x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended August 31, 2011 |
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, 2011 | November 30, 2010 | ||||||
(unaudited) (dollars in thousands, except share amounts) | |||||||
Assets | |||||||
Cash and cash equivalents | $ | 3,957,525 | $ | 5,098,733 | |||
Restricted cash | 937,230 | 1,363,758 | |||||
Other short-term investments | — | 375,000 | |||||
Investment securities: | |||||||
Available-for-sale (amortized cost of $5,798,756 and $4,989,958 at August 31, 2011 and November 30, 2010, respectively) | 5,899,080 | 5,002,579 | |||||
Held-to-maturity (fair value of $51,189 and $70,195 at August 31, 2011 and November 30, 2010, respectively) | 53,088 | 72,816 | |||||
Total investment securities | 5,952,168 | 5,075,395 | |||||
Loan receivables: | |||||||
Loans held for sale | 738,382 | 788,101 | |||||
Loan portfolio: | |||||||
Credit card | 46,177,673 | 45,156,994 | |||||
Other | 4,279,613 | 2,891,318 | |||||
Purchased credit-impaired loans | 2,886,783 | — | |||||
Total loan portfolio | 53,344,069 | 48,048,312 | |||||
Total loan receivables | 54,082,451 | 48,836,413 | |||||
Allowance for loan losses | (2,273,058 | ) | (3,304,118 | ) | |||
Net loan receivables | 51,809,393 | 45,532,295 | |||||
Premises and equipment, net | 465,871 | 460,732 | |||||
Goodwill | 255,421 | 255,421 | |||||
Intangible assets, net | 189,298 | 188,973 | |||||
Other assets | 2,158,761 | 2,434,661 | |||||
Total assets | $ | 65,725,667 | $ | 60,784,968 | |||
Liabilities and Stockholders’ Equity | |||||||
Deposits: | |||||||
Interest-bearing deposit accounts | $ | 37,470,037 | $ | 34,309,839 | |||
Non-interest bearing deposit accounts | 116,847 | 103,544 | |||||
Total deposits | 37,586,884 | 34,413,383 | |||||
Short-term borrowings | 100,000 | — | |||||
Long-term borrowings | 17,718,200 | 17,705,728 | |||||
Accrued expenses and other liabilities | 2,314,667 | 2,209,011 | |||||
Total liabilities | 57,719,751 | 54,328,122 | |||||
Commitments, contingencies and guarantees (Notes 8, 11, and 12) | |||||||
Stockholders’ Equity: | |||||||
Common stock, par value $.01 per share; 2,000,000,000 shares authorized; 549,475,683 and 547,128,270 shares issued at August 31, 2011 and November 30, 2010, respectively | 5,495 | 5,471 | |||||
Additional paid-in capital | 3,492,663 | 3,435,318 | |||||
Retained earnings | 4,763,180 | 3,126,488 | |||||
Accumulated other comprehensive loss | (19,979 | ) | (82,548 | ) | |||
Treasury stock, at cost; 11,278,326 and 2,446,506 shares at August 31, 2011 and November 30, 2010, respectively | (235,443 | ) | (27,883 | ) | |||
Total stockholders’ equity | 8,005,916 | 6,456,846 | |||||
Total liabilities and stockholders’ equity | $ | 65,725,667 | $ | 60,784,968 |
August 31, 2011 | November 30, 2010 | ||||||
(unaudited) (dollars in thousands) | |||||||
Assets | |||||||
Restricted cash | $ | 937,230 | $ | 1,363,758 | |||
Credit card loan receivables | 33,978,980 | 34,452,989 | |||||
Other loan receivables | 2,876,923 | — | |||||
Allowance for loan losses allocated to securitized loan receivables | (1,589,949 | ) | (2,431,399 | ) | |||
Other assets | 30,404 | 24,083 | |||||
Liabilities | |||||||
Long-term borrowings | $ | 15,260,509 | $ | 14,919,400 | |||
Accrued interest payable | 12,803 | 11,758 |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
(unaudited) (dollars in thousands, except per share amounts) | |||||||||||||||
Interest income: | |||||||||||||||
Credit card loans | $ | 1,423,496 | $ | 1,455,907 | $ | 4,243,803 | $ | 4,423,654 | |||||||
Other loans | 157,424 | 67,588 | 428,762 | 183,150 | |||||||||||
Investment securities | 15,676 | 5,574 | 42,535 | 15,966 | |||||||||||
Other interest income | 2,496 | 6,870 | 10,234 | 24,101 | |||||||||||
Total interest income | 1,599,092 | 1,535,939 | 4,725,334 | 4,646,871 | |||||||||||
Interest expense: | |||||||||||||||
Deposits | 241,719 | 279,137 | 749,584 | 882,921 | |||||||||||
Short-term borrowings | 33 | — | 116 | — | |||||||||||
Long-term borrowings | 120,301 | 110,000 | 375,060 | 324,561 | |||||||||||
Total interest expense | 362,053 | 389,137 | 1,124,760 | 1,207,482 | |||||||||||
