
|
|
906
|
|
|||
Private student loans
|
|
101
|
|
|
38
|
|
|
2
|
|
|||
Other
|
|
4
|
|
|
46
|
|
|
38
|
|
|||
Total other consumer loans
|
|
2,090
|
|
|
1,391
|
|
|
946
|
|
|||
Total recoveries
|
|
581,570
|
|
|
471,488
|
|
|
186,562
|
|
|||
Net charge-offs
|
|
(2,112,272
|
)
|
|
(3,779,605
|
)
|
|
(1,979,091
|
)
|
|||
Balance at end of period
|
|
$
|
2,205,196
|
|
|
$
|
3,304,118
|
|
|
$
|
1,757,899
|
|
|
|
|
|
|
|
|
(1)
|
On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded an additional
$2.1 billion
allowance for loan losses related to newly consolidated and reclassified credit card loan receivables.
|
(1)
|
The amounts at November 30, 2011 and 2010 include securitized loans as a result of the consolidation of the securitization trusts upon adoption of Statement No. 167 on December 1, 2009. See Note 2: Change in Accounting Principle for more information.
|
(2)
|
Beginning in
2011
, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to
2011
such amounts were not included.
|
|
Credit Card
|
|
Personal
Loans
|
|
Student
Loans
|
|
Other
Loans
|
|
Total
|
||||||||||
At November 30, 2011
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment
(1)
|
$
|
1,865,797
|
|
|
$
|
81,838
|
|
|
$
|
52,601
|
|
|
$
|
220
|
|
|
$
|
2,000,456
|
|
Troubled debt restructurings
(2)
|
204,364
|
|
|
237
|
|
|
139
|
|
|
—
|
|
|
204,740
|
|
|||||
Purchased credit-impaired
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total allowance for loan losses
|
$
|
2,070,161
|
|
|
$
|
82,075
|
|
|
$
|
52,740
|
|
|
$
|
220
|
|
|
$
|
2,205,196
|
|
Recorded investment in loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment
(1)
|
$
|
45,421,887
|
|
|
$
|
2,640,416
|
|
|
$
|
2,063,562
|
|
|
$
|
16,690
|
|
|
$
|
50,142,555
|
|
Troubled debt restructurings
(2)
|
1,216,738
|
|
|
7,635
|
|
|
5,439
|
|
|
—
|
|
|
1,229,812
|
|
|||||
Purchased credit-impaired
(3)
|
—
|
|
|
—
|
|
|
5,250,388
|
|
|
—
|
|
|
5,250,388
|
|
|||||
Total recorded investment
|
$
|
46,638,625
|
|
|
$
|
2,648,051
|
|
|
$
|
7,319,389
|
|
|
$
|
16,690
|
|
|
$
|
56,622,755
|
|
At November 30, 2010
|
|
|
|
|
|
|
|
|
|
||||||||||
Allowance for loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment
(1)
|
$
|
3,095,046
|
|
|
$
|
76,087
|
|
|
$
|
18,569
|
|
|
$
|
574
|
|
|
$
|
3,190,276
|
|
Troubled debt restructurings
(2)
|
113,842
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
113,842
|
|
|||||
Purchased credit-impaired
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total allowance for loan losses
|
$
|
3,208,888
|
|
|
$
|
76,087
|
|
|
$
|
18,569
|
|
|
$
|
574
|
|
|
$
|
3,304,118
|
|
Recorded investment in loans evaluated for impairment as:
|
|
|
|
|
|
|
|
|
|
||||||||||
Collectively evaluated for impairment
(1)
|
$
|
44,851,650
|
|
|
$
|
1,877,633
|
|
|
$
|
999,322
|
|
|
$
|
14,363
|
|
|
$
|
47,742,968
|
|
Troubled debt restructurings
(2)
|
305,344
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
305,344
|
|
|||||
Purchased credit-impaired
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total recorded investment
|
$
|
45,156,994
|
|
|
$
|
1,877,633
|
|
|
$
|
999,322
|
|
|
$
|
14,363
|
|
|
$
|
48,048,312
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Represents loans evaluated for impairment in accordance with ASC 450-20,
Loss Contingencies.
|
(2)
|
Represents loans evaluated for impairment in accordance with ASC 310-10,
Receivables,
which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of credit card loans was
$1.0 billion
at
November 30, 2011
. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter
2011
, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. In the fourth quarter 2011, the Company began accounting for certain private student loans where the borrower had been granted a second forbearance and personal loans in permanent programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of these changes was not material.
|
(3)
|
Represents loans evaluated for impairment in accordance with ASC 310-30,
Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality.
|
(1)
|
The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.
|
(2)
|
The Company does not separately track the amount of gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired credit card loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.
|
(3)
|
In addition to loans modified through permanent workout programs, in the first quarter
2011
, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material.
|
(4)
|
As interest rates for personal loan customers in modification programs are rarely modified, gross interest income that would have been recorded with original terms is not significant.
|
(5)
|
This balance is considered impaired, but is excluded from the troubled debt restructuring amounts shown above. Represents credit card loans that were modified in troubled debt restructurings but that have subsequently reverted back to loans' pre-modification payment terms either due to noncompliance with the terms of the modification or successful completion of a temporary modification program.
|
(6)
|
The amount at November 30, 2009 does not include securitized loans as the Company began consolidating its securitization trusts on December 1, 2009 upon adoption of Statement No. 167. See Note 2: Change in Accounting Principle for more information.
|
(1)
|
The outstanding balance upon default is the loan balance at the end of the month prior to default.
|
(2)
|
A customer defaults from a modification program after two consecutive missed payments.
|
(3)
|
Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked.
|
(1)
|
Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.
|
(2)
|
Charge-offs on acquired loans will be written off against non-accretable difference.
|
(3)
|
Amount to be accreted into interest income over the estimated lives of the acquired loans.
|
(1)
|
Amount represents principal and interest payments, both currently due and due in the future, adjusted for the effect of estimated prepayments.
|
(2)
|
Charge-offs on acquired loans will be written off against non-accretable difference.
|
(3)
|
Amount to be accreted into interest income over the estimated lives of the acquired loans.
