x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2012 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to |
Delaware | 36-2517428 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |
2500 Lake Cook Road, Riverwoods, Illinois 60015 | (224) 405-0900 | |
(Address of principal executive offices, including zip code) | (Registrant’s telephone number, including area code) |
Large accelerated filer x | Accelerated filer o |
Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Part I. | FINANCIAL INFORMATION |
Item 1. | Financial Statements |
August 31, 2012 | November 30, 2011 | ||||||
(unaudited) (dollars in thousands, except share amounts) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 6,237,610 | $ | 2,849,843 | |||
Restricted cash | 301,349 | 1,285,820 | |||||
Other short-term investments | 250 | — | |||||
Investment securities: | |||||||
Available-for-sale (amortized cost of $6,250,126 and $6,019,927 at August 31, 2012 and November 30, 2011, respectively) | 6,377,502 | 6,107,831 | |||||
Held-to-maturity (fair value of 92,268 and $96,042 at August 31, 2012 and November 30, 2011, respectively) | 90,005 | 98,222 | |||||
Total investment securities | 6,467,507 | 6,206,053 | |||||
Loan receivables: | |||||||
Mortgage loans held for sale, measured at fair value | 272,082 | — | |||||
Student loans held for sale | — | 714,180 | |||||
Loan portfolio: | |||||||
Credit card | 48,124,468 | 46,638,625 | |||||
Other | 5,893,952 | 4,733,742 | |||||
Purchased credit-impaired loans | 4,867,010 | 5,250,388 | |||||
Total loan portfolio | 58,885,430 | 56,622,755 | |||||
Total loan receivables | 59,157,512 | 57,336,935 | |||||
Allowance for loan losses | (1,687,664 | ) | (2,205,196 | ) | |||
Net loan receivables | 57,469,848 | 55,131,739 | |||||
Premises and equipment, net | 519,621 | 483,250 | |||||
Goodwill | 287,043 | 255,421 | |||||
Intangible assets, net | 192,181 | 188,018 | |||||
Other assets | 2,433,255 | 2,383,793 | |||||
Total assets | $ | 73,908,664 | $ | 68,783,937 | |||
Liabilities and Stockholders’ Equity | |||||||
Deposits: | |||||||
Interest-bearing deposit accounts | $ | 42,175,032 | $ | 39,463,887 | |||
Non-interest bearing deposit accounts | 143,280 | 113,575 | |||||
Total deposits | 42,318,312 | 39,577,462 | |||||
Short-term borrowings | 250,139 | 50,000 | |||||
Long-term borrowings | 19,246,113 | 18,287,178 | |||||
Accrued expenses and other liabilities | 2,948,187 | 2,627,086 | |||||
Total liabilities | 64,762,751 | 60,541,726 | |||||
Commitments, contingencies and guarantees (Notes 9, 12, and 13) | |||||||
Stockholders’ Equity: | |||||||
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 552,572,624 and 549,748,783 shares issued at August 31, 2012 and November 30, 2011, respectively | 5,526 | 5,497 | |||||
Additional paid-in capital | 3,570,371 | 3,507,754 | |||||
Retained earnings | 6,877,990 | 5,243,318 | |||||
Accumulated other comprehensive loss | (31,326 | ) | (51,679 | ) | |||
Treasury stock, at cost; 45,086,760 and 20,918,354 shares at August 31, 2012 and November 30, 2011, respectively | (1,276,648 | ) | (462,679 | ) | |||
Total stockholders’ equity | 9,145,913 | 8,242,211 | |||||
Total liabilities and stockholders’ equity | $ | 73,908,664 | $ | 68,783,937 |
August 31, 2012 | November 30, 2011 | ||||||
(unaudited) (dollars in thousands) | |||||||
Assets | |||||||
Restricted cash | $ | 295,439 | $ | 1,274,175 | |||
Credit card loan receivables | 33,517,582 | 33,815,860 | |||||
Purchased credit-impaired loans | 2,631,970 | 2,839,871 | |||||
Allowance for loan losses allocated to securitized loan receivables | (1,074,058 | ) | (1,510,730 | ) | |||
Other assets | 33,638 | 33,724 | |||||
Liabilities | |||||||
Long-term borrowings | $ | 17,337,914 | $ | 15,842,512 | |||
Accrued interest payable | 13,906 | 13,184 |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(unaudited) (dollars in thousands, except per share amounts) | |||||||||||||||
Interest income: | |||||||||||||||
Credit card loans | $ | 1,451,836 | $ | 1,423,496 | $ | 4,296,757 | $ | 4,243,803 | |||||||
Other loans | 217,433 | 157,424 | 630,313 | 428,762 | |||||||||||
Investment securities | 21,371 | 15,676 | 58,869 | 42,535 | |||||||||||
Other interest income | 4,329 | 2,496 | 11,207 | 10,234 | |||||||||||
Total interest income | 1,694,969 | 1,599,092 | 4,997,146 | 4,725,334 | |||||||||||
Interest expense: | |||||||||||||||
Deposits | 204,982 | 241,719 | 650,213 | 749,584 | |||||||||||
Short-term borrowings | 423 | 33 | 424 | 116 | |||||||||||
Long-term borrowings | 119,905 | 120,301 | 368,472 | 375,060 | |||||||||||
Total interest expense | 325,310 | 362,053 | 1,019,109 | 1,124,760 | |||||||||||
Net interest income | 1,369,659 | 1,237,039 | 3,978,037 | 3,600,574 | |||||||||||
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 | |||||||||||
Net interest income after provision for loan losses | 1,243,371 | 1,137,525 | 3,467,636 | 2,907,811 | |||||||||||
Other income: | |||||||||||||||
Discount and interchange revenue, net | 265,531 | 282,889 | 795,166 | 809,631 | |||||||||||
Protection products revenue | 104,201 | 107,858 | 310,256 | 321,527 | |||||||||||
Loan fee income | 80,012 | 84,243 | 241,719 | 250,596 | |||||||||||
Transaction processing revenue | 59,168 | 43,931 | 163,823 | 131,792 | |||||||||||
Merchant fees | 4,426 | 4,110 | 11,654 | 12,981 | |||||||||||
Gain (loss) on investments | — | (3,614 | ) | 28 | (3,622 | ) | |||||||||
Other income | 80,912 | 32,546 | 154,247 | 135,526 | |||||||||||
Total other income | 594,250 | 551,963 | 1,676,893 | 1,658,431 | |||||||||||
Other expense: | |||||||||||||||
Employee compensation and benefits | 274,366 | 241,881 | 770,448 | 684,782 | |||||||||||
Marketing and business development | 160,534 | 133,398 | 410,975 | 393,244 | |||||||||||
Information processing and communications | 68,812 | 63,547 | 210,723 | 194,852 | |||||||||||
Professional fees | 107,749 | 106,042 | 317,334 | 301,122 | |||||||||||
Premises and equipment | 19,562 | 18,063 | 55,728 | 53,268 | |||||||||||
Other expense | 194,884 | 79,476 | 486,194 | 245,431 | |||||||||||
Total other expense | 825,907 | 642,407 | 2,251,402 | 1,872,699 | |||||||||||
Income before income tax expense | 1,011,714 | 1,047,081 | 2,893,127 | 2,693,543 | |||||||||||
Income tax expense | 385,028 | 398,263 | 1,098,844 | 979,414 | |||||||||||
Net income | $ | 626,686 | $ | 648,818 | $ | 1,794,283 | $ | 1,714,129 | |||||||
Net income allocated to common stockholders | $ | 620,770 | $ | 641,772 | $ | 1,776,770 | $ | 1,694,636 | |||||||
Basic earnings per share | $ | 1.21 | $ | 1.18 | $ | 3.39 | $ | 3.11 | |||||||
Diluted earnings per share | $ | 1.21 | $ | 1.18 | $ | 3.39 | $ | 3.11 | |||||||
Dividends paid per share | $ | 0.10 | $ | 0.06 | $ | 0.30 | $ | 0.14 |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
(unaudited) (dollars in thousands, except per share amounts) | |||||||||||||||
Net income | $ | 626,686 | $ | 648,818 | $ | 1,794,283 | $ | 1,714,129 | |||||||
Other comprehensive income, net of taxes | |||||||||||||||
Unrealized gain on securities available for sale, net of tax | 9,931 | 38,170 | 24,626 | 54,897 | |||||||||||
Unrealized (loss) gain on cash flow hedges, net of tax | (241 | ) | 8,208 | (2,497 | ) | 7,330 | |||||||||
Unrealized pension and post-retirement benefit gain (loss), net of tax | — | 1 | (1,776 | ) | 342 | ||||||||||
Other comprehensive income | 9,690 | 46,379 | 20,353 | 62,569 | |||||||||||
Comprehensive income | $ | 636,376 | $ | 695,197 | $ | 1,814,636 | $ | 1,776,698 |
Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | ||||||||||||||||||||||
Shares | Amount | ||||||||||||||||||||||||||
(unaudited) (dollars and shares in thousands) | |||||||||||||||||||||||||||
Balance at November 30, 2010 | 547,128 | $ | 5,471 | $ | 3,435,318 | $ | 3,126,488 | $ | (82,548 | ) | $ | (27,883 | ) | $ | 6,456,846 | ||||||||||||
Net income | — | — | — | 1,714,129 | — | — | 1,714,129 | ||||||||||||||||||||
Other comprehensive income | — | — | — | — | 62,569 | — | 62,569 | ||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | (207,560 | ) | (207,560 | ) | ||||||||||||||||||
Common stock issued under employee benefit plans | 40 | — | 906 | — | — | — | 906 | ||||||||||||||||||||
Common stock issued and stock-based compensation expense | 2,308 | 24 | 56,439 | — | — | — | 56,463 | ||||||||||||||||||||
Dividends—common stock | — | — | — | (77,437 | ) | — | — | (77,437 | ) | ||||||||||||||||||
Balance at August 31, 2011 | 549,476 | $ | 5,495 | $ | 3,492,663 | $ | 4,763,180 | $ | (19,979 | ) | $ | (235,443 | ) | $ | 8,005,916 | ||||||||||||
Balance at November 30, 2011 | 549,749 | $ | 5,497 | $ | 3,507,754 | $ | 5,243,318 | $ | (51,679 | ) | $ | (462,679 | ) | $ | 8,242,211 | ||||||||||||
Net income | — | — | — | 1,794,283 | — | — | 1,794,283 | ||||||||||||||||||||
Other comprehensive income | — | — | — | — | 20,353 | — | 20,353 | ||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | (813,969 | ) | (813,969 | ) | ||||||||||||||||||
Common stock issued under employee benefit plans | 41 | — | 1,323 | — | — | — | 1,323 | ||||||||||||||||||||
Common stock issued and stock based compensation expense | 2,783 | 29 | 61,294 | — | — | — | 61,323 | ||||||||||||||||||||
Dividends—common stock | — | — | — | (159,611 | ) | — | — | (159,611 | ) | ||||||||||||||||||
Balance at August 31, 2012 | 552,573 | $ | 5,526 | $ | 3,570,371 | $ | 6,877,990 | $ | (31,326 | ) | $ | (1,276,648 | ) | $ | 9,145,913 |
For the Nine Months Ended August 31, | |||||||
2012 | 2011 | ||||||
(unaudited) | |||||||
(dollars in thousands) | |||||||
Cash flows from operating activities | |||||||
Net income | $ | 1,794,283 | $ | 1,714,129 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Provision for loan losses | 510,401 | 692,763 | |||||
Deferred income taxes | 159,001 | 351,854 | |||||
Depreciation and amortization on premises and equipment | 70,931 | 66,274 | |||||
Amortization of deferred revenues | (154,008 | ) | (191,290 | ) | |||
Other depreciation and amortization | (102,927 | ) | (35,346 | ) | |||
(Gain) loss on investments | (28 | ) | 3,622 | ||||
Loss on equity method and other investments | 8,061 | — | |||||
(Gain) loss on premises and equipment | (494 | ) | 3,242 | ||||
Loss on sale of other assets | 314 | — | |||||
(Gain) on origination and sale of loans | (48,541 | ) | (6,154 | ) | |||
Stock-based compensation expense | 36,108 | 33,690 | |||||
(Gain) on purchase of business | — | (15,917 | ) | ||||
Proceeds from sale of mortgage loans originated for sale | 550,815 | — | |||||
Net principal disbursed on mortgage loans originated for sale | (782,677 | ) | — | ||||
Changes in assets and liabilities: | |||||||
(Increase) decrease in other assets | (129,661 | ) | 32,339 | ||||
Increase in accrued expenses and other liabilities | 247,626 | 106,908 | |||||
Net cash provided by operating activities | 2,159,204 | 2,756,114 | |||||
Cash flows from investing activities | |||||||
Maturities of other short-term investments | — | 375,000 | |||||
Purchases of other short-term investments | (250 | ) | — | ||||
Maturities and sales of available-for-sale investment securities | 1,558,449 | 786,463 | |||||
Purchases of available-for-sale investment securities | (1,708,935 | ) | (1,627,215 | ) | |||
Maturities of held-to-maturity investment securities | 9,101 | 17,466 | |||||
Purchases of held-to-maturity investment securities | (51,285 | ) | (550 | ) | |||
Proceeds from sale of student loans held for sale | 270,020 | 21,859 | |||||
Net principal disbursed on loans originated for investment | (2,532,687 | ) | (3,040,152 | ) | |||
Purchase of loan receivables | (390,075 | ) | (596,163 | ) | |||
Purchase of net assets of a business | (48,886 | ) | — | ||||
Purchase of business, net of cash acquired | — | (401,158 | ) | ||||
Purchase of other investments | (27,168 | ) | (15,000 | ) | |||
Decrease in restricted cash | 985,338 | 623,794 | |||||
Proceeds from sale of premises and equipment | 515 | 13 | |||||
Purchases of premises and equipment | (104,685 | ) | (70,053 | ) | |||
Net cash used for investing activities | (2,040,548 | ) | (3,925,696 | ) | |||
Cash flows from financing activities | |||||||
Net increase in short-term borrowings | 200,139 | 100,000 | |||||
Proceeds from issuance of securitized debt | 5,099,617 | 2,500,000 | |||||
Maturities and repayment of securitized debt | (3,648,040 | ) | (5,114,986 | ) | |||
Repayment of long-term borrowings and bank notes | (12,681 | ) | (345,048 | ) | |||
Premium paid on debt exchange | (114,493 | ) | — | ||||
Proceeds from issuance of common stock | 16,231 | 17,928 | |||||
Purchases of treasury stock | (813,896 | ) | (207,560 | ) | |||
Net increase in deposits | 2,701,115 | 3,147,752 | |||||
Dividends paid on common stock | (158,881 | ) | (69,712 | ) | |||
Net cash provided by financing activities | 3,269,111 | 28,374 | |||||
Net increase (decrease) in cash and cash equivalents | 3,387,767 | (1,141,208 | ) | ||||
Cash and cash equivalents, at beginning of period | 2,849,843 | 5,098,733 | |||||
Cash and cash equivalents, at end of period | $ | 6,237,610 | $ | 3,957,525 | |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||
Cash paid during the period for: | |||||||
Interest expense | $ | 898,126 | $ | 1,045,370 | |||
Income taxes, net of income tax refunds | $ | 967,774 | $ | 635,360 | |||
Non-cash transactions: | |||||||
Initial fair value of contingent consideration to be paid for purchase of net assets of a business | $ | 8,541 | $ | — | |||
Assumption of debt by buyer related to loans sold | $ | 424,993 | $ | — | |||
Assumption of SLC debt | $ | — | $ | 2,921,372 |
1. | Background and Basis of Presentation |
2. | Business Combinations |
Net cash consideration paid. The following table provides a calculation of the amount paid by the Company for SLC based on the net assets of the SLC securitization trusts acquired after applying an 8.5% discount to the trust assets (the “Trust Certificate Purchase Price”) (dollars in millions): | |||
Actual | |||
Gross trust assets | $ | 3,977 | |
Less: 8.5% discount | (338 | ) | |
Net trust assets | 3,639 | ||
Less: Principal amount of and accrued interest on trust debt | (3,193 | ) | |
Trust Certificate Purchase Price | $ | 446 |
Although the Company paid SLC shareholders $600 million for the acquisition of SLC (“Aggregate Merger Consideration”), the Company received a purchase price adjustment from Citibank, N.A. (“Citibank”) equivalent to the amount by which the Aggregate Merger Consideration exceeded the value of the Trust Certificate Purchase Price. In addition, Citibank agreed to adjust the cash consideration paid by the Company to compensate it for (i) agreeing to commute certain insurance policies covering certain of the loans acquired and (ii) the value of non-trust related liabilities assumed by the Company. The following table provides a summary of total consideration paid by Discover including post-closing adjustments (dollars in millions): | |||
Actual | |||
Aggregate Merger Consideration | $ | 600 | |
Less: Purchase price adjustment | (154 | ) | |
Trust Certificate Purchase Price | 446 | ||
Less: Further adjustments provided for by Citibank | |||
Cash received for consent to insurance commutation | (16 | ) | |
Cash received related to reimbursable liabilities | (29 | ) | |
Net cash consideration paid | $ | 401 |
The following table summarizes the fair values of the assets acquired and liabilities assumed at the date of the SLC acquisition (dollars in thousands): | |||
At December 31, 2010 | |||
Student loan receivables | $ | 3,070,042 | |
Cash | 155,347 | ||
Indemnification asset | 74,571 | ||
Student relationships intangible | 2,400 | ||
Trade name intangible | 3,800 | ||
Total intangible assets | 6,200 | ||
Other assets | 217,441 | ||
Total assets acquired | 3,523,601 | ||
Securitized debt | 2,921,372 | ||
Other liabilities | 38,889 | ||
Total liabilities assumed | 2,960,261 | ||
Net assets acquired | $ | 563,340 |
3. | Investments |
The Company’s investment securities consist of the following (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
U.S. Treasury securities | $ | 2,471,448 | $ | 2,563,800 | |||
U.S. government agency securities | 2,319,285 | 2,795,223 | |||||
States and political subdivisions of states | 35,242 | 40,936 | |||||
Other securities: | |||||||
Credit card asset-backed securities of other issuers | 164,294 | 299,889 | |||||
Corporate debt securities(1) | 145,529 | 449,469 | |||||
To-be-announced investment securities | — | 50,254 | |||||
Residential mortgage-backed securities - Agency (2) | 1,331,709 | 6,482 | |||||
Total other securities | 1,641,532 | 806,094 | |||||
Total investment securities | $ | 6,467,507 | $ | 6,206,053 |
(1) | Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC). |
(2) | Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae. |
The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in thousands): | |||||||||||||||
Amortized Cost | Gross Unrealized Gains | Gross Unrealized Losses | Fair Value | ||||||||||||
At August 31, 2012 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S. Treasury securities | $ | 2,417,773 | $ | 53,125 | $ | — | $ | 2,470,898 | |||||||
U.S. government agency securities | 2,267,348 | 51,937 | — | 2,319,285 | |||||||||||
Credit card asset-backed securities of other issuers | 161,386 | 2,908 | — | 164,294 | |||||||||||
Corporate debt securities | 145,396 | 133 | — | 145,529 | |||||||||||
Residential mortgage-backed securities - Agency | 1,258,223 | 19,273 | — | 1,277,496 | |||||||||||
Total available-for-sale investment securities | $ | 6,250,126 | $ | 127,376 | $ | — | $ | 6,377,502 | |||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
U.S. Treasury securities(3) | $ | 550 | $ | — | $ | — | $ | 550 | |||||||
States and political subdivisions of states | 35,242 | 234 | (302 | ) | 35,174 | ||||||||||
Residential mortgage-backed securities - Agency (4) | 54,213 | 2,331 | — | 56,544 | |||||||||||
Total held-to-maturity investment securities | $ | 90,005 | $ | 2,565 | $ | (302 | ) | $ | 92,268 | ||||||
At November 30, 2011 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S. Treasury securities | $ | 2,516,008 | $ | 47,242 | $ | — | $ | 2,563,250 | |||||||
U.S. government agency securities | 2,762,265 | 34,166 | (1,208 | ) | 2,795,223 | ||||||||||
Credit card asset-backed securities of other issuers | 293,231 | 6,658 | — | 299,889 | |||||||||||
Corporate debt securities | 448,423 | 1,066 | (20 | ) | 449,469 | ||||||||||
Total available-for-sale investment securities | $ | 6,019,927 | $ | 89,132 | $ | (1,228 | ) | $ | 6,107,831 | ||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
U.S. Treasury securities(3) | $ | 550 | $ | — | $ | — | $ | 550 | |||||||
States and political subdivisions of states | 40,936 | 197 | (2,823 | ) | 38,310 | ||||||||||
Residential mortgage-backed securities - Agency (4) | 6,482 | 650 | — | 7,132 | |||||||||||
To-be-announced investment securities | 50,254 | — | (204 | ) | 50,050 | ||||||||||
Total held-to-maturity investment securities | $ | 98,222 | $ | 847 | $ | (3,027 | ) | $ | 96,042 |
(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) | Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives. |
The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position as of August 31, 2012 and November 30, 2011 (dollars in thousands): | ||||||||||||||||||
Number of Securities in a Loss Position | Less than 12 months | More than 12 months | ||||||||||||||||
Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | |||||||||||||||
At August 31, 2012 | ||||||||||||||||||
Held-to-Maturity Investment Securities | ||||||||||||||||||
State and political subdivisions of states | 3 | $ | — | $ | — | $ | 13,183 | $ | 302 | |||||||||
At November 30, 2011 | ||||||||||||||||||
Available-for-Sale Investment Securities | ||||||||||||||||||
U.S. government agency securities | 2 | $ | 242,898 | $ | 1,208 | $ | — | $ | — | |||||||||
Corporate debt securities | 3 | $ | 100,041 | $ | 20 | $ | — | $ | — | |||||||||
Held-to-Maturity Investment Securities | ||||||||||||||||||
State and political subdivisions of states | 6 | $ | 2,689 | $ | 46 | $ | 27,768 | $ | 2,777 | |||||||||
To-be-announced investment securities | 2 | $ | 50,050 | $ | 204 | $ | — | $ | — |
Contractual maturities of available-for-sale debt securities and held-to-maturity debt securities at August 31, 2012 are provided in the table below (dollars in thousands): | |||||||||||||||||||
One Year or Less | After One Year Through Five Years | After Five Years Through Ten Years | After Ten Years | Total | |||||||||||||||
Available-for-sale—Amortized Cost (1) | |||||||||||||||||||
U.S. Treasury securities | $ | 175,393 | $ | 2,242,380 | $ | — | $ | — | $ | 2,417,773 | |||||||||
U.S. government agency securities | 567,952 | 1,699,396 | — | — | 2,267,348 | ||||||||||||||
Credit card asset-backed securities of other issuers | 142,855 | 18,531 | — | — | 161,386 | ||||||||||||||
Corporate debt securities | 145,396 | — | — | — | 145,396 | ||||||||||||||
Residential mortgage-backed securities - Agency | — | — | 326,189 | 932,034 | 1,258,223 | ||||||||||||||
Total available-for-sale investment securities | $ | 1,031,596 | $ | 3,960,307 | $ | 326,189 | $ | 932,034 | $ | 6,250,126 | |||||||||
Held-to-maturity—Amortized Cost (2) | |||||||||||||||||||
U.S. Treasury securities | $ | 550 | $ | — | $ | — | $ | — | $ | 550 | |||||||||
State and political subdivisions of states | 1,385 | 3,285 | — | 30,572 | 35,242 | ||||||||||||||
Residential mortgage-backed securities - Agency(3) | — | — | — | 54,213 | 54,213 | ||||||||||||||
Total held-to-maturity investment securities | $ | 1,935 | $ | 3,285 | $ | — | $ | 84,785 | $ | 90,005 | |||||||||
Available-for-sale—Fair Values (1) | |||||||||||||||||||
U.S. Treasury securities | $ | 175,949 | $ | 2,294,949 | $ | — | $ | — | $ | 2,470,898 | |||||||||
U.S. government agency securities | 570,147 | 1,749,138 | — | — | 2,319,285 | ||||||||||||||
Credit card asset-backed securities of other issuers | 144,788 | 19,506 | — | — | 164,294 | ||||||||||||||
Corporate debt securities | 145,529 | — | — | — | 145,529 | ||||||||||||||
Residential mortgage-backed securities - Agency | — | — | 329,418 | 948,078 | 1,277,496 | ||||||||||||||
Total available-for-sale investment securities | $ | 1,036,413 | $ | 4,063,593 | $ | 329,418 | $ | 948,078 | $ | 6,377,502 | |||||||||
Held-to-maturity—Fair Values (2) | |||||||||||||||||||
U.S. Treasury securities | $ | 550 | $ | — | $ | — | $ | — | $ | 550 | |||||||||
State and political subdivisions of states | 1,387 | 3,350 | — | 30,437 | 35,174 | ||||||||||||||
Residential mortgage-backed securities - Agency(3) | — | — | — | 56,544 | 56,544 | ||||||||||||||
Total held-to-maturity investment securities | $ | 1,937 | $ | 3,350 | $ | — | $ | 86,981 | $ | 92,268 |
(1) | Available-for-sale investment securities are reported at fair value. |
(2) | Held-to-maturity investment securities are reported at amortized cost. |
(3) | Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives. |
4. | Loan Receivables |
August 31, 2012 | November 30, 2011 | ||||||
Student loans held for sale(1) | $ | — | $ | 714,180 | |||
Mortgage loans held for sale(2) | 272,082 | — | |||||
Loan portfolio: | |||||||
Credit card loans: | |||||||
Discover card(3) | 47,915,177 | 46,419,544 | |||||
Discover business card | 209,291 | 219,081 | |||||
Total credit card loans | 48,124,468 | 46,638,625 | |||||
Other loans: | |||||||
Personal loans | 3,114,408 | 2,648,051 | |||||
Private student loans | 2,752,715 | 2,069,001 | |||||
Other | 26,829 | 16,690 | |||||
Total other loans | 5,893,952 | 4,733,742 | |||||
PCI student loans(4) | 4,867,010 | 5,250,388 | |||||
Total loan portfolio | 58,885,430 | 56,622,755 | |||||
Total loan receivables | 59,157,512 | 57,336,935 | |||||
Allowance for loan losses | (1,687,664 | ) | (2,205,196 | ) | |||
Net loan receivables | $ | 57,469,848 | $ | 55,131,739 |
(1) | Amount represents federal student loans. At November 30, 2011, $446.6 million of federal student loan receivables were pledged as collateral against a long-term borrowing. During first quarter 2012, Discover Bank sold these loans and recorded a loss of $518 thousand. As a part of this transaction, the related borrowings were assumed by the purchaser. |
(2) | All mortgage loans held for sale are pledged as collateral against the warehouse line of credit used to fund consumer residential loans. See Note 7: Borrowings. |
(3) | Amounts include $19.9 billion and $18.5 billion underlying investors’ interest in trust debt at August 31, 2012 and November 30, 2011, respectively, and $13.6 billion and $15.4 billion in seller’s interest at August 31, 2012 and November 30, 2011, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information. |
(4) | Amounts include $2.6 billion and $2.8 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts at August 31, 2012 and November 30, 2011, respectively. See Note 5: Credit Card and Student Loan Securitization Activities. Of the remaining $2.3 billion and $2.5 billion at August 31, 2012 and November 30, 2011, respectively, that were not pledged as collateral, approximately $14.7 million and $12.8 million represent loans eligible for reimbursement through an indemnification claim. Discover Bank must purchase such loans from the trust before a claim may be filed. |
Delinquent and Non-Accruing Loans: | |||||||||||||||||||
30-89 Days Delinquent | 90 or More Days Delinquent | Total Past Due | 90 or More Days Delinquent and Accruing | Total Non-accruing(2) | |||||||||||||||
At August 31, 2012 | |||||||||||||||||||
Credit card loans: | |||||||||||||||||||
Discover card(1) | $ | 441,545 | $ | 424,514 | $ | 866,059 | $ | 374,035 | $ | 179,716 | |||||||||
Discover business card | 1,803 | 2,483 | 4,286 | 2,377 | 489 | ||||||||||||||
Total credit card loans | 443,348 | 426,997 | 870,345 | 376,412 | 180,205 | ||||||||||||||
Other loans: | |||||||||||||||||||
Personal loans | 16,395 | 6,784 | 23,179 | 6,021 | 4,229 | ||||||||||||||
Private student loans (excluding PCI) | 29,314 | 5,876 | 35,190 | 4,832 | 1,237 | ||||||||||||||
Other | 502 | 1,637 | 2,139 | — | 1,889 | ||||||||||||||
Total other loans (excluding PCI) | 46,211 | 14,297 | 60,508 | 10,853 | 7,355 | ||||||||||||||
Total loan receivables (excluding PCI) | $ | 489,559 | $ | 441,294 | $ | 930,853 | $ | 387,265 | $ | 187,560 | |||||||||
At November 30, 2011 | |||||||||||||||||||
Credit card loans: | |||||||||||||||||||
Discover card(1) | $ | 554,354 | $ | 556,126 | $ | 1,110,480 | $ | 498,305 | $ | 200,208 | |||||||||
Discover business card | 2,823 | 3,548 | 6,371 | 3,335 | 860 | ||||||||||||||
Total credit card loans | 557,177 | 559,674 | 1,116,851 | 501,640 | 201,068 | ||||||||||||||
Other loans: | |||||||||||||||||||
Personal loans | 15,604 | 7,362 | 22,966 | 6,636 | 3,628 | ||||||||||||||
Private student loans (excluding PCI) | 10,073 | 2,992 | 13,065 | 2,883 | 125 | ||||||||||||||
Other | 507 | 2,091 | 2,598 | — | 2,317 | ||||||||||||||
Total other loans (excluding PCI) | 26,184 | 12,445 | 38,629 | 9,519 | 6,070 | ||||||||||||||
Total loan receivables (excluding PCI) | $ | 583,361 | $ | 572,119 | $ | 1,155,480 | $ | 511,159 | $ | 207,138 |
(1) | Consumer credit card loans that are 90 or more days delinquent and accruing interest include $31.8 million and $37.9 million of loans accounted for as troubled debt restructurings at August 31, 2012 and November 30, 2011, respectively. |
(2) | The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these credit card loans was $7.8 million and $24.5 million for the three and nine months ended August 31, 2012, respectively. 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. |
Net Charge-Offs: | For the Three Months Ended August 31, | ||||||||||||
2012 | 2011 | ||||||||||||
Net Charge-offs | Net Charge-off Rate | Net Charge-offs | Net Charge-off Rate | ||||||||||
Credit card loans: | |||||||||||||
Discover card | $ | 285,345 | 2.42 | % | $ | 436,242 | 3.84 | % | |||||
Discover business card | 1,741 | 3.34 | % | 3,506 | 6.01 | % | |||||||
Total credit card loans | 287,086 | 2.43 | % | 439,748 | 3.85 | % | |||||||
Other loans: | |||||||||||||
Personal loans | 16,214 | 2.14 | % | 16,000 | 2.73 | % | |||||||
Private student loans (excluding PCI) | 4,674 | 0.73 | % | 2,618 | 0.62 | % | |||||||
Other | (97 | ) | (0.26 | )% | 410 | 13.41 | % | ||||||
Total other loans (excluding PCI) | 20,791 | 1.45 | % | 19,028 | 0.98 | % | |||||||
Net charge-offs as a percentage of total loans (excluding PCI) | $ | 307,877 | 2.32 | % | $ | 458,776 | 3.63 | % | |||||
Net charge-offs as a percentage of total loans (including PCI) | $ | 307,877 | 2.12 | % | $ | 458,776 | 3.43 | % | |||||
For the Nine Months Ended August 31, | |||||||||||||
2012 | 2011 | ||||||||||||
Net Charge-offs | Net Charge-off Rate | Net Charge-offs | Net Charge-off Rate | ||||||||||
Credit card loans: | |||||||||||||
Discover card | $ | 960,403 | 2.76 | % | $ | 1,651,311 | 4.91 | % | |||||
Discover business card | 5,941 | 3.75 | % | 14,937 | 8.26 | % | |||||||
Total credit card loans | 966,344 | 2.76 | % | 1,666,248 | 4.93 | % | |||||||
Other loans: | |||||||||||||
Personal loans | 49,869 | 2.32 | % | 50,980 | 3.19 | % | |||||||
Private student loans (excluding PCI) | 11,650 | 0.64 | % | 5,573 | 0.49 | % | |||||||
Other | 70 | 0.14 | % | 1,022 | 10.35 | % | |||||||
Total other loans (excluding PCI) | 61,589 | 1.48 | % | 57,575 | 1.09 | % | |||||||
Net charge-offs as a percentage of total loans (excluding PCI) | $ | 1,027,933 | 2.63 | % | $ | 1,723,823 | 4.64 | % | |||||
Net charge-offs as a percentage of total loans (including PCI) | $ | 1,027,933 | 2.39 | % | $ | 1,723,823 | 4.41 | % |
As part of credit risk management activities, on an ongoing basis the Company reviews information related to the performance of a customer’s account with the Company as well as information from credit bureaus, such as a FICO or other credit scores, relating to the customer’s broader credit performance. Credit scores are generally obtained at origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer behavior. Historically, the Company has noted that a significant proportion of delinquent accounts have FICO scores below 660. The following table provides FICO scores available for the Company’s customers as a percentage of each class of loan receivables: | |||||||||||
August 31, 2012 | November 30, 2011 | ||||||||||
660 and Above | Less than 660 or No Score | 660 and Above | Less than 660 or No Score | ||||||||
Discover card | 83 | % | 17 | % | 81 | % | 19 | % | |||
Discover business card | 91 | % | 9 | % | 89 | % | 11 | % | |||
Personal loans | 97 | % | 3 | % | 97 | % | 3 | % | |||
Private student loans (excluding PCI)(1) | 95 | % | 5 | % | 95 | % | 5 | % |
(1) | PCI loans are discussed under the heading "Purchased Credit-Impaired Loans." |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Balance at beginning of period | $ | 1,869,253 | $ | 2,632,320 | $ | 2,205,196 | $ | 3,304,118 | |||||||
Additions: | |||||||||||||||
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 | |||||||||||
Deductions: | |||||||||||||||
Charge-offs: | |||||||||||||||
Discover card | (428,935 | ) | (584,534 | ) | (1,400,273 | ) | (2,085,452 | ) | |||||||
Discover business card | (2,623 | ) | (4,416 | ) | (8,540 | ) | (17,672 | ) | |||||||
Total credit card loans | (431,558 | ) | (588,950 | ) | (1,408,813 | ) | (2,103,124 | ) | |||||||
Personal loans | (17,341 | ) | (16,458 | ) | (52,474 | ) | (52,438 | ) | |||||||
Private student loans | (4,793 | ) | (2,663 | ) | (11,956 | ) | (5,646 | ) | |||||||
Other | (22 | ) | (411 | ) | (194 | ) | (1,025 | ) | |||||||
Total other loans | (22,156 | ) | (19,532 | ) | (64,624 | ) | (59,109 | ) | |||||||
Total charge-offs | (453,714 | ) | (608,482 | ) | (1,473,437 | ) | (2,162,233 | ) | |||||||
Recoveries: | |||||||||||||||
Discover card | 143,590 | 148,292 | 439,870 | 434,141 | |||||||||||
Discover business card | 882 | 910 | 2,599 | 2,735 | |||||||||||
Total credit card loans | 144,472 | 149,202 | 442,469 | 436,876 | |||||||||||
Personal loans | 1,127 | 458 | 2,605 | 1,458 | |||||||||||
Private student loans | 119 | 45 | 306 | 73 | |||||||||||
Other | 119 | 1 | 124 | 3 | |||||||||||
Total other loans | 1,365 | 504 | 3,035 | 1,534 | |||||||||||
Total recoveries | 145,837 | 149,706 | 445,504 | 438,410 | |||||||||||
Net charge-offs | (307,877 | ) | (458,776 | ) | (1,027,933 | ) | (1,723,823 | ) | |||||||
Balance at end of period | $ | 1,687,664 | $ | 2,273,058 | $ | 1,687,664 | $ | 2,273,058 |
Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the table above. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Interest accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) | $ | 76,942 | $ | 128,329 | $ | 272,345 | $ | 480,044 | |||||||
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income) | $ | 14,845 | $ | 22,807 | $ | 52,503 | $ | 86,762 |
Credit Card | Personal Loans | Student Loans | Other Loans | Total | |||||||||||||||
At August 31, 2012 | |||||||||||||||||||
Allowance for loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 1,331,282 | $ | 92,069 | $ | 65,203 | $ | 783 | $ | 1,489,337 | |||||||||
Troubled debt restructurings(2) | 190,981 | 4,287 | 3,059 | — | 198,327 | ||||||||||||||
Purchased credit-impaired(3) | — | — | — | — | — | ||||||||||||||
Total allowance for loan losses | $ | 1,522,263 | $ | 96,356 | $ | 68,262 | $ | 783 | $ | 1,687,664 | |||||||||
Recorded investment in loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 47,007,109 | $ | 3,098,013 | $ | 2,740,212 | $ | 26,829 | $ | 52,872,163 | |||||||||
Troubled debt restructurings(2) | 1,117,359 | 16,395 | 12,503 | — | 1,146,257 | ||||||||||||||
Purchased credit-impaired(3) | — | — | 4,867,010 | — | 4,867,010 | ||||||||||||||
Total recorded investment | $ | 48,124,468 | $ | 3,114,408 | $ | 7,619,725 | $ | 26,829 | $ | 58,885,430 | |||||||||
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 |
(1) | Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies. |
(2) | Represents loans evaluated for impairment in accordance with ASC 310-40, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of credit card loans was $955.4 million and $1.0 billion at August 31, 2012 and November 30, 2011 respectively. The unpaid principal balance of personal loans was $16.1 million and $7.5 million at August 31, 2012 and November 30, 2011, respectively. The unpaid principal balance of student loans was $11.7 million and $5.4 million at August 31, 2012 and November 30, 2011, respectively. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. |
(3) | Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. |
Interest income from loans accounted for as troubled debt restructurings is accounted for in the same manner as other accruing loans. Cash collections on these loans are allocated according to the same payment hierarchy methodology applied to loans that are not in such programs. Additional information about modified loans is shown below (dollars in thousands): | |||||||||||
Average recorded investment in loans | Interest income recognized on impaired loans(1) | Gross interest income that would have been recorded with original terms(2) | |||||||||
For the Three Months Ended August 31, 2012 | |||||||||||
Credit card loans | |||||||||||
Modified credit card loans that have reverted to pre-modification payment terms(3) | $ | 240,895 | $ | 12,350 | N/A | ||||||
Internal programs | $ | 560,327 | $ | 4,168 | $ | 18,388 | |||||
External programs | $ | 586,547 | $ | 12,694 | $ | 2,035 | |||||
Personal loans(4) | $ | 15,370 | $ | 454 | N/A | ||||||
Student loans(4) | $ | 11,058 | $ | 204 | N/A | ||||||
For the Three Months Ended August 31, 2011 | |||||||||||
Credit card loans | |||||||||||
Internal programs | $ | 519,884 | $ | 4,518 | $ | 16,411 | |||||
External programs | $ | 709,211 | $ | 15,391 | $ | 2,467 |
Average recorded investment in loans | Interest income recognized on impaired loans(1) | Gross interest income that would have been recorded with original terms(2) | |||||||||
For the Nine Months Ended August 31, 2012 | |||||||||||
Credit card loans | |||||||||||
Modified credit card loans that have reverted to pre-modification payment terms(3) | $ | 248,118 | $ | 35,456 | N/A | ||||||
Internal programs | $ | 564,650 | $ | 13,162 | $ | 54,922 | |||||
External programs | $ | 618,120 | $ | 39,905 | $ | 6,396 | |||||
Personal loans(4) | $ | 13,349 | $ | 1,222 | N/A | ||||||
Student loans(4) | $ | 8,563 | $ | 469 | N/A | ||||||
For the Nine Months Ended August 31, 2011 | |||||||||||
Credit card loans | |||||||||||
Internal programs | $ | 534,479 | $ | 16,660 | $ | 47,950 | |||||
External programs | $ | 727,113 | $ | 46,974 | $ | 7,535 |
(1) | The Company does not separately track interest income on all of its loans 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) | This balance is considered impaired, but is excluded from the internal and external program amounts reflected in this table. Represents credit card loans that were modified in troubled debt restructurings but that have subsequently reverted back to the loans' pre-modification payment terms either due to noncompliance with the terms of the modification or successful completion of a temporary modification program. |
(4) | As interest rates for personal loan customers in modification programs and student loan customers that have been granted forbearance periods are rarely modified, gross interest income that would have been recorded with original terms is not significant. |
The following table provides information on loans that entered a loan modification program during the period (dollars in thousands): | ||||||||||||||
For the Three Months Ended August 31, | ||||||||||||||
2012 | 2011 | |||||||||||||
Number of Accounts | Balances | Number of Accounts | Balances | |||||||||||
Accounts that entered a loan modification program during the period: | ||||||||||||||
Credit card: | ||||||||||||||
Internal programs | 11,781 | $ | 78,607 | 16,680 | $ | 115,301 | ||||||||
External programs | 9,781 | $ | 54,133 | 12,951 | $ | 73,734 | ||||||||
Personal loans | 489 | $ | 6,282 | 287 | $ | 3,641 | ||||||||
Student loans | 130 | $ | 3,351 | 78 | $ | 1,461 | ||||||||
For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | |||||||||||||
Number of Accounts | Balances | Number of Accounts | Balances | |||||||||||
Accounts that entered a loan modification program during the period: | ||||||||||||||
Credit card: | ||||||||||||||
Internal programs | 41,279 | $ | 283,126 | 50,011 | $ | 351,968 | ||||||||
External programs | 30,596 | $ | 173,585 | 39,046 | $ | 230,720 | ||||||||
Personal loans | 1,047 | $ | 13,383 | 595 | $ | 7,337 | ||||||||
Student loans | 352 | $ | 8,164 | 167 | $ | 3,234 |
The following table presents the carrying value of loans that experienced a payment default during the three and nine months ended August 31, 2012 and 2011 that had been modified in a troubled debt restructuring during the 15 months preceding the end of each period (dollars in thousands): | ||||||||||||||
For the Three Months Ended August 31, | ||||||||||||||
2012 | 2011 | |||||||||||||
Number of Accounts | Aggregated Outstanding Balances Upon Default | Number of Accounts | Aggregated Outstanding Balances Upon Default | |||||||||||
Troubled debt restructurings that subsequently defaulted: | ||||||||||||||
Credit card (1)(2)(3): | ||||||||||||||
Internal programs | 3,721 | $ | 24,761 | 4,027 | $ | 28,191 | ||||||||
External programs | 2,509 | $ | 11,551 | 2,763 | $ | 13,912 | ||||||||
Personal loans | 77 | $ | 882 | 37 | $ | 468 | ||||||||
Student loans | 28 | $ | 691 | 1 | $ | 13 | ||||||||
For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | |||||||||||||
Number of Accounts | Aggregated Outstanding Balances Upon Default | Number of Accounts | Aggregated Outstanding Balances Upon Default | |||||||||||
Troubled debt restructurings that subsequently defaulted: | ||||||||||||||
Credit card (1)(2)(3): | ||||||||||||||
Internal programs | 12,331 | $ | 83,859 | 14,233 | $ | 102,113 | ||||||||
External programs | 6,122 | $ | 29,253 | 9,558 | $ | 49,956 | ||||||||
Personal loans | 228 | $ | 2,770 | 86 | $ | 1,083 | ||||||||
Student loans | 63 | $ | 1,459 | 6 | $ | 118 |
(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. |
The following table shows contractually required payments receivable, cash flows expected to be collected and fair value of loans acquired as of the acquisition date (dollars in millions): | |||
At December 31, 2010 | |||
Contractually required payments receivable (1) | $ | 5,673 | |
Less: Non-accretable difference (2) | (683 | ) | |
Cash flows expected to be collected | 4,990 | ||
Less: Accretable yield (3) | (1,920 | ) | |
Fair value of loans acquired | $ | 3,070 |
(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 accreted into interest income over the estimated lives of the acquired loans. |
The following table shows contractually required payments receivable, cash flows expected to be collected and fair value of the additional private student loans acquired from Citibank for the loans acquired as of September 30, 2011 (dollars in millions): | |||
At September 30, 2011 | |||
Contractually required payments receivable (1) | $ | 3,861 | |
Less: Non-accretable difference (2) | (573 | ) | |
Cash flows expected to be collected | 3,288 | ||
Less: Accretable yield (3) | (855 | ) | |
Fair value of loans acquired | $ | 2,433 |
(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. |
The following table provides changes in accretable yield for the acquired loans for the three and nine month periods ended August 31, 2012 and 2011 (dollars in millions): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Balance at beginning of period | $ | 2,313 | $ | 1,772 | $ | 2,580 | $ | — | |||||||
Acquisition of The Student Loan Corporation | — | — | — | 1,776 | |||||||||||
Accretion into interest income | (75 | ) | (54 | ) | (229 | ) | (149 | ) | |||||||
Other changes in expected cash flows | (13 | ) | — | (126 | ) | 91 | |||||||||
Balance at end of period | $ | 2,225 | $ | 1,718 | $ | 2,225 | $ | 1,718 |
The following table provides a summary of the initial unpaid principal balance of mortgage loans sold by type of loan for the quarter ended August 31, 2012 (dollars in millions): | ||||||
For the Three Months Ended August 31, 2012 | ||||||
Amount | % | |||||
Conforming(1) | $ | 396.5 | 75.09 | % | ||
FHA(2) | 131.5 | 24.91 | % | |||
Total | $ | 528.0 | 100.00 | % |
(1) | Conforming loans are loans that conform to Government Sponsored Enterprises guidelines. |
(2) | FHA loans are loans that are insured by the Federal Housing Administration typically for borrowers with low down payments and loan amounts meeting certain limits. |
The following table represents the loans held for sale by type of loan as of August 31, 2012 (dollars in thousands): | ||||||
At August 31, 2012 | ||||||
Amount | % | |||||
Conforming(1) | $ | 183,666 | 67.50 | % | ||
FHA(2) | 88,416 | 32.50 | % | |||
Total | $ | 272,082 | 100.00 | % |
(1) | Conforming loans are loans that conform to Government Sponsored Enterprises guidelines. |
(2) | FHA loans are loans that are insured by the Federal Housing Administration typically for borrowers with low down payments and loan amounts meeting certain limits. |
5. | Credit Card and Student Loan Securitization Activities |
Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the trusts’ creditors. The trusts have ownership of cash balances that also have restrictions, the amounts of which are reported in restricted cash. Investment of trust cash balances is limited to investments that are permitted under the governing documents of the trusts and which have maturities no later than the related date on which funds must be made available for distribution to trust investors. With the exception of the seller’s interest in trust receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts’ debt. The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