|
Geographical Distribution of Loans
The Company originates credit card and other consumer loans throughout the United States. The geographic distribution of the Company's loan receivables was as follows (dollars in thousands):
|
||||||||||||
|
November 30, 2011
|
|
November 30, 2010
|
|||||||||
|
$
|
|
%
|
|
$
|
|
%
|
|||||
|
|
|
|
|
|
|
|
|||||
California
|
5,127,162
|
|
|
8.9
|
%
|
|
$
|
4,473,200
|
|
|
9.2
|
%
|
New York
|
4,726,479
|
|
|
8.2
|
|
|
3,259,953
|
|
|
6.7
|
|
|
Texas
|
4,241,506
|
|
|
7.4
|
|
|
3,848,684
|
|
|
7.9
|
|
|
Pennsylvania
|
3,277,797
|
|
|
5.7
|
|
|
2,540,852
|
|
|
5.2
|
|
|
Illinois
|
3,231,129
|
|
|
5.6
|
|
|
2,747,706
|
|
|
5.6
|
|
|
Florida
|
3,118,242
|
|
|
5.4
|
|
|
2,902,083
|
|
|
5.9
|
|
|
Ohio
|
2,428,496
|
|
|
4.2
|
|
|
2,147,238
|
|
|
4.4
|
|
|
New Jersey
|
2,286,338
|
|
|
4.0
|
|
|
1,823,938
|
|
|
3.7
|
|
|
Michigan
|
1,843,670
|
|
|
3.2
|
|
|
1,555,896
|
|
|
3.2
|
|
|
Georgia
|
1,619,912
|
|
|
2.8
|
|
|
1,466,863
|
|
|
3.0
|
|
|
Other States
|
25,436,204
|
|
|
44.6
|
|
|
22,070,000
|
|
|
45.2
|
|
|
Total Loan Portfolio
|
57,336,935
|
|
|
100.0
|
%
|
|
$
|
48,836,413
|
|
|
100.0
|
%
|
7.
|
Credit Card and Student Loan Securitization Activities
|
(1)
|
As of
November 30, 2011
and
2010
, the full amount was pledged as collateral against a long-term borrowing.
|
(2)
|
The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.
|
(1)
|
Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank.
|
|
3-Month Rolling
Average Excess
Spread
(1)(2)
|
|
Group excess spread percentage
|
17.43
|
%
|
DiscoverSeries excess spread percentage
|
17.35
|
%
|
|
|
(1)
|
DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered.
|
(2)
|
Discount Series (Series 2009-SD) made principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections. These collections and their contribution to excess spread terminated when the Series 2009-SD certificates matured on January 17, 2012.
|
8.
|
Premises and Equipment
|
|
November 30,
|
||||||
|
2011
|
|
2010
|
||||
Land
|
$
|
41,816
|
|
|
$
|
41,816
|
|
Buildings and improvements
|
502,109
|
|
|
496,352
|
|
||
Capitalized equipment leases
|
6,176
|
|
|
3,962
|
|
||
Furniture, fixtures and equipment
|
570,775
|
|
|
508,599
|
|
||
Software
|
346,535
|
|
|
300,018
|
|
||
Premises and equipment
|
1,467,411
|
|
|
1,350,747
|
|
||
Less: Accumulated depreciation
|
(706,778
|
)
|
|
(647,256
|
)
|
||
Less: Accumulated amortization of software
|
(277,383
|
)
|
|
(248,877
|
)
|
||
Premises and equipment held for investment, net
|
483,250
|
|
|
454,614
|
|
||
Premises and equipment held for sale, net
(1)
|
—
|
|
|
6,118
|
|
||
Total premises and equipment, net
|
$
|
483,250
|
|
|
$
|
460,732
|
|
|
|
|
|
(1)
|
On November 12, 2009, the Company announced plans to close one of its processing centers. As such, this property was classified as held for sale, and the Company recorded a loss in 2009 of
$5.6 million
, which is included in other expense in the consolidated statement of income. The property was sold during 2011 and the Company recorded an additional loss of
$3.1 million
, which is also included in other expense in the consolidated statement of income.
|
9.
|
Goodwill and Intangible Assets
|
10.
|
Deposits
|
(1)
|
$100,000
represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to
$250,000
.
|
11.
|
Borrowings
|
(1)
|
London Interbank Offered Rate (“LIBOR”).
|
(2)
|
Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.
|
(3)
|
The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 23: Derivatives and Hedging Activities.
|
(4)
|
Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at
November 30, 2011
and
November 30, 2010
. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid or assumed by a buyer.
|
12.
|
Stock-Based Compensation Plans
|
(1)
|
Unvested restricted stock units represent awards where recipients have yet to satisfy either explicit vesting terms or retirement-eligibility requirements.
|
(1)
|
Unvested performance stock units represent awards where recipients have yet to satisfy either explicit vesting terms or retirement-eligibility requirements.
|
(1)
|
No stock options have been granted by the Company since its spin-off from Morgan Stanley.
|
13.
|
Employee Benefit Plans
|
(1)
|
In 2011, SLC was added as a participating company under the Postretirement Plan and its employees were granted credit for past service for purposes of retiree medical eligibility.
|
(2)
|
In 2010, the Qualified Plan amended the basis used in computing lump sum benefits. The Plan formerly used the rate of interest on 30-year Treasury securities, which was subsequently changed to the rate of interest based on the corporate bond yield curve.
|
(3)
|
As of November 30, 2011, the pension benefit obligation no longer includes an unfunded supplemental retirement income plan with 4 remaining participants. The consolidated statement of financial condition includes a liability of
$67 thousand
at November 30, 2011 in accrued expenses and other liabilities related to this plan.
|
The following table presents the assumptions used to determine net periodic benefit cost:
|
|||||||||||||||||
|
Pension
|
|
Postretirement
|
||||||||||||||
|
For the Years Ended November 30,
|
|
For the Years Ended November 30,
|
||||||||||||||
|
2011
|
|
2010
|
|
2009
|
|
2011
|
|
2010
|
|
2009
|
||||||
Discount rate
|
5.64
|
%
|
|
5.92
|
%
|
|
8.08
|
%
|
|
5.64
|
%
|
|
5.92
|
%
|
|
8.08
|
%
|
Expected long-term rate of return on plan assets
|
6.75
|
%
|
|
6.75
|
%
|
|
6.75
|
%
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
Rate of future compensation increases
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
For the Year Ended November 30, 2010
|
|||||||||||||||||
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Net Asset Allocation
|
|||||||||
Long-duration U.S fixed income fund
|
$
|
—
|
|
|
$
|
205,695
|
|
|
$
|
—
|
|
|
$
|
205,695
|
|
|
64
|
%
|
Registered Investment Company - International equity fund
|
19,400
|
|
|
—
|
|
|
—
|
|
|
19,400
|
|
|
6
|
%
|
||||
Common Collective Trusts:
|
|
|
|
|
|
|
|
|
|
|||||||||
International equity fund
|
—
|
|
|
18,062
|
|
|
—
|
|
|
18,062
|
|
|
6
|
%
|
||||
Domestic large cap equity fund
|
—
|
|
|
68,624
|
|
|
—
|
|
|
68,624
|
|
|
21
|
%
|
||||
Domestic small cap equity fund
|
—
|
|
|
9,207
|
|
|
—
|
|
|
9,207
|
|
|
3
|
%
|
||||
Total
|
$
|
19,400
|
|
|
$
|
301,588
|
|
|
$
|
—
|
|
|
$
|
320,988
|
|
|
100
|
%
|
14.
|
Common and Preferred Stock
|
15.
|
Changes in Accumulated Other Comprehensive Income (Loss)
|
(1)
|
Represents the difference between the fair value and amortized cost of available-for-sale investment securities.
|
(2)
|
Reflects adjustments to the funded status of pension and postretirement plans, which is the difference between the fair value of the plan assets and the projected benefit obligation.
|
(3)
|
Represents unrealized gains (losses) related to effective portion of cash flow hedges.
|
16.
|
Other Income and Other Expense
|
(1)
|
The amounts at November 30, 2011 and 2010 include income from securitized loans as a result of the consolidation of the securitization trusts upon adoption of Statement No. 167 on December 1, 2009. See Note 2: Change in Accounting Principle for more information.
|
17.
|
Income Taxes
|
(1)
|
At
November 30, 2011
,
2010
and 2009, amounts included
$97.1 million
,
$100.2 million
and
$81.9 million
, respectively, of unrecognized tax benefits, which, if recognized, would favorably affect the effective tax rate.
|
18.
|
Earnings Per Share
|
19.
|
Capital Adequacy
|
20.
|
Commitments, Contingencies and Guarantees
|
•
|
Merchant Guarantee
. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.
|
•
|
ATM Guarantee.
PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.
|
(1)
|
Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume.
|
21.
|
Litigation and Regulatory Matters
|
22.
|
Fair Value Disclosures
|
(1)
|
There were
no
transfers between Levels 1 and 2 within the fair value hierarchy for the
years ended November 30, 2011 and 2010
.
|
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis
(dollars in thousands)
|
||||||||||||||||||||||||
For the Year Ended November 30, 2011
|
|
Balance at November 30, 2010
|
|
Total Realized
and Unrealized
Gains (Losses)
|
|
Sales
|
|
Net Transfers Into and/ or (Out of) Level 3
|
|
Balance at November 30, 2011
|
|
Change in unrealized gains (losses) related to financial instruments
held at November 30, 2011
|
||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Equity securities
|
|
$
|
17
|
|
|
$
|
144
|
|
|
$
|
(161
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Available-for-sale investment securities
|
|
$
|
17
|
|
|
$
|
144
|
|
|
$
|
(161
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
For the Year Ended November 30, 2010
|
|
Balance at November 30, 2009
|
|
Derecognition
of assets upon
adoption
of Statement
No. 167
|
|
Total Realized
and Unrealized
Gains (Losses)
|
|
Sales
|
|
Net Transfers
Into and/
or (Out
of) Level 3
|
|
Balance at November 30, 2010
|
|
Change in unrealized gains (losses) related to financial instruments
held at
November 30, 2010
|
||||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Certificated retained interest in DCENT
|
|
$
|
2,204,969
|
|
|
$
|
(2,204,969
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
||
Credit card asset-backed securities of other issuers
|
|
381,705
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(381,705
|
)
|
(2)
|
—
|
|
|
—
|
|
|||||||||
Asset-backed commercial paper notes
|
|
58,792
|
|
|
—
|
|
|
12,101
|
|
(1
|
)
|
|
(70,893
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Equity securities
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
|
—
|
|
|||||||||
Available-for-sale investment securities
|
|
$
|
2,645,466
|
|
|
$
|
(2,204,969
|
)
|
|
$
|
12,101
|
|
|
$
|
(70,893
|
)
|
|
$
|
(381,688
|
)
|
|
$
|
17
|
|
|
$
|
—
|
|
||
Cash collateral accounts
|
|
$
|
822,585
|
|
|
$
|
(822,585
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
||
Interest-only strip receivable
|
|
117,579
|
|
|
(117,579
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||||
Amounts due from asset securitization
|
|
$
|
940,164
|
|
|
$
|
(940,164
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Reflects unrealized pretax gains recorded in other comprehensive income in the consolidated statement of financial condition.
|
(2)
|
During the first quarter of 2010, the Company reclassified
$382 million
of credit card asset-backed securities of other issuers from Level 3 to Level 2, as the valuation of these securities could be supported with observable inputs due to higher levels of market activity on these securities than had occurred in recent quarters.
|
|
For the Years Ended November 30,
|
||||||||||
|
2011
|
|
2010
|
|
2009
|
||||||
Interest income – interest accretion
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
15,569
|
|
Other income – gain (loss) on investment securities
|
146
|
|
|
19,556
|
|
|
(2,837
|
)
|
|||
Securitization income – net revaluation of retained interests
|
—
|
|
|
—
|
|
|
(160,087
|
)
|
|||
Amount recorded in earnings
|
146
|
|
|
19,556
|
|
|
(147,355
|
)
|
|||
Unrealized (losses) recorded in other comprehensive income, pre-tax
|
(2
|
)
|
|
(7,455
|
)
|
|
(14,909
|
)
|
|||
Total realized and unrealized gains (losses)
|
$
|
144
|
|
|
$
|
12,101
|
|
|
$
|
(162,264
|
)
|
23.
|
Derivatives and Hedging Activities
|
(1)
|
The foreign exchange forward contracts have notional amounts of EUR
14 million
and GBP
1.7 million
as of
November 30, 2011
and EUR
4.0 million
and GBP
1.7 million
as of
November 30, 2010
.
|
24.
|
Segment Disclosures
|
•
|
Direct Banking.
The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, fee products and loan fee income.
|
•
|
Payment Services.