Cash collateral accounts | $ | 147,632 | $ | 187,105 | |||
Collections and interest funding accounts | 63,140 | 977,195 | |||||
Restricted cash | 210,772 | 1,164,300 | |||||
Investors’ interests held by third-party investors | 15,068,423 | 13,294,739 | |||||
Investors’ interests held by wholly owned subsidiaries of Discover Bank | 4,805,402 | 5,157,536 | |||||
Seller’s interest | 13,643,757 | 15,363,585 | |||||
Loan receivables (1) | 33,517,582 | 33,815,860 | |||||
Allowance for loan losses allocated to securitized loan receivables (1) | (1,074,058 | ) | (1,510,730 | ) | |||
Net loan receivables | 32,443,524 | 32,305,130 | |||||
Other | 33,123 | 26,506 | |||||
Carrying value of assets of consolidated variable interest entities | $ | 32,687,419 | $ | 33,495,936 |
(1) | 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. |
The tables below provide information concerning investors’ interests and related excess spreads at August 31, 2012 (dollars in thousands): | ||||||
Investors’ Interests(1) | # of Series Outstanding | |||||
Discover Card Master Trust I | $ | 2,288,598 | 4 | |||
Discover Card Execution Note Trust (DiscoverSeries notes) | 17,585,227 | 37 | ||||
Total investors’ interests | $ | 19,873,825 | 41 |
(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) | ||
Group excess spread percentage | 13.41 | % |
DiscoverSeries excess spread percentage | 13.32 | % |
(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. |
The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statement of financial condition as relating to securitization activities, are shown in the table below (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
Restricted cash | $ | 84,667 | $ | 109,875 | |||
Student loan receivables | 2,631,970 | 2,839,871 | |||||
Other assets | 515 | 7,218 | |||||
Carrying value of assets of consolidated variable interest entities | $ | 2,717,152 | $ | 2,956,964 |
6. | Deposits |
A summary of interest-bearing deposit accounts is as follows (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
Certificates of deposit in amounts less than $100,000(1) | $ | 21,301,782 | $ | 20,114,121 | |||
Certificates of deposit from amounts of $100,000(1)to less than $250,000(1) | 5,352,917 | 5,290,405 | |||||
Certificates of deposit in amounts of $250,000(1)or greater | 1,216,105 | 1,189,779 | |||||
Savings deposits, including money market deposit accounts | 14,304,228 | 12,869,582 | |||||
Total interest-bearing deposits | $ | 42,175,032 | $ | 39,463,887 | |||
Average annual interest rate | 2.00 | % | 2.57 | % |
(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. |
At August 31, 2012, certificates of deposit maturing during the remainder of 2012, over each of the next four years, and thereafter were as follows (dollars in thousands): | |||
Year | Amount | ||
2012 | $ | 3,367,953 | |
2013 | $ | 11,499,477 | |
2014 | $ | 5,454,427 | |
2015 | $ | 3,292,971 | |
2016 | $ | 1,825,914 | |
Thereafter | $ | 2,430,062 |
7. | Borrowings |
Long-term borrowings consist of borrowings and capital leases having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted average interest rates on balances outstanding at period end (dollars in thousands): | |||||||||||||||||
August 31, 2012 | November 30, 2011 | ||||||||||||||||
Outstanding | Interest Rate | Outstanding | Interest Rate | Interest Rate Terms | Maturity | ||||||||||||
Securitized Debt | |||||||||||||||||
Fixed rate asset-backed securities | |||||||||||||||||
Principal value (including discount of $1,344) | $ | 4,548,656 | 2.87 | % | $ | 1,748,742 | 5.65 | % | Various fixed rates | Various June 2013— July 2019 | |||||||
Fair value adjustment(1) | 7,965 | — | |||||||||||||||
Book value | 4,556,621 | 1,748,742 | |||||||||||||||
Floating rate asset-backed securities | 9,018,423 | 0.51 | % | 10,044,739 | 0.81 | % | 1-month LIBOR(2) + 8 to 65 basis points | Various December 2012— May 2017 | |||||||||
Floating rate asset-backed securities | 1,250,000 | 0.81 | % | 1,250,000 | 0.69 | % | 3-month LIBOR(2) + 34 basis points | December 2012 | |||||||||
Floating rate asset-backed securities and other borrowings | 250,000 | 0.91 | % | 250,000 | 0.91 | % | Commercial Paper rate + 70 basis points | April 2013 | |||||||||
Total Discover Card Master Trust I and Discover Card Execution Note Trust | 15,075,044 | 13,293,481 | |||||||||||||||
Floating rate asset-backed securities (including discount of $188,798) | 1,243,672 | 0.67 | % | 1,390,066 | 0.60 | % | 3-month LIBOR(2) + 12 to 45 basis points | Various January 2019— July 2036(3) | |||||||||
Floating rate asset-backed securities (including discount of $3,136) | 558,316 | 4.25 | % | 627,072 | 4.25 | % | Prime rate +100 basis points | June 2031(3) | |||||||||
Floating rate asset-backed securities (including premium of $2,139) | 135,024 | 4.00 | % | 157,338 | 4.00 | % | Prime rate + 75 basis points | July 2042(3) | |||||||||
Floating rate asset-backed securities (including premium of $5,162) | 325,858 | 3.74 | % | 374,555 | 3.75 | % | 1-month LIBOR(2) + 350 basis points | July 2042(3) | |||||||||
Total SLC Private Student Loan Trusts | 2,262,870 | 2,549,031 | |||||||||||||||
Total Long-Term Borrowings—owed to securitization investors | 17,337,914 | 15,842,512 | |||||||||||||||
Discover Financial Services (Parent Company) | |||||||||||||||||
Fixed rate senior notes due 2017 | |||||||||||||||||
Principal value (including discount of $390) | 399,610 | 6.45 | % | 399,549 | 6.45 | % | Fixed | June 2017 | |||||||||
Fair value adjustment(1) | 23,167 | 9,855 | |||||||||||||||
Book value | 422,777 | 409,404 | |||||||||||||||
Fixed rate senior notes due 2019(4) | 78,484 | 10.25 | % | 400,000 | 10.25 | % | Fixed | July 2019 | |||||||||
Fixed rate senior notes due 2022 (including discount of $112,303)(4) | 209,213 | 5.20 | % | — | — | % | Fixed | April 2022 | |||||||||
Discover Bank | |||||||||||||||||
Subordinated bank notes due 2019 (including discount of $1,302) | 698,698 | 8.70 | % | 698,563 | 8.70 | % | Fixed | November 2019 | |||||||||
Subordinated bank notes due 2020 (including discount of $2,641) | 497,359 | 7.00 | % | 497,099 | 7.00 | % | Fixed | April 2020 | |||||||||
Floating rate secured borrowings(5) | — | — | % | 437,613 | 0.70 | % | Commercial Paper rate + 50 basis points | February 2012 | |||||||||
Capital lease obligations | 1,668 | 4.51 | % | 1,987 | 4.51 | % | Fixed | April 2016 | |||||||||
Total long-term borrowings | $ | 19,246,113 | $ | 18,287,178 |
(1) | The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in LIBOR. See Note 15: Derivatives and Hedging Activities. |
(2) | London Interbank Offered Rate (“LIBOR”). |
(3) | 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. |
(4) | During second quarter 2012, the Company exchanged $321.5 million outstanding aggregate principal amount of 10.25% Senior Notes due 2019 for the same aggregate principal amount of new 5.20% Senior Notes due 2022 and a cash premium. The new 5.20% Senior Notes due 2022 are carried at a discount as a result of the cash premium paid. |
(5) | 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. Upon sale of the loans during the first quarter 2012, this loan facility was assumed by the buyer. |
Year | Amount | ||
Due in 2012 | $ | 109 | |
Due in 2013 | 5,179,286 | ||
Due in 2014 | 3,789,941 | ||
Due in 2015 | 3,058,178 | ||
Due in 2016 | 400,177 | ||
Thereafter | 6,818,422 | ||
Total | $ | 19,246,113 |
8. | Accumulated Other Comprehensive Income |
Net Unrealized Gains on securities | Derivatives | Adjustments Related to Pension and Other Post Retirement Benefits | Accumulated Other Comprehensive Income (Loss) | ||||||||||||
For the Three Months Ended August 31, 2012 | |||||||||||||||
Balance at May 31, 2012 | $ | 69,583 | $ | 4,749 | $ | (115,348 | ) | $ | (41,016 | ) | |||||
Unrealized gain on available-for-sale investment securities, net of tax expense of $5,988 | 9,931 | — | — | 9,931 | |||||||||||
Unrealized (loss) on cash flow hedges, net of tax benefit of $142 | — | (241 | ) | — | (241 | ) | |||||||||
Balance at August 31, 2012 | $ | 79,514 | $ | 4,508 | $ | (115,348 | ) | $ | (31,326 | ) | |||||
For the Three Months Ended August 31, 2011 | |||||||||||||||
Balance at May 31, 2011 | $ | 24,648 | $ | 1,647 | $ | (92,653 | ) | $ | (66,358 | ) | |||||
Unrealized gain on available-for-sale investment securities, net of tax expense of $22,810 | 38,170 | — | — | 38,170 | |||||||||||
Unrealized gain on cash flow hedges, net of tax expense of $4,905 | — | 8,208 | — | 8,208 | |||||||||||
Unrealized pension and post retirement benefit (loss) | $ | — | $ | — | $ | 1 | $ | 1 | |||||||
Balance at August 31, 2011 | $ | 62,818 | $ | 9,855 | $ | (92,652 | ) | $ | (19,979 | ) | |||||
For the Nine Months Ended August 31, 2012 | |||||||||||||||
Balance at November 30, 2011 | $ | 54,888 | $ | 7,005 | $ | (113,572 | ) | $ | (51,679 | ) | |||||
Unrealized gain on available-for-sale investment securities, net of tax expense of $14,849 | 24,626 | — | — | 24,626 | |||||||||||
Unrealized (loss) on cash flow hedges, net of tax benefit of $1,506 | — | (2,497 | ) | — | (2,497 | ) | |||||||||
Unrealized pension and post retirement benefit (loss), net of tax benefit of $1,920 | — | — | (1,776 | ) | (1,776 | ) | |||||||||
Balance at August 31, 2012 | $ | 79,514 | $ | 4,508 | $ | (115,348 | ) | $ | (31,326 | ) | |||||
For the Nine Months Ended August 31, 2011 | |||||||||||||||
Balance at November 30, 2010 | $ | 7,921 | $ | 2,525 | $ | (92,994 | ) | $ | (82,548 | ) | |||||
Unrealized gain on available-for-sale investment securities, net of tax expense of $32,806 | 54,897 | — | — | 54,897 | |||||||||||
Unrealized gain on cash flow hedges, net of tax expense of $4,381 | — | 7,330 | — | 7,330 | |||||||||||
Unrealized pension and post retirement benefit gain, net of tax expense of $202 | — | — | 342 | 342 | |||||||||||
Balance at August 31, 2011 | $ | 62,818 | $ | 9,855 | $ | (92,652 | ) | $ | (19,979 | ) |
9. | Income Taxes |
Income tax expense consisted of the following (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Current: | |||||||||||||||
U.S. federal | $ | 306,999 | $ | 213,765 | $ | 815,833 | $ | 550,250 | |||||||
U.S. state and local | 43,698 | 38,576 | 120,844 | 74,292 | |||||||||||
International | 984 | 747 | 3,166 | 3,018 | |||||||||||
Total | 351,681 | 253,088 | 939,843 | 627,560 | |||||||||||
Deferred: | |||||||||||||||
U.S. federal | 30,578 | 135,145 | 146,795 | 332,965 | |||||||||||
U.S. state and local | 2,759 | 10,024 | 12,215 | 18,882 | |||||||||||
International | 10 | 6 | (9 | ) | 7 | ||||||||||
Total | 33,347 | 145,175 | 159,001 | 351,854 | |||||||||||
Income tax expense | $ | 385,028 | $ | 398,263 | $ | 1,098,844 | $ | 979,414 |
The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate: | |||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||
U.S. state, local and other income taxes, net of U.S. federal income tax benefits | 3.2 | 3.4 | 3.2 | 2.6 | |||||||
Valuation allowance - capital loss | — | — | — | (0.8 | ) | ||||||
Other | (0.1 | ) | (0.4 | ) | (0.2 | ) | (0.4 | ) | |||
Effective income tax rate | 38.1 | % | 38.0 | % | 38.0 | % | 36.4 | % |
10. | Earnings Per Share |
The following table presents the calculation of basic and diluted earnings per share ("EPS") (in thousands, except per share amounts): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 626,686 | $ | 648,818 | $ | 1,794,283 | $ | 1,714,129 | |||||||
Income allocated to participating securities | (5,916 | ) | (7,046 | ) | (17,513 | ) | (19,493 | ) | |||||||
Net income allocated to common stockholders | $ | 620,770 | $ | 641,772 | $ | 1,776,770 | $ | 1,694,636 | |||||||
Denominator: | |||||||||||||||
Weighted average shares of common stock outstanding | 512,793 | 544,438 | 523,462 | 544,997 | |||||||||||
Effect of dilutive common stock equivalents | 1,169 | 743 | 1,181 | 701 | |||||||||||
Weighted average shares of common stock outstanding and common stock equivalents | 513,962 | 545,181 | 524,643 | 545,698 | |||||||||||
Basic earnings per share | $ | 1.21 | $ | 1.18 | $ | 3.39 | $ | 3.11 | |||||||
Diluted earnings per share | $ | 1.21 | $ | 1.18 | $ | 3.39 | $ | 3.11 |
The following securities were considered anti-dilutive and therefore were excluded from the denominator in the computation of diluted EPS (shares in thousands): | |||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
Unexercised stock options | — | 348 | 2 | 374 |
11. | Capital Adequacy |
The following table shows the actual capital amounts and ratios of the Company and the Bank as of August 31, 2012 and November 30, 2011 and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in thousands): | ||||||||||||||||||
Actual | Minimum Capital Requirements | Capital Requirements To Be Classified as Well-Capitalized | ||||||||||||||||
Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||||||
August 31, 2012 | ||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 10,686,110 | 17.1 | % | $ | 4,997,394 | ≥8.0% | $ | 6,246,742 | ≥10.0% | ||||||||
Discover Bank | $ | 9,311,085 | 15.2 | % | $ | 4,905,887 | ≥8.0% | $ | 6,132,358 | ≥10.0% | ||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 8,698,015 | 13.9 | % | $ | 2,498,697 | ≥4.0% | $ | 3,748,045 | ≥6.0% | ||||||||
Discover Bank | $ | 7,337,118 | 12.0 | % | $ | 2,452,943 | ≥4.0% | $ | 3,679,415 | ≥6.0% | ||||||||
Tier 1 capital (to average assets) | ||||||||||||||||||
Discover Financial Services | $ | 8,698,015 | 11.9 | % | $ | 2,933,514 | ≥4.0% | $ | 3,666,893 | ≥5.0% | ||||||||
Discover Bank | $ | 7,337,118 | 10.2 | % | $ | 2,886,498 | ≥4.0% | $ | 3,608,122 | ≥5.0% | ||||||||
November 30, 2011 | ||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 9,808,660 | 16.5 | % | $ | 4,764,887 | ≥8.0% | $ | 5,956,109 | ≥10.0% | ||||||||
Discover Bank | $ | 8,671,391 | 14.8 | % | $ | 4,693,645 | ≥8.0% | $ | 5,867,056 | ≥10.0% | ||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 7,850,451 | 13.2 | % | $ | 2,382,444 | ≥4.0% | $ | 3,573,665 | ≥6.0% | ||||||||
Discover Bank | $ | 6,724,176 | 11.5 | % | $ | 2,346,822 | ≥4.0% | $ | 3,520,234 | ≥6.0% | ||||||||
Tier 1 capital (to average assets) | ||||||||||||||||||
Discover Financial Services | $ | 7,850,451 | 11.5 | % | $ | 2,729,480 | ≥4.0% | $ | 3,411,851 | ≥5.0% | ||||||||
Discover Bank | $ | 6,724,176 | 10.0 | % | $ | 2,690,135 | ≥4.0% | $ | 3,362,668 | ≥5.0% |
12. | Commitments, Contingencies and Guarantees |
Lease commitments. The Company leases various office space and equipment under capital and non-cancelable operating leases which expire at various dates through 2022. At August 31, 2012, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands): | |||||||
Capitalized Leases | Operating Leases | ||||||
2012 | $ | 127 | $ | 4,093 | |||
2013 | 508 | 14,906 | |||||
2014 | 508 | 13,088 | |||||
2015 | 489 | 9,316 | |||||
2016 | 178 | 8,348 | |||||
Thereafter | — | 16,642 | |||||
Total minimum lease payments | 1,810 | $ | 66,393 | ||||
Less: Amount representing interest | 142 | ||||||
Present value of net minimum least payments | $ | 1,668 |
• | 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. |
The maximum potential amount of future payments related to such contingent obligations is dependent upon the transaction volume processed between the time a counterparty defaults on its settlement and the time at which the Company disables the settlement of any further transactions for the defaulting party, which could be up to one month depending on the type of guarantee/counterparty. However, there is no limitation on the maximum amount the Company may be liable to pay. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement obligations. While the Company has some contractual remedies to offset these counterparty settlement exposures (such as letters of credit or pledged deposits), in the event that all licensees and/or issuers were to become unable to settle their transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees, based on historical transaction volume of up to one month, would be as follows: | |||
August 31, 2012 | |||
Diners Club: | |||
Merchant guarantee (in millions) | $ | 262 | |
PULSE: | |||
ATM guarantee (in thousands) | $ | 1,045 |
The table below summarizes certain information regarding merchant chargeback guarantees: | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Losses related to merchant chargebacks (in thousands)(1) | $ | (166 | ) | $ | 291 | $ | (65 | ) | $ | 1,625 | |||||
Aggregate sales transaction volume (in millions)(2) | $ | 29,592 | $ | 28,416 | $ | 85,816 | $ | 81,051 |
(1) | Gain in three and nine months ended 2012 is due to recoveries in the current quarter which offset losses. |
(2) | Represents period transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume. |
The Company has not recorded any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees on August 31, 2012 and November 30, 2011. The Company mitigates the risk of potential loss exposure by withholding settlement from merchants, obtaining third-party guarantees, or obtaining escrow deposits or letters of credit from certain merchant acquirers or merchants that are considered higher risk due to various factors such as time delays in the delivery of products or services. The table below provides information regarding settlement withholdings and escrow deposits, which are recorded in interest-bearing deposit accounts, and accrued expenses and other liabilities on the Company’s condensed consolidated statements of financial condition (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
Settlement withholdings and escrow deposits | $ | 21,084 | $ | 24,297 |
13. | Litigation and Regulatory Matters |
14. | Fair Value Disclosures |
• | Level 1: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access. |
• | Level 2: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2. |
• | Level 3: Fair values determined by Level 3 inputs are those based on unobservable inputs, and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category. |
Assets and liabilities measured at fair value on a recurring basis are as follows (dollars in thousands): | |||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Balance at August 31, 2012 | |||||||||||||||
Assets | |||||||||||||||
U.S Treasury securities | $ | 2,470,898 | $ | — | $ | — | $ | 2,470,898 | |||||||
U.S government agency securities | 2,319,285 | — | — | 2,319,285 | |||||||||||
Credit card asset-backed securities of other issuers | — | 164,294 | — | 164,294 | |||||||||||
Corporate debt securities | — | 145,529 | — | 145,529 | |||||||||||
Residential mortgage-backed securities - Agency | — | 1,277,496 | — | 1,277,496 | |||||||||||
Available-for-sale investment securities | $ | 4,790,183 | $ | 1,587,319 | $ | — | $ | 6,377,502 | |||||||
Mortgage loans held for sale | $ | — | $ | 272,082 | $ | — | $ | 272,082 | |||||||
Interest rate lock commitments | $ | — | $ | — | $ | 17,448 | $ | 17,448 | |||||||
Forward delivery contracts | — | 984 | 95 | 1,079 | |||||||||||
Other derivative financial instruments | — | 117,681 | — | 117,681 | |||||||||||
Derivative financial instruments | $ | — | $ | 118,665 | $ | 17,543 | $ | 136,208 | |||||||
Liabilities | |||||||||||||||
Interest rate lock commitments | $ | — | $ | — | $ | 34 | $ | 34 | |||||||
Forward delivery contracts | — | 4,668 | 6 | 4,674 | |||||||||||
Other derivative financial instruments | — | 68 | — | 68 | |||||||||||
Derivative financial instruments | $ | — | $ | 4,736 | $ | 40 | $ | 4,776 | |||||||
Balance at November 30, 2011 | |||||||||||||||
Assets | |||||||||||||||
U.S Treasury securities | $ | 2,563,250 | $ | — | $ | — | $ | 2,563,250 | |||||||
U.S government agency securities | 2,795,223 | — | — | 2,795,223 | |||||||||||
Credit card asset-backed securities of other issuers | — | 299,889 | — | 299,889 | |||||||||||
Corporate debt securities | — | 449,469 | — | 449,469 | |||||||||||
Available-for-sale investment securities | $ | 5,358,473 | $ | 749,358 | $ | — | $ | 6,107,831 | |||||||
Derivative financial instruments | $ | — | $ | 63,576 | $ | — | $ | 63,576 | |||||||
Liabilities | |||||||||||||||
Derivative financial instruments | $ | — | $ | 448 | $ | — | $ | 448 |
The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis. There were no Level 3 assets or liabilities measured at fair value on a recurring basis at any point during the three months ended August 31, 2011. | ||||||||||||||||||||||||||||||||||||
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in thousands) | ||||||||||||||||||||||||||||||||||||
For the Three Months Ended August 31, 2012 | ||||||||||||||||||||||||||||||||||||
Balance at May 31, 2012 | Transfers into Level 3 | Transfers out of Level 3 | Total net gains (losses) included in earnings | Purchases | Sales | Settlements | Transfers of IRLCs to closed loans | Balance at August 31, 2012 | ||||||||||||||||||||||||||||
Interest rate lock commitments | $ | — | $ | — | $ | — | $ | 49,437 | $ | 4,757 | $ | — | $ | (202 | ) | $ | (36,578 | ) | $ | 17,414 | ||||||||||||||||
Forward delivery contracts | $ | — | $ | — | $ | (734 | ) | $ | 802 | $ | 21 | $ | — | $ | — | $ | — | $ | 89 | |||||||||||||||||
For the Nine Months Ended August 31, 2012 | ||||||||||||||||||||||||||||||||||||
Balance at November 30, 2011 | Transfers into Level 3 | Transfers out of Level 3 | Total net gains (losses) included in earnings | Purchases | Sales | Settlements | Transfers of IRLCs to closed loans | Balance at August 31, 2012 | ||||||||||||||||||||||||||||
Interest rate lock commitments | $ | — | $ | — | $ | — | $ | 49,437 | $ | 4,757 | $ | — | $ | (202 | ) | $ | (36,578 | ) | $ | 17,414 | ||||||||||||||||
Forward delivery contracts | $ | — | $ | — | $ | (734 | ) | $ | 802 | $ | 21 | $ | — | $ | — | $ | — | $ | 89 | |||||||||||||||||
For the Nine Months Ended August 31, 2011 | ||||||||||||||||||||||||||||||||||||