The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club.
|
•
|
Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment.
|
•
|
Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the operating segments.
|
•
|
The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
•
|
The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.
|
•
|
Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
|
Managed Basis
|
|
|
|
GAAP Basis
|
||||||||||||||
|
Direct Banking
|
|
Payment Services
|
|
Total
|
|
Securitization Adjustment
(1)
|
|
Total
|
||||||||||
November 30, 2009
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest income
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card
|
$
|
6,151,759
|
|
|
$
|
—
|
|
|
$
|
6,151,759
|
|
|
$
|
(3,315,992
|
)
|
|
$
|
2,835,767
|
|
Private student loans
|
25,906
|
|
|
—
|
|
|
25,906
|
|
|
—
|
|
|
25,906
|
|
|||||
Personal loans
|
139,247
|
|
|
—
|
|
|
139,247
|
|
|
—
|
|
|
139,247
|
|
|||||
Other
|
143,062
|
|
|
1,098
|
|
|
144,160
|
|
|
—
|
|
|
144,160
|
|
|||||
Total interest income
|
6,459,974
|
|
|
1,098
|
|
|
6,461,072
|
|
|
(3,315,992
|
)
|
|
3,145,080
|
|
|||||
Interest expense
|
1,648,198
|
|
|
222
|
|
|
1,648,420
|
|
|
(397,136
|
)
|
|
1,251,284
|
|
|||||
Net interest income (expense)
|
4,811,776
|
|
|
876
|
|
|
4,812,652
|
|
|
(2,918,856
|
)
|
|
1,893,796
|
|
|||||
Provision for loan losses
|
4,358,341
|
|
|
—
|
|
|
4,358,341
|
|
|
(1,995,936
|
)
|
|
2,362,405
|
|
|||||
Other income
(2)
|
3,677,881
|
|
|
239,794
|
|
|
3,917,675
|
|
|
922,920
|
|
|
4,840,595
|
|
|||||
Other expense
|
2,116,962
|
|
|
134,126
|
|
|
2,251,088
|
|
|
—
|
|
|
2,251,088
|
|
|||||
Income (loss) before income tax expense
|
$
|
2,014,354
|
|
|
$
|
106,544
|
|
|
$
|
2,120,898
|
|
|
$
|
—
|
|
|
$
|
2,120,898
|
|
(1)
|
Reflects the effect of loan securitizations by recharacterizing as securitization income the portions of the following items that relate to the securitized loans: interest income, interest expense, provision for loan losses, discount and interchange revenue and loan fee revenues. Securitization income is reported in other income. See further discussion of securitization adjustments in "Management's Discussion and Analysis - Reconciliations of GAAP to Non-GAAP As-Adjusted Data."
|
(2)
|
The Direct Banking segment includes income of $1.9 billion related to the Visa and MasterCard antitrust litigation settlement. See further discussion of settlement in "Management's Discussion and Analysis - Reconciliations of GAAP to Non-GAAP As-Adjusted Data."
|
25.
|
Related Party Transactions
|
26.
|
Parent Company Condensed Financial Information
|
Discover Financial Services
|
|||||||||||
(Parent Company Only)
|
|||||||||||
Condensed Statements of Income
|
|||||||||||
|
|
|
|
|
|
||||||
|
For the Years Ended November 30,
|
||||||||||
|
2011
|
|
2010
|
|
2009
|
||||||
|
(dollars in thousands)
|
||||||||||
Interest income
|
$
|
23,154
|
|
|
$
|
28,948
|
|
|
$
|
53,696
|
|
Interest expense
|
60,730
|
|
|
69,598
|
|
|
49,324
|
|
|||
Net interest income
|
(37,576
|
)
|
|
(40,650
|
)
|
|
4,372
|
|
|||
Dividends from subsidiaries
|
1,375,000
|
|
|
132,500
|
|
|
—
|
|
|||
Antitrust litigation settlement
|
—
|
|
|
—
|
|
|
1,153,936
|
|
|||
Other income
|
2,150
|
|
|
27,605
|
|
|
(497
|
)
|
|||
Total income
|
1,339,574
|
|
|
119,455
|
|
|
1,157,811
|
|
|||
Other expense
|
|
|
|
|
|
||||||
Employee compensation and benefits
|
1,989
|
|
|
23,879
|
|
|
30,121
|
|
|||
Marketing and business development
|
15
|
|
|
251
|
|
|
134
|
|
|||
Information processing and communications
|
34
|
|
|
511
|
|
|
125
|
|
|||
Professional fees
|
(355
|
)
|
|
8,932
|
|
|
8,025
|
|
|||
Premises and equipment
|
192
|
|
|
3,095
|
|
|
3,051
|
|
|||
Other
|
2,057
|
|
|
(37,089
|
)
|
|
29,309
|
|
|||
Total other expense (benefit)
|
3,932
|
|
|
(421
|
)
|
|
70,765
|
|
|||
Income before income tax benefit (expense) and equity in undistributed net income of subsidiaries
|
1,335,642
|
|
|
119,876
|
|
|
1,087,046
|
|
|||
Income tax benefit (expense)
|
16,131
|
|
|
9,070
|
|
|
(420,641
|
)
|
|||
Equity in undistributed net income of subsidiaries
|
874,935
|
|
|
635,842
|
|
|
609,780
|
|
|||
Net income
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
1,276,185
|
|
Discover Financial Services
|
|||||||||||
(Parent Company Only)
|
|||||||||||
Condensed Statements of Cash Flows
|
|||||||||||
|
|
|
|
|
|
||||||
|
For the Years Ended November 30,
|
||||||||||
|
2011
|
|
2010
|
|
2009
|
||||||
|
(dollars in thousands)
|
||||||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
2,226,708
|
|
|
$
|
764,788
|
|
|
$
|
1,276,185
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Non-cash charges included in net income:
|
|
|
|
|
|
||||||
Equity in undistributed net income of subsidiaries
|
(874,935
|
)
|
|
(635,842
|
)
|
|
(609,780
|
)
|
|||
Stock-based compensation expense
|
43,777
|
|
|
37,081
|
|
|
44,249
|
|
|||
Deferred income taxes
|
18,490
|
|
|
12,032
|
|
|
(31,699
|
)
|
|||
Depreciation and amortization
|
82
|
|
|
82
|
|
|
85
|
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
(Increase) decrease in other assets
|
(8,065
|
)
|
|
(6,644
|
)
|
|
1,864
|
|
|||
(Decrease) increase in other liabilities and accrued expenses
|
(16,088
|
)
|
|
(7,575
|
)
|
|
65,287
|
|
|||
Net cash provided by operating activities
|
1,389,969
|
|
|
163,922
|
|
|
746,191
|
|
|||
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Increase in investment in subsidiaries
|
(8,151
|
)
|
|
(275,000
|
)
|
|
(1,233,958
|
)
|
|||
(Increase) decrease in loans to subsidiaries
|
(877,252
|
)
|
|
1,080,576
|
|
|
(463,591
|
)
|
|||
Maturities of investment securities
|
—
|
|
|
—
|
|
|
4,032
|
|
|||
Decrease (increase) in restricted cash - special dividend escrow
|
—
|
|
|
643,311
|
|
|
(643,311
|
)
|
|||
Net cash (used for) provided by investing activities
|
(885,403
|
)
|
|
1,448,887
|
|
|
(2,336,828
|
)
|
|||
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Proceeds from issuance of long-term borrowings and bank notes
|
—
|
|
|
—
|
|
|
400,000
|
|
|||
Maturity of long-term borrowings
|
—
|
|
|
(400,000
|
)
|
|
—
|
|
|||
Proceeds from issuance of preferred stock and warrants
|
—
|
|
|
—
|
|
|
1,224,558
|
|
|||
Redemption of preferred stock
|
—
|
|
|
(1,224,558
|
)
|
|
—
|
|
|||
Repurchase of stock warrant
|
—
|
|
|
(172,000
|
)
|
|
—
|
|
|||
Proceeds from issuance of common stock
|
22,646
|
|
|
1,323
|
|
|
533,822
|
|
|||
Purchases of treasury stock
|
(434,796
|
)
|
|
(8,241
|
)
|
|
(11,385
|
)
|
|||
Net increase (decrease) in deposits
|
17,365
|
|
|
859
|
|
|
(6,319
|
)
|
|||
Dividend paid to Morgan Stanley
|
—
|
|
|
(775,000
|
)
|
|
—
|
|
|||
Dividends paid on common and preferred stock
|
(109,573
|
)
|
|
(70,431
|
)
|
|
(101,034
|
)
|
|||
Net cash (used for) provided by financing activities
|
(504,358
|
)
|
|
(2,648,048
|
)
|
|
2,039,642
|
|
|||
Increase (decrease) in cash and cash equivalents
|
208
|
|
|
(1,035,239
|
)
|
|
449,005
|
|
|||
Cash and cash equivalents, at beginning of year
|
367
|
|
|
1,035,606
|
|
|
586,601
|
|
|||
Cash and cash equivalents, at end of year
|
$
|
575
|
|
|
$
|
367
|
|
|
$
|
1,035,606
|
|
|
|
|
|
|
|
||||||
Supplemental Disclosures:
|
|
|
|
|
|
||||||
Cash paid during the year for:
|
|
|
|
|
|
||||||
Interest expense
|
$
|
76,597
|
|
|
$
|
70,207
|
|
|
$
|
36,056
|
|
Income taxes, net of income tax refunds
|
$
|
11,195
|
|
|
$
|
(64,044
|
)
|
|
$
|
438,098
|
|
|
|
|
|
|
|
||||||
Non-cash transactions
|
|
|
|
|
|
||||||
Special dividend - Morgan Stanley
|
$
|
—
|
|
|
$
|
33,757
|
|
|
$
|
(335,757
|
)
|
|
|
|
|
|
|
27.
|
Subsequent Events
|
28.
|
Quarterly Results (unaudited) (dollars in thousands, except per share data):
|
|
November 30,
2011
|
|
August 31,
2011
|
|
May 31,
2011
|
|
February 28,
2011
|
|
November 30,2010
|
|
August 31,
2010
|
|
May 31,
2010
|
|
February 28,
2010
|
||||||||||||||||
Interest income
|
$
|
1,619,805
|
|
|
$
|
1,599,092
|
|
|
$
|
1,573,278
|
|
|
$
|
1,552,964
|
|
|
$
|
1,499,347
|
|
|
$
|
1,535,939
|
|
|
$
|
1,551,782
|
|
|
$
|
1,559,150
|
|
Interest expense
|
359,792
|
|
|
362,053
|
|
|
379,979
|
|
|
382,728
|
|
|
375,506
|
|
|
389,137
|
|
|
404,621
|
|
|
413,724
|
|
||||||||
Net interest income
|
1,260,013
|
|
|
1,237,039
|
|
|
1,193,299
|
|
|
1,170,236
|
|
|
1,123,841
|
|
|
1,146,802
|
|
|
1,147,161
|
|
|
1,145,426
|
|
||||||||
Provision for loan
losses
|
320,587
|
|
|
99,514
|
|
|
175,540
|
|
|
417,709
|
|
|
382,670
|
|
|
712,565
|
|
|
724,264
|
|
|
1,387,206
|
|
||||||||
(Loss) gain on investments
|
—
|
|
|
(3,614
|
)
|
|
(149
|
)
|
|
141
|
|
|
—
|
|
|
18,951
|
|
|
—
|
|
|
180
|
|
||||||||
Other income
|
546,743
|
|
|
555,577
|
|
|
543,993
|
|
|
562,483
|
|
|
472,135
|
|
|
545,193
|
|
|
512,844
|
|
|
545,696
|
|
||||||||
Other expense
|
668,468
|
|
|
642,407
|
|
|
635,144
|
|
|
595,148
|
|
|
628,075
|
|
|
566,238
|
|
|
513,548
|
|
|
474,804
|
|
||||||||
Income (loss) before income tax expense
|
817,701
|
|
|
1,047,081
|
|
|
926,459
|
|
|
720,003
|
|
|
585,231
|
|
|
432,143
|
|
|
422,193
|
|
|
(170,708
|
)
|
||||||||
Income tax expense (benefit)
|
305,122
|
|
|
398,263
|
|
|
326,040
|
|
|
255,111
|
|
|
235,589
|
|
|
171,526
|
|
|
164,126
|
|
|
(67,170
|
)
|
||||||||
Net income (loss)
|
$
|
512,579
|
|
|
$
|
648,818
|
|
|
$
|
600,419
|
|
|
$
|
464,892
|
|
|
$
|
349,642
|
|
|
$
|
260,617
|
|
|
$
|
258,067
|
|
|
$
|
(103,538
|
)
|
Net income (loss) allocated to common stockholders
(1)
|
$
|
507,077
|
|
|
$
|
641,772
|
|
|
$
|
593,488
|
|
|
$
|
459,428
|
|
|
$
|
346,517
|
|
|
$
|
258,194
|
|
|
$
|
184,590
|
|
|
$
|
(122,233
|
)
|
Basic earnings (loss) per share
(1)
|
$
|
0.95
|
|
|
$
|
1.18
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.64
|
|
|
$
|
0.47
|
|
|
$
|
0.34
|
|
|
$
|
(0.22
|
)
|
Diluted earnings (loss) per share
(1)
|
$
|
0.95
|
|
|
$
|
1.18
|
|
|
$
|
1.09
|
|
|
$
|
0.84
|
|
|
$
|
0.64
|
|
|
$
|
0.47
|
|
|
$
|
0.33
|
|
|
$
|
(0.22
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Because the inputs to net income allocated to common stockholders and earnings per share are calculated using weighted averages for the quarter, the sum of all four quarters may differ from the year to date amounts in the consolidated statements of income.