Balance at November 30, 2010 | Transfers into Level 3 | Transfers out of Level 3 | Total net gains (losses) included in earnings | Purchases | Sales | Settlements | Transfers of IRLCs to closed loans | Balance at August 31, 2011 | ||||||||||||||||||||||||||||
Equity securities | $ | 17 | $ | — | $ | — | $ | 144 | $ | — | $ | (161 | ) | $ | — | $ | — | $ | — |
The following table presents information about significant unobservable inputs related to the Company's Level 3 financial assets and liabilities measured at fair value on a recurring and non-recurring basis as of August 31, 2012. | |||||||||||||
Fair Value | Valuation Technique | Significant Unobservable Input | Ranges of Inputs | ||||||||||
Low | High | ||||||||||||
Interest rate lock commitments | $ | 17,414 | Quantitative risk models | Loan funding probability | 20 | % | 95 | % | |||||
Forward delivery contracts | $ | 89 | Quantitative risk models | Loan funding probability | 28 | % | 99 | % |
The following table discloses the estimated fair value of the Company's financial assets and financial liabilities that are not required to be carried at fair value, as of August 31, 2012 (dollars in thousands): | |||||||||||||||||||
Quoted Prices in Active Markets for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | Carrying Value | |||||||||||||||
Balance at August 31, 2012 | |||||||||||||||||||
Assets | |||||||||||||||||||
U.S Treasury securities | $ | 550 | $ | — | $ | — | $ | 550 | $ | 550 | |||||||||
States and political subdivisions of states | — | 35,174 | — | 35,174 | 35,242 | ||||||||||||||
Residential mortgage-backed securities - Agency | — | 56,544 | — | 56,544 | 54,213 | ||||||||||||||
Held-to-maturity investment securities | $ | 550 | $ | 91,718 | $ | — | $ | 92,268 | $ | 90,005 | |||||||||
Cash and cash equivalents | $ | 6,237,610 | $ | — | $ | — | $ | 6,237,610 | $ | 6,237,610 | |||||||||
Restricted cash | $ | 301,349 | $ | — | $ | — | $ | 301,349 | $ | 301,349 | |||||||||
Net loan receivables | $ | — | $ | — | $ | 59,047,925 | $ | 59,047,925 | $ | 57,469,848 | |||||||||
Accrued interest receivables | $ | — | $ | 486,798 | $ | — | $ | 486,798 | $ | 486,798 | |||||||||
Liabilities | |||||||||||||||||||
Deposits | $ | — | $ | 42,854,843 | $ | — | $ | 42,854,843 | $ | 42,318,312 | |||||||||
Short-term borrowings | $ | — | $ | 250,139 | $ | — | $ | 250,139 | $ | 250,139 | |||||||||
Long-term borrowings - owed to securitization investors | $ | — | $ | 15,365,667 | $ | 2,405,139 | $ | 17,770,806 | $ | 17,337,914 | |||||||||
Other long-term borrowings | $ | — | $ | 2,358,219 | $ | 1,797 | $ | 2,360,016 | $ | 1,908,199 | |||||||||
Accrued interest payables | $ | — | $ | 164,080 | $ | — | $ | 164,080 | $ | 164,080 |
15. | Derivatives and Hedging Activities |
The following table summarizes the fair value (including accrued interest) and related outstanding notional amounts of derivative instruments and indicates where within the statement of financial condition each is reported as of August 31, 2012 and November 30, 2011. See Note 14: Fair Value Disclosures for a description of the valuation methodologies of derivatives. (Dollars in thousands): | ||||||||||||||||||||||||||
August 31, 2012 | November 30, 2011 | |||||||||||||||||||||||||
Balance Sheet Location | Balance Sheet Location | |||||||||||||||||||||||||
Notional Amount | Number of Transactions | Other Assets (At Fair Value) | Accrued Expenses and Other Liabilities (At Fair Value) | Notional Amount | Other Assets (At Fair Value) | Accrued Expenses and Other Liabilities (At Fair Value) | ||||||||||||||||||||
Derivatives designated as hedges: | ||||||||||||||||||||||||||
Interest rate swaps—cash flow hedge | $ | 2,000,000 | 8 | $ | 8,229 | $ | — | $ | 2,000,000 | $ | 12,191 | $ | — | |||||||||||||
Interest rate swaps—fair value hedge | $ | 7,468,200 | 258 | $ | 108,948 | $ | — | $ | 2,338,276 | $ | 44,171 | $ | 279 | |||||||||||||
Derivatives not designated as hedges: | ||||||||||||||||||||||||||
Foreign exchange forward contracts(1) | $ | 26,375 | 5 | $ | — | $ | 68 | $ | 21,453 | $ | — | $ | 169 | |||||||||||||
Interest rate swap | $ | 1,090,378 | 1 | $ | 504 | $ | — | $ | 1,294,932 | $ | 7,214 | $ | — | |||||||||||||
Forward delivery contracts | $ | 593,036 | 495 | $ | 1,079 | $ | 4,674 | $ | — | $ | — | $ | — | |||||||||||||
Interest rate lock commitments | $ | 622,153 | 3,013 | $ | 17,448 | $ | 34 | $ | — | $ | — | $ | — |
(1) | The foreign exchange forward contracts have notional amounts of EUR 17.7 million, GBP 1.9 million and SGD 1.5 million as of August 31, 2012 and EUR 14.0 million and GBP 1.7 million as of November 30, 2011. |
The following table summarizes the impact of the derivative instruments on income, and indicates where within the condensed consolidated statements of income such impact is reported for the three and nine months ended August 31, 2012 and 2011 (dollars in thousands): | |||||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||||
Location | 2012 | 2011 | 2012 | 2011 | |||||||||||||
Derivatives designated as hedges: | |||||||||||||||||
Interest rate swaps—cash flow hedges: | |||||||||||||||||
Total (losses) gains recognized in other comprehensive income after amounts reclassified into earnings, pre-tax | Other Comprehensive Income | $ | (383 | ) | $ | 13,113 | $ | (4,003 | ) | $ | 11,711 | ||||||
Total (losses) gains recognized in other comprehensive income | $ | (383 | ) | $ | 13,113 | $ | (4,003 | ) | $ | 11,711 | |||||||
Amount reclassified from other comprehensive income into income | Interest Income | $ | 1,892 | $ | 1,892 | $ | 5,656 | $ | 5,636 | ||||||||
Interest rate swaps—fair value hedges: | |||||||||||||||||
Interest expense—ineffectiveness | 35,303 | 34,715 | 60,452 | 38,924 | |||||||||||||
Interest expense—other | 8,479 | 4,087 | 20,333 | 8,090 | |||||||||||||
Gain on interest rate swaps | Interest Expense | 43,782 | 38,802 | 80,785 | 47,014 | ||||||||||||
Interest expense—ineffectiveness | (33,880 | ) | (32,575 | ) | (56,394 | ) | (34,064 | ) | |||||||||
Interest expense—other | (1,524 | ) | (1,608 | ) | (4,619 | ) | (4,853 | ) | |||||||||
Loss on hedged item | Interest Expense | (35,404 | ) | (34,183 | ) | (61,013 | ) | (38,917 | ) | ||||||||
Total gains recognized in income | $ | 10,270 | $ | 6,511 | $ | 25,428 | $ | 13,733 | |||||||||
Derivatives not designated as hedges: | |||||||||||||||||
Gain (loss) on forward contracts | Other Income | $ | (468 | ) | $ | 30 | $ | 1,179 | $ | (703 | ) | ||||||
Gain (loss) on interest rate swaps | Other Income | (3,375 | ) | (2,037 | ) | (6,348 | ) | (7,518 | ) | ||||||||
Gain on forward delivery contracts | Other Income | (2,375 | ) | — | (2,375 | ) | — | ||||||||||
Gain on interest rate lock commitments | Other Income | 49,437 | — | 49,437 | — | ||||||||||||
Total gains (losses) on derivatives not designated as hedges recognized in income | $ | 43,219 | $ | (2,007 | ) | $ | 41,893 | $ | (8,221 | ) |
16. | 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 home loans, personal loans, private student loans, prepaid cards and other consumer lending and deposit products. 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, protection products (previously referred to as "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 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. |
The following table presents segment data for the three months ended August 31, 2012 and 2011 (dollars in thousands): | |||||||||||
For the Three Months Ended | Direct Banking | Payment Services | Total | ||||||||
August 31, 2012 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 1,451,836 | $ | — | $ | 1,451,836 | |||||
Private student loans | 46,964 | — | 46,964 | ||||||||
PCI student loans | 75,243 | — | 75,243 | ||||||||
Personal loans | 93,912 | — | 93,912 | ||||||||
Other | 27,014 | — | 27,014 | ||||||||
Total interest income | 1,694,969 | — | 1,694,969 | ||||||||
Interest expense | 325,310 | — | 325,310 | ||||||||
Net interest income (expense) | 1,369,659 | — | 1,369,659 | ||||||||
Provision for loan losses | 126,288 | — | 126,288 | ||||||||
Other income | 505,960 | 88,290 | 594,250 | ||||||||
Other expense | 786,900 | 39,007 | 825,907 | ||||||||
Income before income tax expense | $ | 962,431 | $ | 49,283 | $ | 1,011,714 | |||||
August 31, 2011 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 1,423,496 | $ | — | $ | 1,423,496 | |||||
Private student loans | 30,014 | — | 30,014 | ||||||||
PCI student loans | 54,304 | — | 54,304 | ||||||||
Personal loans | 70,052 | — | 70,052 | ||||||||
Other | 21,209 | 17 | 21,226 | ||||||||
Total interest income | 1,599,075 | 17 | 1,599,092 | ||||||||
Interest expense | 362,017 | 36 | 362,053 | ||||||||
Net interest income (expense) | 1,237,058 | (19 | ) | 1,237,039 | |||||||
Provision for loan losses | 99,514 | — | 99,514 | ||||||||
Other income | 481,134 | 70,829 | 551,963 | ||||||||
Other expense | 609,202 | 33,205 | 642,407 | ||||||||
Income before income tax expense | $ | 1,009,476 | $ | 37,605 | $ | 1,047,081 |
The following table presents segment data for the nine months ended August 31, 2012 and 2011 (dollars in thousands): | |||||||||||
For the Nine Months Ended | Direct Banking | Payment Services | Total | ||||||||
August 31, 2012 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 4,296,757 | $ | — | $ | 4,296,757 | |||||
Private student loans | 132,028 | — | 132,028 | ||||||||
PCI student loans | 229,678 | — | 229,678 | ||||||||
Personal loans | 264,882 | — | 264,882 | ||||||||
Other | 73,797 | 4 | 73,801 | ||||||||
Total interest income | 4,997,142 | 4 | 4,997,146 | ||||||||
Interest expense | 1,019,057 | 52 | 1,019,109 | ||||||||
Net interest income (expense) | 3,978,085 | (48 | ) | 3,978,037 | |||||||
Provision for loan losses | 510,401 | — | 510,401 | ||||||||
Other income | 1,419,046 | 257,847 | 1,676,893 | ||||||||
Other expense | 2,141,892 | 109,510 | 2,251,402 | ||||||||
Income before income tax expense | $ | 2,744,838 | $ | 148,289 | $ | 2,893,127 | |||||
August 31, 2011 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 4,243,803 | $ | — | $ | 4,243,803 | |||||
Private student loans | 80,473 | — | 80,473 | ||||||||
PCI student loans | 149,460 | — | 149,460 | ||||||||
Personal loans | 189,525 | — | 189,525 | ||||||||
Other | 62,044 | 29 | 62,073 | ||||||||
Total interest income | 4,725,305 | 29 | 4,725,334 | ||||||||
Interest expense | 1,124,597 | 163 | 1,124,760 | ||||||||
Net interest income (expense) | 3,600,708 | (134 | ) | 3,600,574 | |||||||
Provision for loan losses | 692,763 | — | 692,763 | ||||||||
Other income | 1,436,764 | 221,667 | 1,658,431 | ||||||||
Other expense | 1,774,915 | 97,784 | 1,872,699 | ||||||||
Income before income tax expense | $ | 2,569,794 | $ | 123,749 | $ | 2,693,543 |
17. | Subsequent Events |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Net income for the third quarter of 2012 was $627 million, compared to $649 million for the third quarter of 2011. |
• | Credit card loans grew $1.9 billion to $48.1 billion and Discover card sales volume increased 4% from the prior year. |
• | Credit card loan delinquencies and net charge-offs reached historic lows with a delinquency rate for loans over 30 days past due of 1.81% and a net charge-off rate of 2.43%. |
• | Payment services pretax income was up 31% from the prior year to $49 million. Transaction volume for the segment was $50.3 billion in the quarter, an increase of 13% from the prior year. |
• | We repurchased approximately ten million shares of our common stock for $350 million, reducing our number of shares outstanding by 1.9%. |
• | We issued $3.1 billion of credit card asset-backed securities in registered public offerings through a securitization trust. |
• | We began offering residential mortgage loans through Discover Home Loans, Inc., following our acquisition in June of substantially all of the operating and related assets of Home Loan Center, Inc., a subsidiary of Tree.com, Inc. |
• | On September 20, 2012, we announced a cash dividend of $0.10 per share of common stock, payable on October 18, 2012, to stockholders of record at the close of business on October 4, 2012. |
• | On September 24, 2012, Discover Bank entered into a consent order with the Federal Deposit Insurance Corporation (“FDIC”) and the Consumer Financial Protection Bureau ("CFPB") for resolution of the agencies' joint investigation with respect to the marketing of the Bank's protection products. The order requires the Bank to provide refunds of approximately $200 million to eligible customers who purchased certain protection products between December 1, 2007 and August 31, 2011. In addition, the Bank agreed to pay a $14 million civil monetary penalty to the agencies. Adequate provision has been made to cover these costs in the financial statements as of August 31, 2012. |
• | On September 27, 2012, we issued $500 million of credit card asset-backed securities through a private conduit provider. |
The following table presents segment data (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Direct Banking | |||||||||||||||
Interest income | |||||||||||||||
Credit card | $ | 1,451,836 | $ | 1,423,496 | $ | 4,296,757 | $ | 4,243,803 | |||||||
Private student loans | 46,964 | 30,014 | 132,028 | 80,473 | |||||||||||
PCI student loans | 75,243 | 54,304 | 229,678 | 149,460 | |||||||||||
Personal loans | 93,912 | 70,052 | 264,882 | 189,525 | |||||||||||
Other | 27,014 | 21,209 | 73,797 | 62,044 | |||||||||||
Total interest income | 1,694,969 | 1,599,075 | 4,997,142 | 4,725,305 | |||||||||||
Interest expense | 325,310 | 362,017 | 1,019,057 | 1,124,597 | |||||||||||
Net interest income | 1,369,659 | 1,237,058 | 3,978,085 | 3,600,708 | |||||||||||
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 | |||||||||||
Other income | 505,960 | 481,134 | 1,419,046 | 1,436,764 | |||||||||||
Other expense | 786,900 | 609,202 | 2,141,892 | 1,774,915 | |||||||||||
Income before income tax expense | 962,431 | 1,009,476 | 2,744,838 | 2,569,794 | |||||||||||
Payment Services | |||||||||||||||
Interest income | — | 17 | 4 | 29 | |||||||||||
Interest expense | — | 36 | 52 | 163 | |||||||||||
Net interest expense | — | (19 | ) | (48 | ) | (134 | ) | ||||||||
Provision for loan losses | — | — | — | — | |||||||||||
Other income | 88,290 | 70,829 | 257,847 | 221,667 | |||||||||||
Other expense | 39,007 | 33,205 | 109,510 | 97,784 | |||||||||||
Income before income tax expense | 49,283 | 37,605 | 148,289 | 123,749 | |||||||||||
Total income before income tax expense | $ | 1,011,714 | $ | 1,047,081 | $ | 2,893,127 | $ | 2,693,543 |
The following table presents information on transaction volume (in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Network Transaction Volume | |||||||||||||||
PULSE Network | $ | 40,990,471 | $ | 35,109,450 | $ | 120,568,280 | $ | 106,208,008 | |||||||
Third-Party Issuers | 2,231,224 | 1,983,863 | 6,456,903 | 5,593,364 | |||||||||||
Diners Club (1) | 7,040,743 | 7,426,859 | 21,345,640 | 21,804,221 | |||||||||||
Total Payment Services | 50,262,438 | 44,520,172 | 148,370,823 | 133,605,593 | |||||||||||
Discover Network—Proprietary (2) | 28,084,201 | 27,133,026 | 81,551,969 | 77,601,894 | |||||||||||
Total Volume | $ | 78,346,639 | $ | 71,653,198 | $ | 229,922,792 | $ | 211,207,487 | |||||||
Transactions Processed on Networks | |||||||||||||||
Discover Network | 475,861 | 451,041 | 1,374,869 | 1,282,783 | |||||||||||
PULSE Network | 1,125,209 | 949,965 | 3,256,862 | 2,885,239 | |||||||||||
Total | 1,601,070 | 1,401,006 | 4,631,731 | 4,168,022 | |||||||||||
Credit Card Volume | |||||||||||||||
Discover Card Volume (3) | $ | 29,763,304 | $ | 28,455,156 | $ | 85,273,360 | $ | 81,141,781 | |||||||
Discover Card Sales Volume (4) | $ | 27,201,688 | $ | 26,270,622 | $ | 78,920,772 | $ | 75,104,974 |
(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 other activity. |
(4) | Represents Discover card activity related to net sales. |
The following table outlines changes in our condensed consolidated statements of income for the periods presented (dollars in thousands): | |||||||||||||||||||||||||||||
For the Three Months Ended August 31, | 2012 vs. 2011 increase (decrease) | For the Nine Months Ended August 31, | 2012 vs. 2011 increase (decrease) | ||||||||||||||||||||||||||
2012 | 2011 | $ | % | 2012 | 2011 | $ | % | ||||||||||||||||||||||
Interest income | $ | 1,694,969 | $ | 1,599,092 | $ | 95,877 | 6 | % | $ | 4,997,146 | $ | 4,725,334 | $ | 271,812 | 6 | % | |||||||||||||
Interest expense | 325,310 | 362,053 | (36,743 | ) | (10 | )% | 1,019,109 | 1,124,760 | (105,651 | ) | (9 | )% | |||||||||||||||||
Net interest income | 1,369,659 | 1,237,039 | 132,620 | 11 | % | 3,978,037 | 3,600,574 | 377,463 | 11 | % | |||||||||||||||||||
Provision for loan losses | 126,288 | 99,514 | 26,774 | 27 | % | 510,401 | 692,763 | (182,362 | ) | (26 | )% | ||||||||||||||||||
Net interest income after provision for loan losses | 1,243,371 | 1,137,525 | 105,846 | 9 | % | 3,467,636 | 2,907,811 | 559,825 | 19 | % | |||||||||||||||||||
Other income | 594,250 | 551,963 | 42,287 | 8 | % | 1,676,893 | 1,658,431 | 18,462 | 1 | % | |||||||||||||||||||
Other expense | 825,907 | 642,407 | 183,500 | 29 | % | 2,251,402 | 1,872,699 | 378,703 | 20 | % | |||||||||||||||||||
Income (loss) before income tax expense | 1,011,714 | 1,047,081 | (35,367 | ) | (3 | )% | 2,893,127 | 2,693,543 | 199,584 | 7 | % | ||||||||||||||||||
Income tax expense | 385,028 | 398,263 | (13,235 | ) | (3 | )% | 1,098,844 | 979,414 | 119,430 | 12 | % | ||||||||||||||||||
Net income | $ | 626,686 | $ | 648,818 | $ | (22,132 | ) | (3 | )% | $ | 1,794,283 | $ | 1,714,129 | $ | 80,154 | 5 | % |
• | The level and composition of loan receivables, including the proportion of credit card loans to other 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 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 | |||||||||||||||||||||
For the Three Months Ended August 31, | |||||||||||||||||||||
2012 | 2011 | ||||||||||||||||||||
Average Balance | Rate | Interest | Average Balance | Rate | Interest | ||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 5,442,901 | 0.28 | % | $ | 3,839 | $ | 3,453,928 | 0.25 | % | $ | 2,160 | |||||||||
Restricted cash | 1,388,389 | 0.14 | % | 490 | 1,184,566 | 0.11 | % | 336 | |||||||||||||
Other short-term investments | 250 | — | % | — | — | — | % | — | |||||||||||||
Investment securities | 6,532,840 | 1.30 | % | 21,371 | 5,814,467 | 1.07 | % | 15,676 | |||||||||||||
Loan receivables(1): | |||||||||||||||||||||
Credit card(2)(3) | 47,066,962 | 12.27 | % | 1,451,836 | 45,343,304 | 12.46 | % | 1,423,496 | |||||||||||||
Personal loans | 3,011,379 | 12.41 | % | 93,912 | 2,321,496 | 11.97 | % | 70,052 | |||||||||||||
Federal student loans(4) | — | — | % | — | 747,719 | 1.57 | % | 2,957 | |||||||||||||
Private student loans | 2,560,636 | 7.30 | % | 46,964 | 1,673,058 | 7.12 | % | 30,014 | |||||||||||||
PCI student loans | 4,932,677 | 6.07 | % | 75,243 | 2,915,342 | 7.39 | % | 54,304 | |||||||||||||
Mortgage loans held for sale | 122,157 | 3.44 | % | 1,057 | — | — | % | — | |||||||||||||
Other | 27,341 | 3.74 | % | 257 | 12,140 | 3.13 | % | 97 | |||||||||||||
Total loan receivables | 57,721,152 | 11.50 | % | 1,669,269 | 53,013,059 | 11.83 | % | 1,580,920 | |||||||||||||
Total interest-earning assets | 71,085,532 | 9.49 | % | 1,694,969 | 63,466,020 | 10.00 | % | 1,599,092 | |||||||||||||
Allowance for loan losses | (1,891,694 | ) | (2,490,577 | ) | |||||||||||||||||
Other assets | 4,059,120 | 3,796,491 | |||||||||||||||||||
Total assets | $ | 73,252,958 | $ | 64,771,934 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||
Time deposits(5) | $ | 27,639,575 | 2.46 | % | 171,013 | $ | 24,829,744 | 3.29 | % | 205,929 | |||||||||||
Money market deposits | 5,382,369 | 0.87 | % | 11,744 | 4,676,243 | 1.21 | % | 14,296 | |||||||||||||
Other interest-bearing savings deposits | 8,855,038 | 1.00 | % | 22,225 | 6,432,652 | 1.33 | % | 21,494 | |||||||||||||
Total interest-bearing deposits(6) | 41,876,982 | 1.95 | % | 204,982 | 35,938,639 | 2.67 | % | 241,719 | |||||||||||||
Borrowings: | |||||||||||||||||||||
Short-term borrowings | 113,104 | 1.49 | % | 423 | 167,804 | 0.08 | % | 33 | |||||||||||||
Securitized borrowings(5) | 17,270,971 | 1.90 | % | 82,636 | 15,624,848 | 2.05 | % | 80,573 | |||||||||||||
Other long-term borrowings(5) | 1,904,400 | 7.79 | % | 37,269 | 2,449,670 | 6.43 | % | 39,728 | |||||||||||||
Total borrowings | 19,288,475 | 2.48 | % | 120,328 | 18,242,322 | 2.62 | % | 120,334 | |||||||||||||
Total interest-bearing liabilities | 61,165,457 | 2.12 | % | 325,310 | 54,180,961 | 2.65 | % | 362,053 | |||||||||||||
Other liabilities and stockholders’ equity | 12,087,501 | 10,590,973 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 73,252,958 | $ | 64,771,934 | |||||||||||||||||
Net interest income | $ | 1,369,659 | $ | 1,237,039 | |||||||||||||||||
Net interest margin(7) | 9.44 | % | 9.26 | % | |||||||||||||||||
Net yield on interest-earning assets(8) | 7.67 | % | 7.73 | % | |||||||||||||||||
Interest rate spread(9) | 7.37 | % | 7.35 | % |
For the Nine Months Ended August 31, | |||||||||||||||||||||
2012 | 2011 | ||||||||||||||||||||
Average Balance | Rate | Interest | Average Balance | Rate | Interest | ||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 4,879,431 | 0.27 | % | $ | 10,079 | $ | 3,885,023 | 0.24 | % | $ | 7,143 | |||||||||
Restricted cash | 971,317 | 0.15 | % | 1,128 | 1,365,770 | 0.14 | % | 1,452 | |||||||||||||
Other short-term investments | 160 | — | % | — | 203,832 | 1.07 | % | 1,639 | |||||||||||||
Investment securities | 6,462,369 | 1.21 | % | 58,869 | 5,469,488 | 1.04 | % | 42,535 | |||||||||||||
Loan receivables(1): | |||||||||||||||||||||
Credit card(2)(3) | 46,584,681 | 12.28 | % | 4,296,757 | 45,021,656 | 12.56 | % | 4,243,803 | |||||||||||||
Personal loans | 2,859,342 | 12.33 | % | 264,882 | 2,127,084 | 11.87 | % | 189,525 | |||||||||||||
Federal student loans(4) | 161,378 | 1.64 | % | 1,984 | 761,580 | 1.58 | % | 9,019 | |||||||||||||
Private student loans | 2,437,137 | 7.21 | % | 132,028 | 1,517,809 | 7.06 | % | 80,473 | |||||||||||||
PCI student loans | 5,059,495 | 6.04 | % | 229,678 | 2,638,981 | 7.54 | % | 149,460 | |||||||||||||
Mortgage loans held for sale | 40,867 | 3.44 | % | 1,057 | — | — | % | — | |||||||||||||
Other | 24,554 | 3.71 | % | 684 | 13,169 | 2.88 | % | 285 | |||||||||||||
Total loan receivables | 57,167,454 | 11.47 | % | 4,927,070 | 52,080,279 | 11.95 | % | 4,672,565 | |||||||||||||
Total interest-earning assets | 69,480,731 | 9.57 | % | 4,997,146 | 63,004,392 | 9.99 | % | 4,725,334 | |||||||||||||
Allowance for loan losses | (2,031,521 | ) | (2,863,500 | ) | |||||||||||||||||
Other assets | 3,980,819 | 3,781,777 | |||||||||||||||||||
Total assets | $ | 71,430,029 | $ | 63,922,669 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||
Time deposits(5) | $ | 26,804,396 | 2.71 | % | 545,258 | $ | 25,102,544 | 3.45 | % | 649,406 | |||||||||||
Money market deposits | 5,428,663 | 0.93 | % | 37,906 | 4,511,303 | 1.25 | % | 42,414 | |||||||||||||
Other interest-bearing savings deposits | 8,548,349 | 1.04 | % | 67,049 | 5,576,319 | 1.38 | % | 57,764 | |||||||||||||
Total interest-bearing deposits(6) | 40,781,408 | 2.12 | % | 650,213 | 35,190,166 | 2.84 | % | 749,584 | |||||||||||||
Borrowings: | |||||||||||||||||||||
Short-term borrowings | 41,177 | 1.37 | % | 424 | 125,590 | 0.12 | % | 116 | |||||||||||||
Securitized borrowings(5) | 16,748,332 | 2.00 | % | 251,955 | 16,142,231 | 2.09 | % | 253,297 | |||||||||||||
Other long-term borrowings(5) | 2,058,856 | 7.53 | % | 116,517 | 2,472,765 | 6.56 | % | 121,763 | |||||||||||||
Total borrowings | 18,848,365 | 2.60 | % | 368,896 | 18,740,586 | 2.67 | % | 375,176 | |||||||||||||
Total interest-bearing liabilities | 59,629,773 | 2.27 | % | 1,019,109 | 53,930,752 | 2.78 | % | 1,124,760 | |||||||||||||
Other liabilities and stockholders’ equity | 11,800,256 | 9,991,917 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 71,430,029 | $ | 63,922,669 | |||||||||||||||||
Net interest income | $ | 3,978,037 | $ | 3,600,574 | |||||||||||||||||
Net interest margin(7) | 9.26 | % | 9.21 | % | |||||||||||||||||
Net yield on interest-earning assets(8) | 7.62 | % | 7.61 | % | |||||||||||||||||
Interest rate spread(9) | 7.30 | % | 7.21 | % |
(1) | 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. |
(2) | Interest income on credit card loans includes $46.5 million and $134.8 million of amortization of balance transfer fees for the three and nine months ended August 31, 2012, respectively. Interest income on credit card loans includes $60.8 million and $170.1 million of amortization of balance transfer fees for the three and nine months ended August 31, 2011, respectively. |
(3) | Includes the impact of interest rate swap agreements used to change a portion of certain floating-rate credit card loan receivables to fixed rates. |
(4) | Includes federal student loans held for sale, which were all sold during the first quarter of 2012. |
(5) | Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding. |
(6) | Includes the impact of FDIC insurance premiums and special assessments, and all periods reflect management's current product allocation methodology. |
(7) | Net interest margin represents net interest income as a percentage of average total loan receivables. |
(8) | Net yield on interest-earning assets represents net interest income as a percentage of average total interest-earning assets. |
(9) | 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) | |||||||||||||||||||||||
For the Three Months Ended August 31, 2012 vs. August 31, 2011 | For the Nine Months Ended August 31, 2012 vs. August 31, 2011 | ||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Increase/(decrease) in net interest income due to changes in: | |||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | 1,368 | $ | 311 | $ | 1,679 | $ | 1,986 | $ | 950 | $ | 2,936 | |||||||||||
Restricted cash | 63 | 91 | 154 | (515 | ) | 191 | (324 | ) | |||||||||||||||
Other short-term investments | — | — | — | (1,639 | ) | — | (1,639 | ) | |||||||||||||||
Investment securities | 2,068 | 3,627 | 5,695 | 8,428 | 7,906 | 16,334 | |||||||||||||||||
Loan receivables: | |||||||||||||||||||||||
Credit card | 140,446 | (112,106 | ) | 28,340 | 186,055 | (133,101 | ) | 52,954 | |||||||||||||||
Personal loans | 21,262 | 2,598 | 23,860 | 67,733 | 7,624 | 75,357 | |||||||||||||||||
Federal student loans | (2,957 | ) | — | (2,957 | ) | (7,572 | ) | 537 | (7,035 | ) | |||||||||||||
Private student loans | 16,183 | 767 | 16,950 | 49,840 | 1,715 | 51,555 | |||||||||||||||||
PCI student loans | 77,873 | (56,934 | ) | 20,939 | 131,070 | (50,852 | ) | 80,218 | |||||||||||||||
Mortgage loans held for sale | 1,057 | — | 1,057 | 1,057 | — | 1,057 | |||||||||||||||||
Other | 138 | 22 | 160 | 299 | 100 | 399 | |||||||||||||||||
Total loan receivables | 254,002 | (165,653 | ) | 88,349 | 428,482 | (173,977 | ) | 254,505 | |||||||||||||||
Total interest income | 257,501 | (161,624 | ) | 95,877 | 436,742 | (164,930 | ) | 271,812 | |||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||||
Time deposits | 116,774 | (151,690 | ) | (34,916 | ) | 64,096 | (168,244 | ) | (104,148 | ) | |||||||||||||
Money market deposits | 10,301 | (12,853 | ) | (2,552 | ) | 10,863 | (15,371 | ) | (4,508 | ) | |||||||||||||
Other interest-bearing deposits | 25,868 | (25,137 | ) | 731 | 32,095 | (22,810 | ) | 9,285 | |||||||||||||||
Total interest-bearing deposits | 152,943 | (189,680 | ) | (36,737 | ) | 107,054 | (206,425 | ) | (99,371 | ) | |||||||||||||
Borrowings: | |||||||||||||||||||||||
Short-term borrowings | (78 | ) | 468 | 390 | (176 | ) | 484 | 308 | |||||||||||||||
Securitized borrowings | 28,039 | (25,976 | ) | 2,063 | 12,771 | (14,113 | ) | (1,342 | ) | ||||||||||||||
Other long-term borrowings | (35,329 | ) | 32,870 | (2,459 | ) | (28,287 | ) | 23,041 | (5,246 | ) | |||||||||||||
Total borrowings | (7,368 | ) | 7,362 | (6 | ) | (15,692 | ) | 9,412 | (6,280 | ) | |||||||||||||
Total interest expense | 145,575 | (182,318 | ) | (36,743 | ) | 91,362 | (197,013 | ) | (105,651 | ) | |||||||||||||
Net interest income | $ | 111,926 | $ | 20,694 | $ | 132,620 | $ | 345,380 | $ | 32,083 | $ | 377,463 |
(1) | The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between August 31, 2012 and August 31, 2011 based on the percentage of the rate or volume variance to the sum of the two absolute variances. |
August 31, 2012 | November 30, 2011 | ||||||
Student loans held for sale | $ | — | $ | 714,180 | |||
Mortgage loans held for sale, measured at fair value | 272,082 | — | |||||
Loan portfolio: | |||||||
Credit card loans: | |||||||
Discover card | 47,915,177 | 46,419,544 | |||||
Discover business card | 209,291 | 219,081 | |||||
Total credit card loans | 48,124,468 | 46,638,625 | |||||
Other loans: | |||||||
Personal loans | 3,114,408 | 2,648,051 | |||||
Private student loans | 2,752,715 | 2,069,001 | |||||
Other | 26,829 | 16,690 | |||||
Total other loans | 5,893,952 | 4,733,742 | |||||
PCI student loans(1) | 4,867,010 | 5,250,388 | |||||
Total loan portfolio | 58,885,430 | 56,622,755 | |||||
Total loan receivables | 59,157,512 | 57,336,935 | |||||
Allowance for loan losses | (1,687,664 | ) | (2,205,196 | ) | |||
Net loan receivables | $ | 57,469,848 | $ | 55,131,739 |
(1) | Represents purchased credit-impaired private student loans which do not have a related allowance for loan losses or charge-offs (see Note 4: Loan Receivables to our condensed 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. |
The following table provides changes in our allowance for loan losses for the periods presented (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Balance at beginning of period | $ | 1,869,253 | $ | 2,632,320 | $ | 2,205,196 | $ | 3,304,118 | |||||||
Additions: | |||||||||||||||
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 | |||||||||||
Deductions: | |||||||||||||||
Charge-offs: | |||||||||||||||
Discover card | (428,935 | ) | (584,534 | ) | (1,400,273 | ) | (2,085,452 | ) | |||||||
Discover business card | (2,623 | ) | (4,416 | ) | (8,540 | ) | (17,672 | ) | |||||||
Total credit card loans | (431,558 | ) | (588,950 | ) | (1,408,813 | ) | (2,103,124 | ) | |||||||
Personal loans | (17,341 | ) | (16,458 | ) | (52,474 | ) | (52,438 | ) | |||||||
Private student loans | (4,793 | ) | (2,663 | ) | (11,956 | ) | (5,646 | ) | |||||||
Other | (22 | ) | (411 | ) | (194 | ) | (1,025 | ) | |||||||
Total other loans | (22,156 | ) | (19,532 | ) | (64,624 | ) | (59,109 | ) | |||||||
Total charge-offs | (453,714 | ) | (608,482 | ) | (1,473,437 | ) | (2,162,233 | ) | |||||||
Recoveries: | |||||||||||||||
Discover card | 143,590 | 148,292 | 439,870 | 434,141 | |||||||||||
Discover business card | 882 | 910 | 2,599 | 2,735 | |||||||||||
Total credit card loans | 144,472 | 149,202 | 442,469 | 436,876 | |||||||||||
Personal loans | 1,127 | 458 | 2,605 | 1,458 | |||||||||||
Private student loans | 119 | 45 | 306 | 73 | |||||||||||
Other | 119 | 1 | 124 | 3 | |||||||||||
Total other loans | 1,365 | 504 | 3,035 | 1,534 | |||||||||||
Total recoveries | 145,837 | 149,706 | 445,504 | 438,410 | |||||||||||
Net charge-offs | (307,877 | ) | (458,776 | ) | (1,027,933 | ) | (1,723,823 | ) | |||||||
Balance at end of period | $ | 1,687,664 | $ | 2,273,058 | $ | 1,687,664 | $ | 2,273,058 |
The following table presents a breakdown of the allowance for loan losses (dollars in thousands): | |||||||
August 31, 2012 | November 30, 2011 | ||||||
Discover card | $ | 1,514,678 | $ | 2,058,247 | |||
Discover business card | 7,585 | 11,914 | |||||
Total credit card loans | 1,522,263 | 2,070,161 | |||||
Personal loans | 96,356 | 82,075 | |||||
Private student loans | 68,262 | 52,740 | |||||
Other | 783 | 220 | |||||
Total other loans | 165,401 | 135,035 | |||||
Total allowance for loan losses | $ | 1,687,664 | $ | 2,205,196 |
The following table presents amounts and rates of net charge-offs of key loan portfolio segments (dollars in thousands): | |||||||||||||||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||
Credit card loans | $ | 287,086 | 2.43 | % | $ | 439,748 | 3.85 | % | $ | 966,344 | 2.76 | % | $ | 1,666,248 | 4.93 | % | |||||||||||
Personal loans | $ | 16,214 | 2.14 | % | $ | 16,000 | 2.73 | % | $ | 49,869 | 2.32 | % | $ | 50,980 | 3.19 | % | |||||||||||
Private student loans (excluding PCI(1)) | $ | 4,674 | 0.73 | % | $ | 2,618 | 0.62 | % | $ | 11,650 | 0.64 | % | $ | 5,573 | 0.49 | % |
(1) | Charge-offs for PCI loans did not result in a charge to earnings during 2012 or 2011 and are therefore excluded from the calculation. See Note 4: Loan Receivables to our condensed 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): | |||||||||||||
August 31, 2012 | November 30, 2011 | ||||||||||||
$ | % | $ | % | ||||||||||
Loans 30 days delinquent or more: | |||||||||||||
Credit card loans | $ | 870,345 | 1.81 | % | $ | 1,116,851 | 2.39 | % | |||||
Personal loans | $ | 23,179 | 0.74 | % | $ | 22,966 | 0.87 | % | |||||
Private student loans (excluding PCI(1)) | $ | 35,190 | 1.28 | % | $ | 13,065 | 0.63 | % | |||||
Loans 90 days delinquent or more: | |||||||||||||
Credit card loans | $ | 426,997 | 0.89 | % | $ | 559,674 | 1.20 | % | |||||
Personal loans | $ | 6,784 | 0.22 | % | $ | 7,362 | 0.28 | % | |||||
Private student loans (excluding PCI(1)) | $ | 5,876 | 0.21 | % | $ | 2,992 | 0.14 | % | |||||
Loans not accruing interest | $ | 187,560 | 0.35 | % | $ | 207,138 | 0.40 | % | |||||
Restructured loans | |||||||||||||
Credit card loans(2) | $ | 1,117,359 | 2.32 | % | $ | 1,216,738 | 2.61 | % | |||||
Personal loans | $ | 16,395 | 0.53 | % | $ | 7,635 | 0.29 | % | |||||
Private student loans (excluding PCI(1)) | $ | 12,503 | 0.45 | % | $ | 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) | Restructured loans include $31.8 million and $37.9 million at August 31, 2012 and November 30, 2011, respectively, that are also included in loans over 90 days delinquent or more. |
For the Three Months Ended August 31, | 2012 vs. 2011 increase (decrease) | For the Nine Months Ended August 31, | 2012 vs. 2011 increase (decrease) | ||||||||||||||||||||||||||
2012 | 2011 | $ | % | 2012 | 2011 | $ | % | ||||||||||||||||||||||
Discount and interchange revenue(1) | $ | 265,531 | $ | 282,889 | $ | (17,358 | ) | (6 | )% | $ | 795,166 | $ | 809,631 | $ | (14,465 | ) | (2 | )% | |||||||||||
Protection products | 104,201 | 107,858 | (3,657 | ) | (3 | )% | 310,256 | 321,527 | (11,271 | ) | (4 | )% | |||||||||||||||||
Loan fee income | 80,012 | 84,243 | (4,231 | ) | (5 | )% | 241,719 | 250,596 | (8,877 | ) | (4 | )% | |||||||||||||||||
Transaction processing revenue | 59,168 | 43,931 | 15,237 | 35 | % | 163,823 | 131,792 | 32,031 | 24 | % | |||||||||||||||||||
Merchant fees | 4,426 | 4,110 | 316 | 8 | % | 11,654 | 12,981 | (1,327 | ) | (10 | )% | ||||||||||||||||||
Gain (loss) on investments | — | (3,614 | ) | 3,614 | 100 | % | 28 | (3,622 | ) | 3,650 | 101 | % | |||||||||||||||||
Other income | 80,912 | 32,546 | 48,366 | 149 | % | 154,247 | 135,526 | 18,721 | 14 | % | |||||||||||||||||||
Total other income | $ | 594,250 | $ | 551,963 | $ | 42,287 | 8 | % | $ | 1,676,893 | $ | 1,658,431 | $ | 18,462 | 1 | % |
(1) | Net of rewards, including Cashback Bonus rewards, of $268 million and $234 million for the three months ended August 31, 2012 and 2011, respectively, and $753 million and $664 million for the nine months ended August 31, 2012 and August 31, 2011, respectively. |
For the Three Months Ended August 31, | 2012 vs. 2011 increase (decrease) | For the Nine Months Ended August 31, | 2012 vs. 2011 increase (decrease) | ||||||||||||||||||||||||||
2012 | 2011 | $ | % | 2012 | 2011 | $ | % | ||||||||||||||||||||||
Employee compensation and benefits | $ | 274,366 | $ | 241,881 | $ | 32,485 | 13 | % | $ | 770,448 | $ | 684,782 | $ | 85,666 | 13 | % | |||||||||||||
Marketing and business development | 160,534 | 133,398 | 27,136 | 20 | % | 410,975 | 393,244 | 17,731 | 5 | % | |||||||||||||||||||
Information processing and communications | 68,812 | 63,547 | 5,265 | 8 | % | 210,723 | 194,852 | 15,871 | 8 | % | |||||||||||||||||||
Professional fees | 107,749 | 106,042 | 1,707 | 2 | % | 317,334 | 301,122 | 16,212 | 5 | % | |||||||||||||||||||
Premises and equipment | 19,562 | 18,063 | 1,499 | 8 | % | 55,728 | 53,268 | 2,460 | 5 | % | |||||||||||||||||||
Other expense | 194,884 | 79,476 | 115,408 | 145 | % | 486,194 | 245,431 | 240,763 | 98 | % | |||||||||||||||||||
Total other expense | $ | 825,907 | $ | 642,407 | $ | 183,500 | 29 | % | $ | 2,251,402 | $ | 1,872,699 | $ | 378,703 | 20 | % |
The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate: | |||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||
U.S. state, local and other income taxes, net of U.S. federal income tax benefits | 3.2 | 3.4 | 3.2 | 2.6 | |||||||
Valuation allowance — capital loss | — | — | — | (0.8 | ) | ||||||
Other | (0.1 | ) | (0.4 | ) | (0.2 | ) | (0.4 | ) | |||
Effective income tax rate | 38.1 | % | 38.0 | % | 38.0 | % | 36.4 | % |
Total | Three Months or Less | Over Three Months Through Six Months | Over Six Months Through Twelve Months | Over Twelve Months | Indeterminate | ||||||||||||||||||
Certificates of deposit in amounts less than $100,000(1) | $ | 21,301,782 | $ | 2,508,162 | $ | 1,805,366 | $ | 5,337,910 | $ | 11,650,344 | $ | — | |||||||||||
Certificates of deposit in amounts of $100,000 to less than $250,000(1) | 5,352,917 | 694,888 | 656,721 | 1,176,736 | 2,824,572 | — | |||||||||||||||||
Certificates of deposit in amounts of $250,000(1)or greater | 1,216,105 | 164,904 | 182,743 | 231,420 | 637,038 | — | |||||||||||||||||
Savings deposits, including money market deposit accounts(2) | 14,304,228 | — | — | — | — | 14,304,228 | |||||||||||||||||
Total interest-bearing deposits | $ | 42,175,032 | $ | 3,367,954 | $ | 2,644,830 | $ | 6,746,066 | $ | 15,111,954 | $ | 14,304,228 |
(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. |
(2) | Represents demand deposits with no contractual maturity. |
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 | $ | 15,075,044 | $ | 5,178,839 | $ | 6,247,183 | $ | 1,650,000 | $ | 1,999,022 |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2012 | 2011 | 2012 | 2011 | ||||||||||||
Overnight Federal Funds purchased | $ | — | $ | 265,000 | $ | 135,000 | $ | 265,000 | |||||||
Overnight repurchase agreements | $ | — | $ | — | $ | — | $ | 48,188 | |||||||
Warehouse Line of Credit | $ | 250,139 | $ | — | $ | 250,139 | $ | — |
A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. The credit ratings are summarized in the following table: | |||||||||||||||||
Discover Financial Services | Discover Bank | Outlook for Senior Unsecured Debt | Discover Bank | Discover Card Master Trust I | Discover Card Execution Note Trust | ||||||||||||
Senior Unsecured Debt | Senior Unsecured Debt | Subordinated Debt | Class A(1) | Class B | Class A(1) | Class B | Class C | ||||||||||
Moody’s Investors Service | Ba1 | Baa3 | Stable | Ba1 | Aaa(sf) | A1(sf) | Aaa(sf) | A1(sf) | N/A(2) | ||||||||
Standard & Poor’s | BBB- | BBB | Stable | BBB- | AAA(sf) | AA+(sf) | AAA(sf) | AA+(sf) | N/A(2) | ||||||||
Fitch Ratings | BBB | BBB | Stable | BBB- | AAAsf | AAsf | AAAsf | AA-sf | N/A(2) |
(1) | An “sf” in the rating denotes rating agency identification for structured finance product ratings. |
(2) | All Class C notes are currently held by subsidiaries of Discover Bank and, therefore, are not publicly rated. |
At August 31, 2012, our liquidity portfolio and undrawn credit facilities were $29 billion, which was $2.8 billion higher than the balance at November 30, 2011, as an increase in cash and cash equivalents to ensure adequate coverage for forward-looking maturities was partially offset by our December 2011 cancellation of our credit facility. During the three and nine months ended August 31, 2012, the average balance of our liquidity portfolio was $12.5 billion and $11.6 billion, respectively. | |||||||
August 31, 2012 | November 30, 2011 | ||||||
(dollars in millions) | |||||||
Liquidity portfolio | |||||||
Cash and cash equivalents(1) | $ | 5,816 | $ | 2,440 | |||
Investment securities(2) | 6,268 | 6,108 | |||||
Total liquidity portfolio | 12,084 | 8,548 | |||||
Undrawn credit facilities(3) | |||||||
Private asset-backed securitizations(4) | 7,250 | 6,750 | |||||
Federal Reserve discount window(5) | 9,662 | 8,407 | |||||
Unsecured committed credit facility | — | 2,445 | |||||
Total undrawn credit facilities | 16,912 | 17,602 | |||||
Total liquidity portfolio and undrawn credit facilities | $ | 28,996 | $ | 26,150 |
(1) | Cash-in-process is excluded from cash and cash equivalents for liquidity purposes. |
(2) | At August 31, 2012, investment securities excludes $110 million of residential mortgage-backed securities that have been traded, but for which settlement did not occur until the fourth quarter. |
(3) | See "—Funding Sources—Additional Funding Sources" for additional information. |
(4) | On September 27, 2012, DCENT issued $500 million of asset-backed securities through a private conduit provider, reducing our undrawn capacity to $6,750 million. |
(5) | Excludes $159 million and $276 million of investments accounted for in the liquidity portfolio that were pledged to the Federal Reserve as of August 31, 2012 and November 30, 2011, respectively. |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Item 1. | Legal Proceedings |
Item 1A. | Risk Factors |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
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) | Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs (1) | |||||||||
June 1- 30, 2012 | |||||||||||||
Repurchase program (1) | 2,463,524 | $ | 32.35 | 2,463,524 | $ | 1,473,337,902 | |||||||
Employee transactions (2) | 17,654 | $ | 33.27 | N/A | N/A | ||||||||
July 1 - 31, 2012 | |||||||||||||
Repurchase program (1) | 3,654,352 | $ | 34.80 | 3,654,352 | $ | 1,346,183,170 | |||||||
Employee transactions (2) | 2,843 | $ | 34.86 | N/A | N/A | ||||||||
August 1 - 31, 2012 | |||||||||||||
Repurchase program (1) | 3,849,328 | $ | 37.11 | 3,849,328 | $ | 1,203,337,919 | |||||||
Employee transactions (2) | 51,658 | $ | 35.75 | N/A | N/A | ||||||||
Total | |||||||||||||
Repurchase program (1) | 9,967,204 | $ | 35.08 | 9,967,204 | $ | 1,203,337,919 | |||||||
Employee transactions (2) | 72,155 | $ | 35.11 | N/A | N/A |
Item 3. | Defaults Upon Senior Securities |
Item 4. | Mine Safety Disclosures |
Item 5. | Other Information |
Item 6. | Exhibits |
Discover Financial Services (Registrant) | |||
By: | /s/ R. Mark Graf | ||
R. Mark Graf Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
Exhibit Number | Description | |
12.1 | Statement regarding computation of ratio of earnings to fixed charges and ratio of earnings to fixed charges and preferred dividends. | |
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. |
For the Nine Months Ended | For the Years Ended November 30, | ||||||||||||||||||||
August 31, 2012 | August 31, 2011 | 2011 | 2010 | 2009 | 2008 | 2007 | |||||||||||||||
Earnings: | |||||||||||||||||||||
Income from continuing operations before income tax expense | 2,893,127 | 2,693,543 | 3,511,244 | 1,268,859 | 2,120,898 | 1,657,605 | 1,525,714 | ||||||||||||||
Losses from unconsolidated investees | 8,061 | 3,493 | 5,301 | 4,143 | 3,396 | 3,946 | 4,279 | ||||||||||||||
Total earnings | 2,901,188 | 2,697,036 | 3,516,545 | 1,273,002 | 2,124,294 | 1,661,551 | 1,529,993 | ||||||||||||||
Fixed charges:(1) | |||||||||||||||||||||
Total interest expense | 1,019,109 | 1,124,760 | 1,484,552 | 1,582,988 | 1,251,285 | 1,288,004 | 1,223,271 | ||||||||||||||
Interest factor in rents | 4,417 | 4,014 | 5,387 | 4,740 | 4,383 | 4,777 | 3,489 | ||||||||||||||
Total fixed charges | 1,023,526 | 1,128,774 | 1,489,939 | 1,587,728 | 1,255,668 | 1,292,781 | 1,226,760 | ||||||||||||||