|
Plan Category
|
Number of Securities to be issued upon exercise of outstanding options, warrants and rights
(1)
|
|
Weighted-average exercise price of outstanding options, warrants and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
||||
|
(a)
|
|
(b)
|
|
(c)
|
||||
Equity compensation plans approved by security holders
|
8,729,018
|
|
|
$
|
18.95
|
|
|
29,155,264
|
|
Equity compensation plans not approved by security holders
|
N/A
|
|
|
N/A
|
|
|
N/A
|
|
|
Total
|
8,729,018
|
|
|
$
|
18.95
|
|
|
29,155,264
|
|
|
|
|
|
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
Consolidated Statements of Financial Condition as of November 30, 2011 and 2010
|
|
Consolidated Statements of Income for the years ended November 30, 2011, 2010 and 2009
|
|
Consolidated Statements of Changes in Stockholders' Equity for the years ended November 30, 2011, 2010 and 2009
|
|
Consolidated Statements of Cash Flows for the years ended November 30, 2011, 2010 and 2009
|
|
Notes to the Consolidated Financial Statements
|
|
|
|
|
|
|
Discover Financial Services
(Registrant)
|
||
|
|
|
|
|
By:
|
|
/
S
/ D
AVID
W. N
ELMS
|
|
|
|
David W. Nelms
Chairman and Chief Executive Officer
|
Signature
|
Title
|
/
S
/ D
AVID
W. N
ELMS
|
Chairman and Chief Executive Officer
|
David W. Nelms
|
|
|
|
/
S
/ R
.
M
ARK
G
RAF
|
Executive Vice President, Chief Financial Officer and
Chief Accounting Officer
(Principal Financial Officer and Principal Accounting Officer)
|
R. Mark Graf
|
|
|
|
/
S
/ L
AWRENCE
A. W
EINBACH
|
Lead Director
|
Lawrence A. Weinbach
|
|
|
|
/
S
/ J
EFFREY
S. A
RONIN
|
Director
|
Jeffrey S. Aronin
|
|
|
|
/
S
/ M
ARY
K. B
USH
|
Director
|
Mary K. Bush
|
|
|
|
/
S
/ G
REGORY
C. C
ASE
|
Director
|
Gregory C. Case
|
|
|
|
/
S
/ R
OBERT
M. D
EVLIN
|
Director
|
Robert M. Devlin
|
|
|
|
/
S
/ C
YNTHIA
A. G
LASSMAN
|
Director
|
Cynthia A. Glassman
|
|
|
|
/
S
/ R
ICHARD
H. L
ENNY
|
Director
|
Richard H. Lenny
|
|
|
|
/
S
/ T
HOMAS
G. M
AHERAS
|
Director
|
Thomas G. Maheras
|
|
|
|
/
S
/ M
ICHAEL
H. M
OSKOW
|
Director
|
Michael H. Moskow
|
|
|
|
/
S
/ E. F
OLLIN
S
MITH
|
Director
|
E. Follin Smith
|
|
Exhibit Index
|
||
Exhibit
Number
|
|
Description
|
|
|
|
2.1*
|
|
Separation and Distribution Agreement, dated as of June 29, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 2.1 to Discover Financial Services' Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto), as amended by the First Amendment to the Separation and Distribution Agreement dated as of June 29, 2007 between Discover Financial Services and Morgan Stanley, dated February 11, 2010 (filed as Exhibit 10.2 to Discover Financial Services' Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference thereto).
|
|
|
|
2.2*
|
|
Agreement for the Sale and Purchase of the Goldfish Credit Card Business, dated February 7, 2008, among Discover Financial Services, Goldfish Bank Limited, Discover Bank, SCFC Receivables Corporation, and Barclays Bank Plc (filed as Exhibit 2.1 to Discover Financial Services' Current Report on Form 8-K filed on February 7, 2008 and incorporated herein by reference thereto), as amended and restated by Amended and Restated Agreement for the Sale and Purchase of the Goldfish Credit Card Business, dated March 31, 2008, among Discover Financial Services, Goldfish Bank Limited, Discover Bank, SCFC Receivables Corporation, Barclays Bank PLC, and Barclays Group US Inc. (filed as Exhibit 2.1 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 14, 2008 and incorporated herein by reference thereto).
|
|
|
|
2.3
|
|
Agreement and Plan of Merger by and among Discover Bank, Academy Acquisition Corp. and The Student Loan Corporation dated as of September 17, 2010 (filed as Exhibit 2.3 to Discover Financial Services' Annual Report on Form 10-K for the fiscal year ended November 30, 2010 filed on January 26, 2011 and incorporated by reference thereto).
|
|
|
|
3.1
|
|
Amended and Restated Certificate of Incorporation of Discover Financial Services (filed as Exhibit 3.1 to Discover Financial Services' Quarterly Report on Form 10-Q filed on July 1, 2009 and incorporated herein by reference thereto).
|
|
|
|
3.2
|
|
Amended and Restated By-Laws of Discover Financial Services (filed as Exhibit 3.1 to Discover Financial Services' Current Report on Form 8-K filed on January 23, 2009 and incorporated herein by reference thereto).
|
|
|
|
4.1
|
|
Senior Indenture, dated as of June 12, 2007, by and between Discover Financial Services and U.S. Bank, National Association, as trustee (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
4.2
|
|
Form of Subordinated Indenture (filed as Exhibit 4.2 to Discover Financial Services' Registration Statement on Form S-3 filed on July 6, 2009 and incorporated herein by reference thereto).