Combined fixed charges and preferred stock requirements:(1) | |||||||||||||||||||||
Total interest expense | 1,019,109 | 1,124,760 | 1,484,552 | 1,582,988 | 1,251,285 | 1,288,004 | 1,223,271 | ||||||||||||||
Interest factor in rents | 4,417 | 4,014 | 5,387 | 4,740 | 4,383 | 4,777 | 3,489 | ||||||||||||||
Preferred stock requirements | — | — | — | 39,488 | 72,890 | — | — | ||||||||||||||
Total combined fixed charges and preferred stock requirements | 1,023,526 | 1,128,774 | 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 | 3,924,714 | 3,825,810 | 5,006,484 | 2,860,730 | 3,379,962 | 2,954,332 | 2,756,753 | ||||||||||||||
Earnings from continuing operations before income tax expense and combined fixed charges and preference dividends | 3,924,714 | 3,825,810 | 5,006,484 | 2,900,218 | 3,452,852 | 2,954,332 | 2,756,753 | ||||||||||||||
Ratio of earnings to fixed charges | 3.8 | 3.4 | 3.4 | 1.8 | 2.7 | 2.3 | 2.2 | ||||||||||||||
Ratio of earnings to combined fixed charges and preference dividends | 3.8 | 3.4 | 3.4 | 1.8 | 2.6 | 2.3 | 2.2 | ||||||||||||||
(1) | Fixed charges are the sum of interest expensed, amortized premiums, discounts and capitalized expenses related to indebtedness, an estimate of interest within rental expense. Combined fixed charges and preferred stock requirements are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and preference security dividend requirements. |
1. | I have reviewed this Quarterly Report on Form 10-Q 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. |
/s/ DAVID W. NELMS | |
David W. Nelms Chairman and Chief Executive Officer |
1. | I have reviewed this Quarterly Report on Form 10-Q 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. |
/s/ R. MARK GRAF | |
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. |
/s/ DAVID W. NELMS | |
David W. Nelms | |
Chairman and Chief Executive Officer |
/s/ R. MARK GRAF | |
R. Mark Graf | |
Executive Vice President, Chief Financial Officer and Chief Accounting Officer |
Segment Disclosures (Tables)
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Segment Reporting [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Segment Disclosures |
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Loan Receivables (Credit Risk Profile by FICO Score) (Details)
|
9 Months Ended | 12 Months Ended | ||||
---|---|---|---|---|---|---|
Aug. 31, 2012
|
Nov. 30, 2011
|
|||||
Discover Card [Member]
|
||||||
Credit Risk Profile 660 and Above, Percentage | 83.00% | 81.00% | ||||
Credit Risk Profile Less than 660 or No Score, Percentage | 17.00% | 19.00% | ||||
Discover Business Card [Member]
|
||||||
Credit Risk Profile 660 and Above, Percentage | 91.00% | 89.00% | ||||
Credit Risk Profile Less than 660 or No Score, Percentage | 9.00% | 11.00% | ||||
Personal Loans [Member]
|
||||||
Credit Risk Profile 660 and Above, Percentage | 97.00% | 97.00% | ||||
Credit Risk Profile Less than 660 or No Score, Percentage | 3.00% | 3.00% | ||||
Private Student Loans (Excluding PCI) [Member]
|
||||||
Credit Risk Profile 660 and Above, Percentage | 95.00% | [1] | 95.00% | [1] | ||
Credit Risk Profile Less than 660 or No Score, Percentage | 5.00% | [1] | 5.00% | [1] | ||
|
Deposits (Summary of Interest Bearing Deposit Accounts) (Details) (USD $)
|
9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Nov. 30, 2011
|
Aug. 31, 2012
Prior FDIC Insured Deposit Limit [Member]
|
Aug. 31, 2012
Current FDIC Insured Deposit Limit [Member]
|
|||||
Certificates of deposit in amounts less than $100,000 | $ 21,301,782,000 | [1] | $ 20,114,121,000 | [1] | ||||
Certificates of deposit from amounts of $100,000 to less than $250,000 | 5,352,917,000 | [1] | 5,290,405,000 | [1] | ||||
Certificates of deposit in amounts of $250,000 or greater | 1,216,105,000 | [1] | 1,189,779,000 | [1] | ||||
Savings deposits, including money market deposit accounts | 14,304,228,000 | 12,869,582,000 | ||||||
Total interest-bearing deposits | 42,175,032,000 | 39,463,887,000 | ||||||
Average annual interest rate | 2.00% | 2.57% | ||||||
Basic deposit amount covered by FDIC insurance | $ 100,000 | $ 250,000 | ||||||
|
Loan Receivables (Changes in the Company's Allowance for Loan Losses) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
|
Balance at beginning of period | $ 1,869,253 | $ 2,632,320 | $ 2,205,196 | $ 3,304,118 |
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 |
Total charge-offs | (453,714) | (608,482) | (1,473,437) | (2,162,233) |
Total recoveries | 145,837 | 149,706 | 445,504 | 438,410 |
Net Charge-offs | (307,877) | (458,776) | (1,027,933) | (1,723,823) |
Balance at end of period | 1,687,664 | 2,273,058 | 1,687,664 | 2,273,058 |
Credit Card Receivable [Member]
|
||||
Balance at beginning of period | 2,070,161 | |||
Total charge-offs | (431,558) | (588,950) | (1,408,813) | (2,103,124) |
Total recoveries | 144,472 | 149,202 | 442,469 | 436,876 |
Balance at end of period | 1,522,263 | 1,522,263 | ||
Credit Card Receivable [Member] | Discover Card [Member]
|
||||
Total charge-offs | (428,935) | (584,534) | (1,400,273) | (2,085,452) |
Total recoveries | 143,590 | 148,292 | 439,870 | 434,141 |
Credit Card Receivable [Member] | Discover Business Card [Member]
|
||||
Total charge-offs | (2,623) | (4,416) | (8,540) | (17,672) |
Total recoveries | 882 | 910 | 2,599 | 2,735 |
Total Other Loans [Member]
|
||||
Total charge-offs | (22,156) | (19,532) | (64,624) | (59,109) |
Total recoveries | 1,365 | 504 | 3,035 | 1,534 |
Total Other Loans [Member] | Personal Loans [Member]
|
||||
Balance at beginning of period | 82,075 | |||
Total charge-offs | (17,341) | (16,458) | (52,474) | (52,438) |
Total recoveries | 1,127 | 458 | 2,605 | 1,458 |
Balance at end of period | 96,356 | 96,356 | ||
Total Other Loans [Member] | Private Student Loans [Member]
|
||||
Total charge-offs | (4,793) | (2,663) | (11,956) | (5,646) |
Total recoveries | 119 | 45 | 306 | 73 |
Total Other Loans [Member] | Other Loans [Member]
|
||||
Balance at beginning of period | 220 | |||
Total charge-offs | (22) | (411) | (194) | (1,025) |
Total recoveries | 119 | 1 | 124 | 3 |
Balance at end of period | $ 783 | $ 783 |
Income Taxes (Reconciliation of the Company's Effective Tax Rate to the U.S. Federal Statutory Income Tax Rate) (Details)
|
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
|
Effective Income Tax Rate, Continuing Operations, Tax Rate Reconciliation [Abstract] | ||||
U.S. federal statutory income tax rate | 35.00% | 35.00% | 35.00% | 35.00% |
U.S. state and local income taxes, net of U.S. federal income tax benefits | 3.20% | 3.40% | 3.20% | 2.60% |
Valuation allowance, capital loss | 0.00% | 0.00% | 0.00% | (0.80%) |
Other | (0.10%) | (0.40%) | (0.20%) | (0.40%) |
Effective income tax rate | 38.10% | 38.00% | 38.00% | 36.40% |
Investment Securities (Schedule of Investment Securities) (Details) (USD $)
In Thousands, unless otherwise specified |
Aug. 31, 2012
|
Nov. 30, 2011
|
||||||
---|---|---|---|---|---|---|---|---|
Total investment securities | $ 6,467,507 | $ 6,206,053 | ||||||
U.S. Treasury Securities [Member]
|
||||||||
Total investment securities | 2,471,448 | 2,563,800 | ||||||
U.S. Government Agency Securities [Member]
|
||||||||
Total investment securities | 2,319,285 | 2,795,223 | ||||||
States and Political Subdivisions of States [Member]
|
||||||||
Total investment securities | 35,242 | 40,936 | ||||||
Total Other Securities [Member]
|
||||||||
Total investment securities | 1,641,532 | 806,094 | ||||||
Credit Card Asset-Backed Securities of Other Issuers [Member]
|
||||||||
Total investment securities | 164,294 | 299,889 | ||||||
Corporate Debt Securities [Member]
|
||||||||
Total investment securities | 145,529 | [1] | 449,469 | [1] | ||||
To-be-announced investment securities [Member]
|
||||||||
Total investment securities | 0 | 50,254 | ||||||
Agency Residential Mortgage-Backed Securities [Member]
|
||||||||
Total investment securities | $ 1,331,709 | [2] | $ 6,482 | [2] | ||||
|
Income Taxes (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2012
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Expense |
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reconciliation of the Company's Effective Tax Rate to the U.S. Federal Statutory Income Tax Rate |
|
Earnings Per Share (Calculation of Basic and Diluted EPS ) (Details) (USD $)
In Thousands, except Per Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
|
Earnings Per Share Reconciliation [Abstract] | ||||
Net Income | $ 626,686 | $ 648,818 | $ 1,794,283 | $ 1,714,129 |
Income allocated to participating securities | (5,916) | (7,046) | (17,513) | (19,493) |
Net Income allocated to common stockholders | $ 620,770 | $ 641,772 | $ 1,776,770 | $ 1,694,636 |
Weighted Average Number of Shares Outstanding Reconciliation [Abstract] | ||||
Weighted average shares of common stock outstanding | 512,793 | 544,438 | 523,462 | 544,997 |
Effect of dilutive common stock equivalents | 1,169 | 743 | 1,181 | 701 |
Weighted average shares of common stock outstanding and common stock equivalents | 513,962 | 545,181 | 524,643 | 545,698 |
Basic earnings per share | $ 1.21 | $ 1.18 | $ 3.39 | $ 3.11 |
Diluted earnings per share | $ 1.21 | $ 1.18 | $ 3.39 | $ 3.11 |
Borrowings (Summary of Long-Term Borrowings and Weighted Average Interest Rate) (Details) (USD $)
|
3 Months Ended | 9 Months Ended | ||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2012
|
Nov. 30, 2011
|
||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | $ 19,246,113,000 | $ 19,246,113,000 | $ 18,287,178,000 | |||||||||||||
Secured Debt [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 15,075,044,000 | 15,075,044,000 | 13,293,481,000 | |||||||||||||
Secured Debt [Member] | SLC Private Student Loan Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 2,262,870,000 | 2,262,870,000 | 2,549,031,000 | |||||||||||||
Secured Debt [Member] | Long-Term Borrowings-owed to Securitization Investors [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 17,337,914,000 | 17,337,914,000 | 15,842,512,000 | |||||||||||||
Secured Debt [Member] | Fixed Rate Asset Backed Securities [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Principal value including discount | 4,548,656,000 | 4,548,656,000 | 1,748,742,000 | |||||||||||||
Fair value adjustment | 7,965,000 | [1] | 7,965,000 | [1] | 0 | [1] | ||||||||||
Total | 4,556,621,000 | 4,556,621,000 | 1,748,742,000 | |||||||||||||
Interest Rate | 2.87% | 2.87% | 5.65% | |||||||||||||
Interest Rate Terms | Various fixed rates | |||||||||||||||
Long term borrowing maturity period | Various June 2013— July 2019 | |||||||||||||||
Debt Instrument, Maturity Date Range, Start | Jun. 30, 2013 | |||||||||||||||
Debt Instrument, Maturity Date Range, End | Sep. 30, 2017 | |||||||||||||||
Secured Debt [Member] | Floating Rate Asset Backed Securities Due 2012 to 2017 [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 9,018,423,000 | 9,018,423,000 | 10,044,739,000 | |||||||||||||
Interest Rate | 0.51% | 0.51% | 0.81% | |||||||||||||
Interest Rate Terms | 1-month LIBOR(2) + 8 to 65 basis points | [2] | ||||||||||||||
Long term borrowing maturity period | Various December 2012— May 2017 | |||||||||||||||
Debt Instrument, Maturity Date Range, Start | Jun. 30, 2012 | |||||||||||||||
Debt Instrument, Maturity Date Range, End | May 31, 2017 | |||||||||||||||
Secured Debt [Member] | Floating Rate Asset Backed Securities Due 2012 [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 1,250,000,000 | 1,250,000,000 | 1,250,000,000 | |||||||||||||
Interest Rate | 0.81% | 0.81% | 0.69% | |||||||||||||
Interest Rate Terms | 3-month LIBOR(2) + 34 basis points | [2] | ||||||||||||||
Long term borrowing maturity period | December 2012 | |||||||||||||||
Secured Debt [Member] | Floating Rate Asset Backed Securities Due 2012 [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.34% | 0.34% | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset Backed Securities And Other Borrowings [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 250,000,000 | 250,000,000 | 250,000,000 | |||||||||||||
Interest Rate | 0.91% | 0.91% | 0.91% | |||||||||||||
Interest Rate Terms | Commercial Paper rate + 70 basis points | |||||||||||||||
Long term borrowing maturity period | April 2013 | |||||||||||||||
Secured Debt [Member] | Floating Rate Asset Backed Securities And Other Borrowings [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Commercial Paper Rate [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.70% | 0.70% | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities 3-month LIBOR plus various basis points [Member] | SLC Private Student Loan Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 1,243,672,000 | 1,243,672,000 | 1,390,066,000 | |||||||||||||
Interest Rate | 0.67% | 0.67% | 0.60% | |||||||||||||
Interest Rate Terms | 3-month LIBOR(2) + 12 to 45 basis points | [2] | ||||||||||||||
Long term borrowing maturity period | Various January 2019— July 2036(3) | [3] | ||||||||||||||
Debt Instrument, Maturity Date Range, Start | Jan. 31, 2019 | |||||||||||||||
Debt Instrument, Maturity Date Range, End | Jul. 31, 2036 | |||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities Prime Plus 100 Basis Points [Member] | SLC Private Student Loan Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 558,316,000 | 558,316,000 | 627,072,000 | |||||||||||||
Interest Rate | 4.25% | 4.25% | 4.25% | |||||||||||||
Interest Rate Terms | Prime rate +100 basis points | |||||||||||||||
Long term borrowing maturity period | June 2031(3) | [3] | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities Prime Plus 100 Basis Points [Member] | SLC Private Student Loan Trust [Member] | Prime Rate [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 1.00% | 1.00% | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities Prime Plus 75 Basis Points [Member] | SLC Private Student Loan Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 135,024,000 | 135,024,000 | 157,338,000 | |||||||||||||
Interest Rate | 4.00% | 4.00% | 4.00% | |||||||||||||
Interest Rate Terms | Prime rate + 75 basis points | |||||||||||||||
Long term borrowing maturity period | July 2042(3) | [3] | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities Prime Plus 75 Basis Points [Member] | SLC Private Student Loan Trust [Member] | Prime Rate [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.75% | 0.75% | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities 1-month LIBOR Plus 350 Basis Points [Member] | SLC Private Student Loan Trust [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 325,858,000 | 325,858,000 | 374,555,000 | |||||||||||||
Interest Rate | 3.74% | 3.74% | 3.75% | |||||||||||||
Interest Rate Terms | 1-month LIBOR(2) + 350 basis points | [2] | ||||||||||||||
Long term borrowing maturity period | July 2042(3) | [3] | ||||||||||||||
Secured Debt [Member] | Floating Rate Asset-Backed Securities 1-month LIBOR Plus 350 Basis Points [Member] | SLC Private Student Loan Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 3.50% | 3.50% | ||||||||||||||
Secured Debt [Member] | Floating Rate Secured Borrowing Maturing February 2012 [Member] | Discover Bank [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 0 | [4] | 0 | [4] | 437,613,000 | [4] | ||||||||||
Interest Rate | 0.00% | [4] | 0.00% | [4] | 0.70% | [4] | ||||||||||
Interest Rate Terms | Commercial Paper rate + 50 basis points | [4] | ||||||||||||||
Long term borrowing maturity period | February 2012 | [4] | ||||||||||||||
Secured Debt [Member] | Floating Rate Secured Borrowing Maturing February 2012 [Member] | Discover Bank [Member] | Commercial Paper Rate [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.50% | 0.50% | ||||||||||||||
Corporate Debt Securities [Member] | Fixed Rate Senior Notes Due 2017 [Member] | Parent Company [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Principal value including discount | 399,610,000 | 399,610,000 | 399,549,000 | |||||||||||||
Fair value adjustment | 23,167,000 | [1] | 23,167,000 | [1] | 9,855,000 | [1] | ||||||||||
Total | 422,777,000 | 422,777,000 | 409,404,000 | |||||||||||||
Interest Rate | 6.45% | 6.45% | 6.45% | |||||||||||||
Interest Rate Terms | Fixed | |||||||||||||||
Long term borrowing maturity period | June 2017 | |||||||||||||||
Corporate Debt Securities [Member] | Fixed Rate Senior Notes Due 2019 [Member] | Parent Company [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 78,484,000 | [5] | 78,484,000 | [5] | 400,000,000 | [5] | ||||||||||
Interest Rate | 10.25% | [5] | 10.25% | [5] | 10.25% | [5] | ||||||||||
Interest Rate Terms | Fixed | [5] | ||||||||||||||
Long term borrowing maturity period | July 2019 | [5] | ||||||||||||||
Exchange of Debt, Amount, Old Notes | 321,500,000 | |||||||||||||||
Corporate Debt Securities [Member] | Fixed Rate Senior Notes Due 2022 [Member] | Parent Company [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 209,213,000 | [5] | 209,213,000 | [5] | 0 | [5] | ||||||||||
Interest Rate | 5.20% | [5] | 5.20% | [5] | 0.00% | [5] | ||||||||||
Interest Rate Terms | Fixed | [5] | ||||||||||||||
Long term borrowing maturity period | April 2022 | [5] | ||||||||||||||
Subordinated Debt [Member] | Subordinated Bank Notes Due 2019 [Member] | Discover Bank [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 698,698,000 | 698,698,000 | 698,563,000 | |||||||||||||
Interest Rate | 8.70% | 8.70% | 8.70% | |||||||||||||
Interest Rate Terms | Fixed | |||||||||||||||
Long term borrowing maturity period | November 2019 | |||||||||||||||
Subordinated Debt [Member] | Subordinated Bank Notes Due 2020 [Member] | Discover Bank [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | 497,359,000 | 497,359,000 | 497,099,000 | |||||||||||||
Interest Rate | 7.00% | 7.00% | 7.00% | |||||||||||||
Interest Rate Terms | Fixed | |||||||||||||||
Long term borrowing maturity period | April 2020 | |||||||||||||||
Capital Lease Obligations [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Total | $ 1,668,000 | $ 1,668,000 | $ 1,987,000 | |||||||||||||
Interest Rate | 4.51% | 4.51% | 4.51% | |||||||||||||
Interest Rate Terms | Fixed | |||||||||||||||
Long term borrowing maturity period | April 2016 | |||||||||||||||
Minimum [Member] | Secured Debt [Member] | Floating Rate Asset Backed Securities Due 2012 to 2017 [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.08% | 0.08% | ||||||||||||||
Minimum [Member] | Secured Debt [Member] | Floating Rate Asset-Backed Securities 3-month LIBOR plus various basis points [Member] | SLC Private Student Loan Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.12% | 0.12% | ||||||||||||||
Maximum [Member] | Secured Debt [Member] | Floating Rate Asset Backed Securities Due 2012 to 2017 [Member] | Discover Card Master Trust I and Discover Card Execution Note Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.65% | 0.65% | ||||||||||||||
Maximum [Member] | Secured Debt [Member] | Floating Rate Asset-Backed Securities 3-month LIBOR plus various basis points [Member] | SLC Private Student Loan Trust [Member] | Libor [Member]
|
||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.45% | 0.45% | ||||||||||||||
|
Loan Receivables (Allowance for Loan Losses and Recorded Investment in its Loan Portfolio (which Excludes Loans Held for Sale) by Impairment Methodology) (Details) (USD $)
|
Aug. 31, 2012
|
May 31, 2012
|
Nov. 30, 2011
|
Aug. 31, 2011
|
May 31, 2011
|
Nov. 30, 2010
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loans evaluated for impairment | $ 1,687,664,000 | $ 1,869,253,000 | $ 2,205,196,000 | $ 2,273,058,000 | $ 2,632,320,000 | $ 3,304,118,000 | ||||||||
Recorded investment in loans evaluated for impairment | 58,885,430,000 | 56,622,755,000 | ||||||||||||
Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 1,489,337,000 | [1] | 2,000,456,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 52,872,163,000 | [1] | 50,142,555,000 | [1] | ||||||||||
Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 198,327,000 | [2] | 204,740,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 1,146,257,000 | [2] | 1,229,812,000 | [2] | ||||||||||
Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | 4,867,010,000 | [3] | 5,250,388,000 | [3] | ||||||||||
Credit Card Receivable [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 1,522,263,000 | 2,070,161,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 48,124,468,000 | 46,638,625,000 | ||||||||||||
Credit Card Receivable [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 1,331,282,000 | [1] | 1,865,797,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 47,007,109,000 | [1] | 45,421,887,000 | [1] | ||||||||||
Credit Card Receivable [Member] | Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 190,981,000 | [2] | 204,364,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 1,117,359,000 | [2] | 1,216,738,000 | [2] | ||||||||||
Unpaid principal balance of modified loans accounted for as troubled debt restructurings | 955,400,000 | 1,000,000,000 | ||||||||||||
Credit Card Receivable [Member] | Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Total Other Loans [Member] | Personal Loans [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 96,356,000 | 82,075,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 3,114,408,000 | 2,648,051,000 | ||||||||||||
Total Other Loans [Member] | Personal Loans [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 92,069,000 | [1] | 81,838,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 3,098,013,000 | [1] | 2,640,416,000 | [1] | ||||||||||
Total Other Loans [Member] | Personal Loans [Member] | Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 4,287,000 | [2] | 237,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 16,395,000 | [2] | 7,635,000 | [2] | ||||||||||
Unpaid principal balance of modified loans accounted for as troubled debt restructurings | 16,100,000 | 7,500,000 | ||||||||||||
Total Other Loans [Member] | Personal Loans [Member] | Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Total Other Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 65,203,000 | [1] | 52,601,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 2,740,212,000 | [1] | 2,063,562,000 | [1] | ||||||||||
Total Other Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 3,059,000 | [2] | 139,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 12,503,000 | [2] | 5,439,000 | [2] | ||||||||||
Unpaid principal balance of modified loans accounted for as troubled debt restructurings | 11,700,000 | 5,400,000 | ||||||||||||
Total Other Loans [Member] | Other Loans [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 783,000 | 220,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 26,829,000 | 16,690,000 | ||||||||||||
Total Other Loans [Member] | Other Loans [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 783,000 | [1] | 220,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 26,829,000 | [1] | 16,690,000 | [1] | ||||||||||
Total Other Loans [Member] | Other Loans [Member] | Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [2] | 0 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 0 | [2] | 0 | [2] | ||||||||||
Total Other Loans [Member] | Other Loans [Member] | Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Total Student Loans Excluding Held for Sale [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 68,262,000 | 52,740,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 7,619,725,000 | 7,319,389,000 | ||||||||||||
PCI Student Loans [Member] | Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | $ 4,867,010,000 | [3] | $ 5,250,388,000 | [3] | ||||||||||
|
Income Taxes Income Taxes (Narrative) (Details) (USD $)
In Millions, unless otherwise specified |
9 Months Ended |
---|---|
Aug. 31, 2012
|
|
Significant Change in Unrecognized Tax Benefits is Reasonably Possible [Line Items] | |
Significant Change in Unrecognized Tax Benefits is Reasonably Possible, Amount of Unrecorded Benefit | $ 85 |
Period within which no anticipation of resolution of tax appeal | 12 months |
Period within which unable to determine if unrecognized tax benefits will increase or decrease | 12 months |
Commitments, Contingencies and Guarantees (Settlement Withholdings and Escrow Deposits) (Details) (USD $)
In Thousands, unless otherwise specified |
Aug. 31, 2012
|
Nov. 30, 2011
|
---|---|---|
Commitments Contingencies and Guarantees [Abstract] | ||
Settlement withholdings and escrow deposits | $ 21,084 | $ 24,297 |
Capital Adequacy (Schedule of Minimum and Well-Capitalized Requirements) (Details) (USD $)
In Thousands, unless otherwise specified |
Aug. 31, 2012
|
Nov. 30, 2011
|
---|---|---|
Parent Company [Member]
|
||
Total capital to risk-weighted assets, Amount | $ 10,686,110 | $ 9,808,660 |
Total capital to risk-weighted assets, Ratio | 17.10% | 16.50% |
Total capital to risk-weighted assets, Minimum capital requirements | 4,997,394 | 4,764,887 |
Total capital to risk-weighted assets, Capital requirements to be classified as well capitalized | 6,246,742 | 5,956,109 |
Tier I capital to risk-weighted assets, Amount | 8,698,015 | 7,850,451 |
Tier I capital to risk-weighted assets, Ratio | 13.90% | 13.20% |
Tier I capital to risk-weighted assets, Minimum capital requirements | 2,498,697 | 2,382,444 |
Tier I capital to risk-weighted assets, Capital requirements to be classified as well capitalized | 3,748,045 | 3,573,665 |
Tier I leverage capital to average assets ratio | 11.90% | 11.50% |
Tier I leverage capital, minimum capital requirements | 2,933,514 | 2,729,480 |
Tier I leverage capital, capital requirements to be classified as well capitalized | 3,666,893 | 3,411,851 |
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets Ratio | 6.00% | 6.00% |
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets Ratio | 4.00% | 4.00% |
Tier One Leverage Capital Required to be Well Capitalized to Average Assets Terse | 5.00% | 5.00% |
Capital Required for Capital Adequacy to Risk Weighted Assets Ratio | 8.00% | 8.00% |
Capital Required to be Well Capitalized to Risk Weighted Assets Ratio | 10.00% | 10.00% |
Tier One Leverage Capital Required for Capital Adequacy to Average Assets Ratio | 4.00% | 4.00% |
Discover Bank [Member]
|
||
Total capital to risk-weighted assets, Amount | 9,311,085 | 8,671,391 |
Total capital to risk-weighted assets, Ratio | 15.20% | 14.80% |
Total capital to risk-weighted assets, Minimum capital requirements | 4,905,887 | 4,693,645 |
Total capital to risk-weighted assets, Capital requirements to be classified as well capitalized | 6,132,358 | 5,867,056 |
Tier I capital to risk-weighted assets, Amount | 7,337,118 | 6,724,176 |
Tier I capital to risk-weighted assets, Ratio | 12.00% | 11.50% |
Tier I capital to risk-weighted assets, Minimum capital requirements | 2,452,943 | 2,346,822 |
Tier I capital to risk-weighted assets, Capital requirements to be classified as well capitalized | 3,679,415 | 3,520,234 |
Tier I leverage capital to average assets ratio | 10.20% | 10.00% |
Tier I leverage capital, minimum capital requirements | 2,886,498 | 2,690,135 |
Tier I leverage capital, capital requirements to be classified as well capitalized | $ 3,608,122 | $ 3,362,668 |
Tier One Risk Based Capital Required to be Well Capitalized to Risk Weighted Assets Ratio | 6.00% | 6.00% |
Tier One Risk Based Capital Required for Capital Adequacy to Risk Weighted Assets Ratio | 4.00% | 4.00% |
Tier One Leverage Capital Required to be Well Capitalized to Average Assets Terse | 5.00% | 5.00% |
Capital Required for Capital Adequacy to Risk Weighted Assets Ratio | 8.00% | 8.00% |
Capital Required to be Well Capitalized to Risk Weighted Assets Ratio | 10.00% | 10.00% |
Tier One Leverage Capital Required for Capital Adequacy to Average Assets Ratio | 4.00% | 4.00% |
Litigation (Details) (USD $)
|
3 Months Ended | 9 Months Ended | 0 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
Case Involving Walter Bradley [Member]
Violation [Member]
|
Aug. 31, 2012
Case Involving Walter Bradley [Member]
Willful violation [Member]
|
Mar. 06, 2012
Case Involving Andrew Steinfeld [Member]
Violation [Member]
|
Mar. 06, 2012
Case Involving Andrew Steinfeld [Member]
Willful violation [Member]
|
Aug. 31, 2012
Pending and Threatened Litigation [Member]
|
Sep. 24, 2012
Subsequent Event [Member]
Refund Required to be Paid to Customers [Member]
Unfavorable Regulatory Action [Member]
|
Sep. 24, 2012
Subsequent Event [Member]
Civil Monetary Penalty to be Paid to Cfpb and Fdic [Member]
Unfavorable Regulatory Action [Member]
|
|
Litigation Expense excluding legal service provider | $ 96,200,000 | $ 1,900,000 | $ 212,000,000 | $ 22,600,000 | |||||||
Loss Contingency, Range of Possible Loss, Maximum | 100,000,000 | ||||||||||
Loss Contingency, Damages Sought, Value | 500 | 1,500 | 500 | 1,500 | |||||||
Loss Contingency, Settlement Agreement, Consideration | $ 200,000,000 | $ 14,000,000 |
Income Taxes (Income Tax Expense) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
|
Current Income Tax Expense (Benefit) [Abstract] | ||||
U.S. federal, current | $ 306,999 | $ 213,765 | $ 815,833 | $ 550,250 |
U.S. state and local, current | 43,698 | 38,576 | 120,844 | 74,292 |
International, current | 984 | 747 | 3,166 | 3,018 |
Total, current | 351,681 | 253,088 | 939,843 | 627,560 |
Deferred Income Tax Expense (Benefit) [Abstract] | ||||
U.S. federal, deferred | 30,578 | 135,145 | 146,795 | 332,965 |
U.S. state and local, deferred | 2,759 | 10,024 | 12,215 | 18,882 |
International, deferred | 10 | 6 | (9) | 7 |
Total, deferred | 33,347 | 145,175 | 159,001 | 351,854 |
Income tax expense | $ 385,028 | $ 398,263 | $ 1,098,844 | $ 979,414 |
Deposits (Certificates of Deposits) (Details) (USD $)
In Thousands, unless otherwise specified |
Aug. 31, 2012
|
---|---|
Deposits [Abstract] | |
2012 | $ 3,367,953 |
2013 | 11,499,477 |
2014 | 5,454,427 |
2015 | 3,292,971 |
2016 | 1,825,914 |
Thereafter | $ 2,430,062 |
Background and Basis of Presentation (Policies)
|
9 Months Ended |
---|---|
Aug. 31, 2012
|
|
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Basis of Presentation and Significant Accounting Policies [Text Block] | Basis of Presentation. The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments which are necessary for a fair presentation of the results for the quarter. All such adjustments are of a normal, recurring nature. |
Fair Value of Financial Instruments, Policy [Policy Text Block] | The fair values of these financial assets and liabilities, which are not carried at fair value on the condensed consolidated statements of financial condition, were determined applying the fair value provisions discussed herein. The use of different assumptions or estimation techniques may have a material effect on these estimated fair value amounts. The following describes the valuation techniques of these financial instruments measured at other than fair values. Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities. Restricted cash. The carrying value of restricted cash approximates fair value due to the low level of risk these assets present to the Company as well as relatively liquid nature of these assets, particularly given their short maturities. Held-to-maturity investment securities. Held-to-maturity investment securities consist of residential mortgage-backed securities issued by agencies and municipal bonds. The fair value of residential mortgage-backed securities included in the held-to-maturity portfolio is estimated similarly to residential mortgage-backed securities carried at fair value on a recurring basis discussed herein. Municipal bonds are valued based on quoted market prices for the same or similar securities. Total loan portfolio. The Company's loan receivables are comprised of credit card and installment loans, including the PCI student loans. Fair value estimates are derived utilizing discounted cash flow analyses, the calculations of which are performed on groupings of loan receivables that are similar in terms of loan type and characteristics. Inputs to the cash flow analysis of each grouping consider recent pre-payment and interest accrual trends and leverage forecasted loss estimates. The expected future cash flows of each grouping are discounted at rates at which similar loans within each grouping could be made under current market conditions. Significant inputs to the fair value measurement of the loan portfolio are unobservable, and as such are classified as Level 3. Accrued interest receivable. For the Company's accrued interest receivable, which is included in other assets on the statement of financial condition, the carrying value approximates fair value as it is short-term in nature and is due in less than one year. Deposits. The carrying values of money market deposits, savings deposits and demand deposits approximate fair value due to the potentially liquid nature of these deposits. For time deposits for which readily available market rates do not exist, fair values are estimated by discounting expected future cash flows using market rates currently offered for deposits with similar remaining maturities. Short-term borrowings. The carrying values of short-term borrowings approximate fair value as they are short term in nature and have maturities of less than one year. Long-term borrowings-owed to securitization investors. Fair values of long-term borrowings owed to credit card securitization investors are determined utilizing quoted market prices of the same transactions, and as such are classified as Level 2. Fair values of long-term borrowings owed to student loan securitization investors are calculated by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates. Significant inputs to these fair value measurements are unobservable, and as such, are classified as Level 3. Other long-term borrowings. Fair values of other long-term borrowings, consisting of subordinated debt and unsecured debt, are determined utilizing current observable market prices for those transactions, and as such are classified as Level 2. Fair values of other long-term borrowing for which there are no observable market transactions, namely capitalized leases, are determined by discounting cash flows of future interest accruals at market rates currently offered for borrowings with similar credit risks, remaining maturities and repricing terms. As the significant inputs to these fair value measurements are unobservable, they are classified as Level 3. Accrued interest payable. The Company's accrued interest payable, which is included in other liabilities on the statement of financial condition, carrying value approximates fair value as it is short term in nature and is payable in less than one year. |
Use of Estimates, Policy [Policy Text Block] | The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. |
Loan Receivables (Narrative) (Details) (USD $)
|
3 Months Ended | 9 Months Ended | |||||
---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
Nov. 30, 2011
|
Sep. 30, 2011
|
Dec. 31, 2010
|
|
Loans Held-for-sale, Mortgages | $ 272,082,000 | $ 272,082,000 | $ 0 | ||||
Credit Card Charge-off period | 180 days | ||||||
Closed End Consumer Loan Charge Off Period | 120 days | ||||||
Bankruptcy And Probate Charge Off Period | 60 days | ||||||
Open-end loan receivables charge off period | 120 days | ||||||
Closed end loan receivables charge offs period | 180 days | ||||||
Student loans in forbearance | 105,500,000 | 105,500,000 | 75,900,000 | ||||
Private student loans in forbearance as a percentage of student loans | 2.00% | 2.00% | 1.50% | ||||
Interest and fees forgiven due to loan modification program | 10,200,000 | 15,000,000 | 34,500,000 | 49,100,000 | |||
Percentage of defaulted loans that charged off | 45.00% | 42.00% | 47.00% | 39.00% | |||
Acquired private student loans unpaid principal balance | 5,400,000,000 | 5,400,000,000 | 5,700,000,000 | ||||
Purchased credit-impaired loans, Carrying Amount, Net | 4,867,010,000 | 4,867,010,000 | 5,250,388,000 | ||||
Aggregate outstanding balance of loans acquired | 3,800,000,000 | ||||||
Fair Value of Student Loans Acquired | 2,433,000,000 | 3,070,000,000 | |||||
Other changes in expected cash flows | (13,000,000) | 0 | (126,000,000) | 91,000,000 | |||
PCI Loans 30 Days Or More Delinquency Rate | 2.63% | 2.60% | 2.63% | 2.60% | |||
PCI Loans 90 Days Or More Delinquency Rate | 0.69% | 0.83% | 0.69% | 0.83% | |||
Finance Receivable Net charge Off Rate for PCI Student Loans | 1.13% | 1.23% | 1.32% | 1.22% | |||
Loans Receivable [Member] | Student Loan Corporation [Member]
|
|||||||
Fair Value of Student Loans Acquired | 3,070,042,000 | ||||||
Nonperforming Financing Receivable [Member]
|
|||||||
Fair Value of Student Loans Acquired | 16,000,000 | ||||||
Mortgage Loans Held for Sale Pledged as Collateral [Member]
|
|||||||
Loans Held-for-sale, Mortgages | 272,082,000 | 272,082,000 | |||||
Personal Loans [Member]
|
|||||||
Temporary Hardship Program, Maturity | 12 months | ||||||
Permanent Program New Repayment Term | 4 years | ||||||
Permanent Program Maximum Repayment Term | 9 years | ||||||
Non-Performing [Member]
|
|||||||
Aggregate outstanding balance of loans acquired | $ 31,000,000 | ||||||
Credit Card Receivable [Member]
|
|||||||
Temporary Hardship Program, Maturity | 12 months | ||||||
Permanent Workout Program, Maturity | 60 months | ||||||
Student Loans [Member]
|
|||||||
Student loan forbearance lifetime cap | 12 months | ||||||
Temporary financial difficulties maximum forbearance period | 12 months |
Business Combinations (Calculation of Trust Certificate Purchase Price) (Details) (Student Loan Corporation [Member], USD $)
In Millions, unless otherwise specified |
Nov. 30, 2011
|
Dec. 31, 2010
|
---|---|---|
Student Loan Corporation [Member]
|
||
Rate Of Discount On Acquisition Of Loans And Other Assets | 8.50% | |
Gross trust assets | $ 3,977 | |
Less: 8.5% discount | (338) | |
Net trust assets | 3,639 | |
Less: Principal amount of and accrued interest on trust debt | (3,193) | |
Trust certificate purchase price | $ 446 |
Accumulated Other Comprehensive Income (Loss) Accumulated Other Comprehensive Income (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
May 31, 2012
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
Nov. 30, 2011
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
Aug. 31, 2011
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
May 31, 2011
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
Nov. 30, 2010
Accumulated Net Unrealized Investment Gain (Loss) [Member]
|
Aug. 31, 2012
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
May 31, 2012
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
Nov. 30, 2011
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
Aug. 31, 2011
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
May 31, 2011
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
Nov. 30, 2010
Accumulated Net Gain (Loss) from Designated or Qualifying Cash Flow Hedges [Member]
|
Aug. 31, 2012
Accumulated Defined Benefit Plans Adjustment [Member]
|
May 31, 2012
Accumulated Defined Benefit Plans Adjustment [Member]
|
Nov. 30, 2011
Accumulated Defined Benefit Plans Adjustment [Member]
|
Aug. 31, 2011
Accumulated Defined Benefit Plans Adjustment [Member]
|
May 31, 2011
Accumulated Defined Benefit Plans Adjustment [Member]
|
Nov. 30, 2010
Accumulated Defined Benefit Plans Adjustment [Member]
|
|
Other Comprehensive Income (Loss), Available-for-sale Securities, Tax | $ 5,988 | $ 22,810 | $ 14,849 | $ 32,806 | ||||||||||||||||||
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect | (142) | 4,905 | (1,506) | 4,381 | ||||||||||||||||||
Other Comprehensive Income (Loss) pension and other postretirement benefit plans tax | 0 | 0 | (1,920) | 202 | ||||||||||||||||||
Accumulated Other Comprehensive Income Loss [Roll Forward] | ||||||||||||||||||||||
Beginning of period, Accumulated Other Comprehensive Income (Loss), Net of Tax | (41,016) | (66,358) | (51,679) | (82,548) | 79,514 | 69,583 | 54,888 | 62,818 | 24,648 | 7,921 | 4,508 | 4,749 | 7,005 | 9,855 | 1,647 | 2,525 | (115,348) | (115,348) | (113,572) | (92,652) | (92,653) | (92,994) |
Unrealized gain (loss) on available-for-sale investment securities, net of tax expense | 9,931 | 38,170 | 24,626 | 54,897 | ||||||||||||||||||
Unrealized gain (loss) on cash flow hedges, net of tax | (241) | 8,208 | (2,497) | 7,330 | ||||||||||||||||||
Unrealized pension and post-retirement benefit gain (loss), net of tax | 0 | 1 | (1,776) | 342 | ||||||||||||||||||
End of period, Accumulated Other Comprehensive Income (Loss), Net of Tax | $ (31,326) | $ (19,979) | $ (31,326) | $ (19,979) | $ 79,514 | $ 69,583 | $ 54,888 | $ 62,818 | $ 24,648 | $ 7,921 | $ 4,508 | $ 4,749 | $ 7,005 | $ 9,855 | $ 1,647 | $ 2,525 | $ (115,348) | $ (115,348) | $ (113,572) | $ (92,652) | $ (92,653) | $ (92,994) |
Segment Disclosures (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2012
|
Aug. 31, 2011
|
Aug. 31, 2012
|
Aug. 31, 2011
|
|
Segment Reporting Information [Line Items] | ||||
Interest income | $ 1,694,969 | $ 1,599,092 | $ 4,997,146 | $ 4,725,334 |
Interest expense | 325,310 | 362,053 | 1,019,109 | 1,124,760 |
Net interest income | 1,369,659 | 1,237,039 | 3,978,037 | 3,600,574 |
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 |
Other income | 594,250 | 551,963 | 1,676,893 | 1,658,431 |
Other expense | 825,907 | 642,407 | 2,251,402 | 1,872,699 |
Income before income tax expense | 1,011,714 | 1,047,081 | 2,893,127 | 2,693,543 |
Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 1,694,969 | 1,599,075 | 4,997,142 | 4,725,305 |
Interest expense | 325,310 | 362,017 | 1,019,057 | 1,124,597 |
Net interest income | 1,369,659 | 1,237,058 | 3,978,085 | 3,600,708 |
Provision for loan losses | 126,288 | 99,514 | 510,401 | 692,763 |
Other income | 505,960 | 481,134 | 1,419,046 | 1,436,764 |
Other expense | 786,900 | 609,202 | 2,141,892 | 1,774,915 |
Income before income tax expense | 962,431 | 1,009,476 | 2,744,838 | 2,569,794 |
Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 0 | 17 | 4 | 29 |
Interest expense | 0 | 36 | 52 | 163 |
Net interest income | 0 | (19) | (48) | (134) |
Provision for loan losses | 0 | 0 | 0 | 0 |
Other income | 88,290 | 70,829 | 257,847 | 221,667 |
Other expense | 39,007 | 33,205 | 109,510 | 97,784 |
Income before income tax expense | 49,283 | 37,605 | 148,289 | 123,749 |
Credit Card Receivable [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 1,451,836 | 1,423,496 | 4,296,757 | 4,243,803 |
Credit Card Receivable [Member] | Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 1,451,836 | 1,423,496 | 4,296,757 | 4,243,803 |
Credit Card Receivable [Member] | Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 0 | 0 | 0 | 0 |
Private Student Loans [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 46,964 | 30,014 | 132,028 | 80,473 |
Private Student Loans [Member] | Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 46,964 | 30,014 | 132,028 | 80,473 |
Private Student Loans [Member] | Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 0 | 0 | 0 | 0 |
PCI Student Loans [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 75,243 | 54,304 | 229,678 | 149,460 |
PCI Student Loans [Member] | Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 75,243 | 54,304 | 229,678 | 149,460 |
PCI Student Loans [Member] | Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 0 | 0 | 0 | 0 |
Personal Loans [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 93,912 | 70,052 | 264,882 | 189,525 |
Personal Loans [Member] | Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 93,912 | 70,052 | 264,882 | 189,525 |
Personal Loans [Member] | Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 0 | 0 | 0 | 0 |
Other [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 27,014 | 21,226 | 73,801 | 62,073 |
Other [Member] | Direct Banking [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | 27,014 | 21,209 | 73,797 | 62,044 |