|
|
|
|
4.3
|
|
Form of 10.250% Senior Note due 2019 (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on July 15, 2009 and incorporated herein by reference thereto).
|
|
|
|
4.4
|
|
Fiscal and Paying Agency Agreement, dated November 16, 2009, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on November 16, 2009 and incorporated herein by reference thereto).
|
|
|
|
4.5
|
|
Fiscal and Paying Agency Agreement, dated April 15, 2010, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on April 16, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.1
|
|
Tax Sharing Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.1 to Discover Financial Services' Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.2
|
|
U.S. Employee Matters Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.2 to Discover Financial Services' Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.3
|
|
Transition Services Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.3 to Discover Financial Services' Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.4
|
|
Transitional Trade Mark License Agreement, dated as of June 30, 2007, between Morgan Stanley & Co. PLC and Goldfish Bank Limited (filed as Exhibit 10.4 to Discover Financial Services' Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
Exhibit Index
|
||
Exhibit
Number
|
|
Description
|
10.5
|
|
Trust Agreement, dated as of July 2, 2007, between Discover Bank, as Beneficiary, and Wilmington Trust Company, as Owner Trustee (filed as Exhibit 4.1 to Discover Bank's Current Report on Form 8-K filed on July 2, 2007 and incorporated herein by reference thereto), as amended by the First Amendment to Trust Agreement, between Discover Bank, as Beneficiary and Wilmington Trust Company, as Owner Trustee, dated as of June 4, 2010 (filed as Exhibit 4.3 to Discover Bank's Current Report on Form 8-K filed on June 4, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.6
|
|
Second Amended and Restated Pooling and Servicing Agreement, between Discover Bank, as Master Servicer, Servicer and Seller and U.S. Bank National Association, as Trustee, dated as of June 4, 2010 (filed as Exhibit 4.1 to Discover Bank's Current Report on Form 8-K filed on June 4, 2010 and incorporated herein by reference thereto), as amended by the First Amendment to Second Amended and Restated Pooling and Servicing Agreement, betweeen Discover Bank, as Master Servicer, Servicer and Seller and U.S. Bank National Association, as Trustee, dated as of October 18, 2011 (filed as Exhibit 4.1 to Discover Bank's Current Report on Form 8-K filed on October 19, 2011 and incorporated herein by reference thereto).
|
|
|
|
10.7
|
|
Series Supplement for Series 2007-CC, dated as of July 26, 2007, between Discover Bank, as Master Servicer, Servicer and Seller and U.S. Bank National Association, as Trustee (filed as Exhibit 4.3 to Discover Bank's Current Report on Form 8-K filed on July 27, 2007 and incorporated herein by reference thereto), as amended by the Amendment to Specified Series Supplements, between Discover Bank, as Master Servicer, Servicer and Seller and U.S. Bank National Association, as Trustee, dated as of June 4, 2010 (filed as Exhibit 4.2 to Discover Bank's Current Report on Form 8-K filed on June 4, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.8†
|
|
Discover Financial Services Omnibus Incentive Plan (filed as an attachment to Discover Financial Services' Proxy Statement on Schedule 14A filed on February 27, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.9†
|
|
Amended Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.6 to Discover Financial Services' Quarterly Report on Form 10-Q filed on July 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.10†
|
|
Directors' Compensation Plan of Discover Financial Services (filed as Exhibit 10.3 to Discover Financial Services' Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference thereto), as amended and restated as of January 20, 2011 (filed as Exhibit A to the Discover Financial Services' definitive proxy statement filed on February 18, 2011 and incorporated by reference thereto), as further amended by Amendment No. 2, effective as of December 1, 2011.
|
|
|
|
10.11†
|
|
Amended Form of Restricted Stock Unit Award Under Discover Financial Services Directors' Compensation Plan (filed as Exhibit 10.7 to Discover Financial Services' Quarterly Report on Form 10-Q filed on July 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.12†
|
|
Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.2 to Discover Financial Services' Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference thereto) as amended by Amendment No. 1 to Discover Financial Services Employee Stock Purchase Plan effective as of May 1, 2008 (filed as Exhibit 10.12 to Discover Financial Services' Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto); Amendment No. 2 to Discover Financial Services Employee Stock Purchase Plan, effective as of December 1, 2009 (filed as Exhibit 10.2 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 9, 2010 and incorporated herein by reference thereto); and Amendment No. 3 to Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.3 to Discover Financial Services' Quarterly Report on Form 10-Q filed on September 28, 2011 and incorporated herein by reference thereto).
|
|
|
|
10.13†
|
|
Offer of Employment, dated as of January 8, 1999 (filed as Exhibit 10.2 to Discover Financial Services' Current Report on Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.14†
|
|
Waiver of Change of Control Benefits, dated September 24, 2007 (filed as Exhibit 10.15 to Discover Financial Services' Registration Statement on Form S-4 filed on November 27, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.15
|
|
Collateral Certificate Transfer Agreement, dated as of July 26, 2007 between Discover Bank, as Depositor and Discover Card Execution Note Trust (filed as Exhibit 4.4 to Discover Bank's Current Report on Form 8-K filed on July 27, 2007 and incorporated herein by reference thereto).
|
|
|
|
Exhibit Index
|
||
Exhibit
Number
|
|
Description
|
10.16
|
|
Indenture, dated as of July 26, 2007, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.5 to Discover Bank's Current Report on Form 8-K filed on July 27, 2007 and incorporated herein by reference thereto), as amended by the First Amendment to Indenture, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee, dated as of June 4, 2010 (filed as Exhibit 4.4 to Discover Bank's Current Report on Form 8-K filed on June 4, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.17
|
|
Amended and Restated Indenture Supplement for the DiscoverSeries Notes, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee, dated as of June 4, 2010 (filed as Exhibit 4.5 to Discover Bank's Current Report on Form 8-K filed on June 4, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.18
|
|
Omnibus Amendment to Indenture Supplement and Terms Documents, dated as of July 2, 2009, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.1 to Discover Bank's Current Report on Form 8-K filed on July 6, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.19†
|
|
Discover Financial Services Change-in-Control Severance Policy (filed as Exhibit 10.6 to Discover Financial Services' Quarterly Report on Form 10-Q filed on October 12, 2007 and incorporated herein by reference thereto, as amended by First Amendment, dated as of June 24, 2008 (filed as Exhibit 10.1 to Discover Financial Services' Quarterly Report on Form 10-Q filed on October 9, 2008), Second Amendment, effective as of March 1, 2011 (filed as Exhibit 10.2 to Discover Financial Services' Quarterly Report on Form 10-Q filed on July 1, 2011) and Third Amendment, effective as of August 1, 2011 (filed on July 1, 2011)
|
|
|
|
10.20
|
|
Release and Settlement Agreement, executed as of October 27, 2008, by and among Discover Financial Services, DFS Services, LLC, Discover Bank, and their Subsidiaries and Affiliates; MasterCard Incorporated and MasterCard International Incorporated and their Affiliates; and Visa Inc. and its Affiliates and Predecessors including Visa U.S.A. Inc. and Visa International Service Association (filed as Exhibit 99.1 to Discover Financial Services' Current Report on Form 8-K filed on October 28, 2008).