Other [Member] | Payment Services [Member]
|
||||
Segment Reporting Information [Line Items] | ||||
Interest income | $ 0 | $ 17 | $ 4 | $ 29 |
Fair Value Disclosures (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2012
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value of Assets and Liabilities Measured on a Recurring Basis |
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Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis | Assets and liabilities under the fair value option. Beginning in June 2012, the Company elected to account for mortgage loans held for sale at fair value. Electing the fair value option allows a better offset of the changes in fair values of the loans and the forward delivery contracts used to economically hedge them without the burden of complying with the requirements for hedge accounting. At August 31, 2012, the aggregate unpaid principal balance of loans held for sale for which the fair value option had been elected was $259.9 million. The same loans had a fair value of $272.1 million at August 31, 2012. Level 3 Financial Instruments Only
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Significant Unobservable Inputs Related to Level 3 Assets and Liabilities | Unobservable inputs and sensitivities
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Assets and Liabilities Not Required to be Carried at Fair Value on a Recurring Basis |
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Loan Receivables (Delinquent and Non-Accruing Loans) (Details) (USD $)
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3 Months Ended | 9 Months Ended | ||||||||||
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Aug. 31, 2012
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Aug. 31, 2012
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Nov. 30, 2011
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | $ 489,559,000 | $ 489,559,000 | $ 583,361,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 441,294,000 | [2] | 441,294,000 | [2] | 572,119,000 | [1] | ||||||
Financing Receivable, Recorded Investment, Past Due | 930,853,000 | 930,853,000 | 1,155,480,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 387,265,000 | 387,265,000 | 511,159,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 187,560,000 | [2] | 187,560,000 | [2] | 207,138,000 | [1] | ||||||
Estimated Gross Interest Income Based on Original Terms | 7,800,000 | 24,500,000 | ||||||||||
Consumer Credit Card Financing Receivable [Member]
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 31,800,000 | 31,800,000 | 37,900,000 | |||||||||
Credit Card Receivable [Member]
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 443,348,000 | 443,348,000 | 557,177,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 426,997,000 | 426,997,000 | 559,674,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 870,345,000 | 870,345,000 | 1,116,851,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 376,412,000 | 376,412,000 | 501,640,000 | |||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 180,205,000 | [2] | 180,205,000 | [2] | 201,068,000 | |||||||
Credit Card Receivable [Member] | Discover Card [Member]
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 441,545,000 | 441,545,000 | 554,354,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 424,514,000 | 424,514,000 | 556,126,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 866,059,000 | 866,059,000 | 1,110,480,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 374,035,000 | [3] | 374,035,000 | [3] | 498,305,000 | [3] | ||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 179,716,000 | 179,716,000 | 200,208,000 | |||||||||
Credit Card Receivable [Member] | Discover Business Card [Member]
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 1,803,000 | 1,803,000 | 2,823,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 2,483,000 | 2,483,000 | 3,548,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 4,286,000 | 4,286,000 | 6,371,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 2,377,000 | 2,377,000 | 3,335,000 | |||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 489,000 | 489,000 | 860,000 | |||||||||
Total Other Loans [Member]
|
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 46,211,000 | 46,211,000 | 26,184,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 14,297,000 | 14,297,000 | 12,445,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 60,508,000 | 60,508,000 | 38,629,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 10,853,000 | 10,853,000 | 9,519,000 | |||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 7,355,000 | 7,355,000 | 6,070,000 | |||||||||
Total Other Loans [Member] | Personal Loans [Member]
|
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 16,395,000 | 16,395,000 | 15,604,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 6,784,000 | 6,784,000 | 7,362,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 23,179,000 | 23,179,000 | 22,966,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 6,021,000 | 6,021,000 | 6,636,000 | |||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 4,229,000 | 4,229,000 | 3,628,000 | |||||||||
Total Other Loans [Member] | Private Student Loans (Excluding PCI) [Member]
|
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 29,314,000 | 29,314,000 | 10,073,000 | |||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 5,876,000 | 5,876,000 | 2,992,000 | |||||||||
Financing Receivable, Recorded Investment, Past Due | 35,190,000 | 35,190,000 | 13,065,000 | |||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 4,832,000 | 4,832,000 | 2,883,000 | |||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 1,237,000 | 1,237,000 | 125,000 | |||||||||
Total Other Loans [Member] | Other Loans [Member]
|
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Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 502,000 | 502,000 | 507,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 1,637,000 | 1,637,000 | 2,091,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, Past Due | 2,139,000 | 2,139,000 | 2,598,000 | [1] | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 0 | 0 | 0 | [1] | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | $ 1,889,000 | $ 1,889,000 | $ 2,317,000 | [1] | ||||||||
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Credit Card and Student Loan Securitization Activities (Investors' Interests and Related Excess Spreads) (Details) (USD $)
In Thousands, unless otherwise specified |
9 Months Ended | |||||
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Aug. 31, 2012
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Investors Interests | 19,873,825 | [1] | ||||
Number of Series Outstanding | 41 | |||||
Group Excess Spread Percentage [Member]
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Three Month Rolling Average Excess Spread Percentage | 13.41% | [2] | ||||
Discover Series Excess Spread Percentage [Member]
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Three Month Rolling Average Excess Spread Percentage | 13.32% | [2] | ||||
Discover Card Master Trust I [Member]
|
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Investors Interests | 2,288,598 | [1] | ||||
Number of Series Outstanding | 4 | |||||
Discover Card Execution Note Trust (DiscoverSeries Notes) [Member]
|
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Investors Interests | 17,585,227 | [1] | ||||
Number of Series Outstanding | 37 | |||||
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Loan Receivables (Contractually Required Payments Receivable, Cash Flows Expected to be Collected and Fair Value as of the Acquisition Date) (Details) (USD $)
In Millions, unless otherwise specified |
Aug. 31, 2012
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May 31, 2012
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Nov. 30, 2011
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Sep. 30, 2011
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Aug. 31, 2011
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May 31, 2011
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Dec. 31, 2010
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Nov. 30, 2010
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Loans and Leases Receivable Disclosure [Abstract] | ||||||||||||||||
Contractually required payments receivable | $ 3,861 | [1] | $ 5,673 | [1] | ||||||||||||
Less: Non-accretable difference | (573) | [2] | (683) | [2] | ||||||||||||
Cash flows expected to be collected | 3,288 | 4,990 | ||||||||||||||
Less: Accretable yield | 2,225 | 2,313 | 2,580 | (855) | [3] | 1,718 | 1,772 | (1,920) | [3] | 0 | ||||||
Fair value of loans acquired | $ 2,433 | $ 3,070 | ||||||||||||||
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Investment Securities (Schedule of Fair Value, Amortized Cost, Gross Unrealized Gains and Gross Unrealized Losses) (Details) (USD $)
In Thousands, unless otherwise specified |
Aug. 31, 2012
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Nov. 30, 2011
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Available-for-sale securities, amortized cost | $ 6,250,126 | [1] | $ 6,019,927 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 127,376 | [1] | 89,132 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | (1,228) | [1] | ||||||||
Available-for-sale investment securities, fair value | 6,377,502 | [1] | 6,107,831 | [1] | ||||||||
Held-to-maturity investment securities, amortized cost | 90,005 | [2] | 98,222 | [2] | ||||||||
Held-to-maturity securities, gross unrealized gains | 2,565 | [2] | 847 | [2] | ||||||||
Held-to-maturity securities, gross unrealized losses | (302) | [2] | (3,027) | [2] | ||||||||
Held-to-maturity, fair value | 92,268 | [2] | 96,042 | [2] | ||||||||
U.S. Treasury Securities [Member]
|
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Available-for-sale securities, amortized cost | 2,417,773 | [1] | 2,516,008 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 53,125 | [1] | 47,242 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | 0 | [1] | ||||||||
Available-for-sale investment securities, fair value | 2,470,898 | [1] | 2,563,250 | [1] | ||||||||
Held-to-maturity investment securities, amortized cost | 550 | [2],[3] | 550 | [2],[3] | ||||||||
Held-to-maturity securities, gross unrealized gains | 0 | [2],[3] | 0 | [2],[3] | ||||||||
Held-to-maturity securities, gross unrealized losses | 0 | [2],[3] | 0 | [2],[3] | ||||||||
Held-to-maturity, fair value | 550 | [2],[3] | 550 | [2],[3] | ||||||||
U.S. Government Agency Securities [Member]
|
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Available-for-sale securities, amortized cost | 2,267,348 | [1] | 2,762,265 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 51,937 | [1] | 34,166 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | (1,208) | [1] | ||||||||
Available-for-sale investment securities, fair value | 2,319,285 | [1] | 2,795,223 | [1] | ||||||||
States and Political Subdivisions of States [Member]
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Held-to-maturity investment securities, amortized cost | 35,242 | [2] | 40,936 | [2] | ||||||||
Held-to-maturity securities, gross unrealized gains | 234 | [2] | 197 | [2] | ||||||||
Held-to-maturity securities, gross unrealized losses | (302) | [2] | (2,823) | [2] | ||||||||
Held-to-maturity, fair value | 35,174 | [2] | 38,310 | [2] | ||||||||
Credit Card Asset-Backed Securities of Other Issuers [Member]
|
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Available-for-sale securities, amortized cost | 161,386 | [1] | 293,231 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 2,908 | [1] | 6,658 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | 0 | [1] | ||||||||
Available-for-sale investment securities, fair value | 164,294 | [1] | 299,889 | [1] | ||||||||
Corporate Debt Securities [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 145,396 | [1] | 448,423 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 133 | [1] | 1,066 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | (20) | [1] | ||||||||
Available-for-sale investment securities, fair value | 145,529 | [1] | 449,469 | [1] | ||||||||
Agency Residential Mortgage-Backed Securities [Member]
|
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Available-for-sale securities, amortized cost | 1,258,223 | [1] | ||||||||||
Available-for-sale securities, gross unrealized gains | 19,273 | [1] | ||||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | ||||||||||
Available-for-sale investment securities, fair value | 1,277,496 | [1] | ||||||||||
Held-to-maturity investment securities, amortized cost | 54,213 | [2],[4] | 6,482 | [2],[4] | ||||||||
Held-to-maturity securities, gross unrealized gains | 2,331 | [2],[4] | 650 | [2],[4] | ||||||||
Held-to-maturity securities, gross unrealized losses | 0 | [2],[4] | 0 | [2],[4] | ||||||||
Held-to-maturity, fair value | 56,544 | [2],[4] | 7,132 | [2],[4] | ||||||||
To-be-announced investment securities [Member]
|
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Held-to-maturity investment securities, amortized cost | 50,254 | [2] | ||||||||||
Held-to-maturity securities, gross unrealized gains | 0 | [2] | ||||||||||
Held-to-maturity securities, gross unrealized losses | (204) | [2] | ||||||||||
Held-to-maturity, fair value | $ 50,050 | [2] | ||||||||||
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Business Combinations
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2012
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations | Business Combinations Acquisition of the net assets of the Home Loan Center, Inc. On June 6, 2012, through its Discover Home Loans, Inc. subsidiary, the Company acquired substantially all of the operating and related assets and certain liabilities of Home Loan Center, Inc. ("Home Loan Center"), a subsidiary of Tree.com, Inc., adding a residential mortgage lending component to the Company's direct banking business. In exchange for the net assets acquired, the Company paid an aggregate of $48.9 million, including payments made prior to the closing that were applied to the closing price. A portion of such amount is being held in escrow pending the Home Loan Center's ability to discharge certain contingent liabilities related to loans previously sold to secondary market investors. These contingent liabilities were not assumed by the Company. An additional $10.0 million of purchase price will be due from the Company on the first anniversary of the closing, subject to certain conditions being satisfied. The Company is finalizing its valuation analysis of assets acquired and liabilities assumed. The acquisition did not have a significant impact for the three or nine months ended August 31, 2012 on the Company's consolidated financial condition, results of operations or cash flows or on the Direct Banking reportable segment in which it is included. Acquisition of The Student Loan Corporation. On December 31, 2010, the Company acquired The Student Loan Corporation (“SLC”), which is now a wholly-owned subsidiary of Discover Bank and included in the Company’s Direct Banking segment. The Company acquired SLC’s ongoing private student loan business, which includes certain private student loans held in three securitization trusts and other assets, and assumed SLC’s asset-backed securitization debt incurred by those trusts and other liabilities. The acquired loans are considered to be purchased credit-impaired ("PCI") loans for accounting purposes, the details of which are discussed further in Note 4: Loan Receivables. The acquisition significantly increased the size of the Company’s private student loan portfolio. In addition, the acquisition has provided the Company with a developed student loan business platform, additional school relationships and SLC’s website. Since the acquisition date, the results of operations and cash flows of SLC have been included in the Company’s condensed consolidated results of operations and cash flows. Pro forma data is not provided as the impact of the SLC acquisition was not significant to the Company’s condensed consolidated results of operations or cash flows.
Net assets acquired. The Company acquired net assets (including $155 million of cash) with an aggregate fair value of $563 million in exchange for cash consideration of $556 million, resulting in the recognition of a bargain purchase gain of approximately $7 million. The bargain purchase gain primarily resulted from Citibank’s adjustment of the cash consideration to be paid by the Company in exchange for the Company’s consent to permit SLC to commute, immediately prior to the acquisition, certain student loan insurance policies covering loans in one of the three trusts. The bargain purchase gain is recorded in other income on the Company’s condensed consolidated statement of income. During the fourth quarter of 2011, the Company finalized its purchase accounting, which resulted in a decrease of $27 million in the indemnification asset and a $19 million increase in student loan receivables. In addition, there were immaterial changes made to the other assets purchased and liabilities assumed. These adjustments reflect the Company's finalized cash flow projections related to the student loans acquired. The offset to these adjustments resulted in a $9 million reduction in the originally estimated bargain purchase gain of $16 million.
The Company acquired $6.2 million in identifiable intangible assets. These intangible assets consist of student relationships and trade name intangibles. Acquired student relationships consist of those relationships in existence between SLC and the numerous students that carry student loan balances. This intangible asset is deemed to have a finite useful life of 5 years and will be amortized over this period. Trade name intangibles relate to trademarks, trade names and internet domains and content. This intangible asset is deemed to have an indefinite useful life and therefore is not subject to amortization. The Company also recorded a $75 million indemnification asset. This asset reflects the discounted present value of payments expected to be received under Citibank’s indemnification of student loan credit losses that would have been recoverable under certain student loan insurance policies which, as noted above, were commuted pursuant to an agreement entered into by SLC with the Company’s consent immediately prior to the acquisition. The indemnification pertains only to loans in one of the three SLC securitization trusts that the Company acquired, namely the SLC Private Student Loan Trust 2010-A (“SLC 2010-A”). The SLC 2010-A trust included loans with an aggregate outstanding principal balance of $1.2 billion at the time of acquisition; outstanding loans in that trust totaled $1 billion as of August 31, 2012. The initial value of the indemnification asset was based on the amount of projected credit losses expected to be reimbursed by Citibank. Under the terms of the indemnification agreement with Citibank, indemnification payments related to student loan credit losses are subject to an overall cap of $166.8 million, consistent with the terms of the insurance policies which the indemnification serves to replace. The subsequent accounting for the indemnification asset will generally reflect the manner in which the indemnified loans are subsequently measured. The value of the indemnification asset will increase or decrease as expected credit losses on the PCI student loans increase or decrease, respectively. An increase in expected losses on PCI student loans that results in the immediate recognition of an allowance for loan losses will result in an immediate increase in the indemnification asset. A decrease in expected losses that results in an immediate reversal of a previously recognized loan loss allowance will result in the immediate reduction of the indemnification asset. Recognition of an allowance for loan losses on PCI student loans is discussed in more detail within Note 4: Loan Receivables under “Purchased Credit-Impaired Loans.” To the extent that a decrease in expected losses results in a prospective increase in the accretable yield on PCI student loans rather than an immediate reduction of the loan loss allowance, the value of the indemnification asset will be adjusted prospectively through a reduction in the rate of amortization. Amortization and valuation adjustments to the indemnification asset are recorded through other income on the condensed consolidated statement of income. |
Loan Receivables (Changes in Accretable Yield for the Acquired Loans) (Details) (USD $)
In Millions, unless otherwise specified |
3 Months Ended | 9 Months Ended | ||||||||
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Aug. 31, 2012
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Aug. 31, 2011
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Aug. 31, 2012
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Aug. 31, 2011
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Sep. 30, 2011
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Dec. 31, 2010
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Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward] | ||||||||||
Balance at beginning of period | $ 2,313 | $ 1,772 | $ 2,580 | $ 0 | $ (855) | [1] | $ (1,920) | [1] | ||
Accretion into interest income | (75) | (54) | (229) | (149) | ||||||
Other changes in expected cash flows | (13) | 0 | (126) | 91 | ||||||
Balance at end of period | 2,225 | 1,718 | 2,225 | 1,718 | (855) | [1] | (1,920) | [1] | ||
Initial Acquisition of Loans [Member]
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Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Accretable Yield Movement Schedule [Roll Forward] | ||||||||||
Acquisition of the Student Loan Corporation | $ 0 | $ 0 | $ 0 | $ 1,776 | ||||||
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