|
|
|
|
10.21†
|
|
2008 Year End Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.21 to Discover Financial Services' Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.22†
|
|
2008 Special Grant Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.22 to Discover Financial Services' Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.23
|
|
Form of Waiver, executed by each of Discover Financial Services' senior executive officers and certain other employees (filed as Exhibit 10.3 to Discover Financial Services' Current Report on Form 8-K filed on March 13, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.24
|
|
Form of Executive Compensation Agreement, dated March 13, 2009, executed by each of Discover Financial Services' senior executive officers and certain other employees (filed as Exhibit 10.4 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 8, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.25†
|
|
Form of Share Award Agreement Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10(a) to Discover Financial Services' Current Report on Form 8-K filed on December 11, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.26†
|
|
Amendment to 2009 Year End Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan, effective December 1, 2009 (filed as Exhibit 10.1 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 9, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.27
|
|
Settlement Agreement and Mutual Release between Discover Financial Services and Morgan Stanley, dated February 11, 2010 (filed as Exhibit 10.1 to Discover Financial Services' Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference thereto).
|
|
|
|
10.28
|
|
Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and Discover Bank, dated September 17, 2010 (filed as Exhibit 10.32 to Discover Financial Services' Annual Report on Form 10-K filed on January 26, 2011 and incorporated by reference thereto).
|
|
|
|
10.29
|
|
Amendment to Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and Discover Bank, dated December 30, 2010 (filed as Exhibit 10.33 to Discover Financial Services' Annual Report on Form 10-K filed on January 26, 2011 and incorporated by reference thereto).
|
|
|
|
Exhibit Index
|
||
Exhibit
Number
|
|
Description
|
10.30
|
|
Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated September 17, 2010 (filed as Exhibit 10.34 to Discover Financial Services' Annual Report on Form 10-K filed on January 26, 2011 and incorporated by reference thereto).
|
|
|
|
10.31
|
|
First Amendment to Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated December 30, 2010 (filed as Exhibit 10.35 to Discover Financial Services' Annual Report on Form 10-K filed on January 26, 2011 and incorporated by reference thereto).
|
|
|
|
10.32
|
|
Form Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.4 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 8, 2011 and incorporated by reference thereto).
|
|
|
|
10.33
|
|
Form Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.5 to Discover Financial Services' Quarterly Report on Form 10-Q filed on April 8, 2011 and incorporated by reference thereto).
|
|
|
|
10.34
|
|
Asset Purchase Agreement between Discover Bank and Citibank, N.A. dated August 31, 2011 (filed as Exhibit 10.2 to Discover Financial Services' Quarterly Report on Form 10-Q filed on September 28, 2011 and incorporated by reference thereto).
|
|
|
|
11
|
|
Statement Re: Computation of Per Share Earnings (the calculation of per share earnings is in Part II, Item 8, Note 18: Earnings Per Share to the consolidated financial statements and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K).
|
|
|
|
12
|
|
Statement Re: Computation of Ratio of Earnings to Fixed Charges.
|
|
|
|
21
|
|
Subsidiaries of the Registrant.
|
|
|
|
23
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
24
|
|
Powers of Attorney (included on signature page).
|
|
|
|
31.1
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
31.2
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
32.1
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
*
|
We agree to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon the request of the Commission in accordance with Item 601(b)(2) of Regulation S-K.
|
|
|
For the years ended November 30,
|
|||||||||||||
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
2007
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|||||
Income from continuing operations before income tax expense
|
|
3,511,244
|
|
|
1,268,859
|
|
|
2,120,898
|
|
|
1,657,605
|
|
|
1,525,714
|
|
Losses from unconsolidated investees
|
|
5,301
|
|
|
4,143
|
|
|
3,396
|
|
|
3,946
|
|
|
4,279
|
|
Total earnings
|
|
3,516,545
|
|
|
1,273,002
|
|
|
2,124,294
|
|
|
1,661,551
|
|
|
1,529,993
|
|
Fixed Charges
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|||||
Total interest expense
|
|
1,484,552
|
|
|
1,582,988
|
|
|
1,251,285
|
|
|
1,288,004
|
|
|
1,223,271
|
|
Interest factor in rents
|
|
5,387
|
|
|
4,740
|
|
|
4,383
|
|
|
4,777
|
|
|
3,489
|
|
Preferred stock requirements
|
|
—
|
|
|
39,488
|
|
|
72,890
|
|
|
—
|
|
|
—
|
|
Total fixed charges
|
|
1,489,939
|
|
|
1,627,216
|
|
|
1,328,558
|
|
|
1,292,781
|
|
|
1,226,760
|
|
Earnings from continuing operations before income tax expense and fixed charges
|
|
5,006,484
|
|
|
2,900,218
|
|
|
3,452,852
|
|
|
2,954,332
|
|
|
2,756,753
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
Ratio of earnings to fixed charges
|
|
3.4
|
|
|
1.8
|
|
|
2.6
|
|
|
2.3
|
|
|
2.2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago, Illinois
January 26, 2012
|
1.
|
I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: January 26, 2012
|
|
/s/ D
AVID
W. N
ELMS
|
David W. Nelms
|
Chairman of the Board and
Chief Executive Officer
|
1.
|
I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date: January 26, 2012
|
|
/s/ R. M
ARK
G
RAF
|
R. Mark Graf
|
Executive Vice President, Chief Financial Officer and Chief Accounting Officer
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: January 26, 2012
|
|
/s/ D
AVID
W. N
ELMS
|
David W. Nelms
|
Chairman of the Board and
Chief Executive Officer
|
Date: January 26, 2012
|
|
/s/ R. M
ARK
G
RAF
|
R. Mark Graf
|
Executive Vice President, Chief Financial Officer and Chief Accounting Officer
|