Net interest income | 1,237,039 | 1,146,802 | 3,600,574 | 3,439,389 | |||||||||||
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 | |||||||||||
Net interest income after provision for loan losses | 1,137,525 | 434,237 | 2,907,811 | 615,354 | |||||||||||
Other income: | |||||||||||||||
Discount and interchange revenue, net | 282,889 | 273,932 | 809,631 | 805,209 | |||||||||||
Fee product revenue | 107,858 | 104,132 | 321,527 | 309,590 | |||||||||||
Loan fee income | 84,243 | 92,465 | 250,596 | 267,483 | |||||||||||
Transaction processing revenue | 43,931 | 40,184 | 131,792 | 109,570 | |||||||||||
Merchant fees | 4,110 | 7,220 | 12,981 | 23,091 | |||||||||||
Gain (loss) on investments | (3,614 | ) | 18,951 | (3,622 | ) | 19,131 | |||||||||
Other income | 32,546 | 27,260 | 135,526 | 88,790 | |||||||||||
Total other income | 551,963 | 564,144 | 1,658,431 | 1,622,864 | |||||||||||
Other expense: | |||||||||||||||
Employee compensation and benefits | 241,881 | 204,210 | 684,782 | 602,510 | |||||||||||
Marketing and business development | 133,398 | 130,532 | 393,244 | 313,175 | |||||||||||
Information processing and communications | 63,547 | 62,357 | 194,852 | 190,862 | |||||||||||
Professional fees | 106,042 | 85,289 | 301,122 | 239,169 | |||||||||||
Premises and equipment | 18,063 | 17,722 | 53,268 | 53,273 | |||||||||||
Other expense | 79,476 | 66,128 | 245,431 | 155,601 | |||||||||||
Total other expense | 642,407 | 566,238 | 1,872,699 | 1,554,590 | |||||||||||
Income before income tax expense | 1,047,081 | 432,143 | 2,693,543 | 683,628 | |||||||||||
Income tax expense | 398,263 | 171,526 | 979,414 | 268,482 | |||||||||||
Net income | $ | 648,818 | $ | 260,617 | $ | 1,714,129 | $ | 415,146 | |||||||
Net income allocated to common stockholders | $ | 641,772 | $ | 258,194 | $ | 1,694,636 | $ | 321,613 | |||||||
Basic earnings per share | $ | 1.18 | $ | 0.47 | $ | 3.11 | $ | 0.59 | |||||||
Diluted earnings per share | $ | 1.18 | $ | 0.47 | $ | 3.11 | $ | 0.58 | |||||||
Dividends paid per share | $ | 0.06 | $ | 0.02 | $ | 0.14 | $ | 0.06 |
Preferred Stock | Common Stock | Additional Paid-in Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Stockholders’ Equity | |||||||||||||||||||||||||||
Shares | Amount | Shares | Amount | ||||||||||||||||||||||||||||||
(unaudited) (dollars and shares in thousands) | |||||||||||||||||||||||||||||||||
Balance at November 30, 2009 | 1,225 | $ | 1,158,066 | 544,799 | $ | 5,448 | $ | 3,573,231 | $ | 3,873,262 | $ | (154,818 | ) | $ | (19,642 | ) | $ | 8,435,547 | |||||||||||||||
Adoption of ASC 810 (FASB Statement No. 167), net of tax | — | — | — | — | — | (1,411,117 | ) | 78,561 | — | (1,332,556 | ) | ||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 415,146 | — | — | 415,146 | ||||||||||||||||||||||||
Adjustments related to investment securities, net of tax | — | — | — | — | — | — | (6,276 | ) | — | ||||||||||||||||||||||||
Adjustments related to cash flow hedges, net of tax | — | — | — | — | — | — | 158 | — | |||||||||||||||||||||||||
Adjustments related to pension and postretirement benefits, net of tax | — | — | — | — | — | — | 78 | — | |||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | — | (6,040 | ) | — | (6,040 | ) | ||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | — | — | 409,106 | ||||||||||||||||||||||||
Purchases of treasury stock | — | — | — | — | — | — | — | (8,145 | ) | (8,145 | ) | ||||||||||||||||||||||
Common stock issued under employee benefit plans | — | — | 67 | 1 | 867 | — | — | — | 868 | ||||||||||||||||||||||||
Common stock issued and stock-based compensation expense | — | — | 2,125 | 21 | 29,402 | — | — | — | 29,423 | ||||||||||||||||||||||||
Income tax deficiency on stock based compensation plans | — | — | — | — | (3,411 | ) | — | — | — | (3,411 | ) | ||||||||||||||||||||||
Dividends paid—common stock | — | — | — | — | — | (32,923 | ) | — | — | (32,923 | ) | ||||||||||||||||||||||
Accretion of preferred stock discount | — | 66,492 | — | — | — | (66,492 | ) | — | — | — | |||||||||||||||||||||||
Dividends—preferred stock | — | — | — | — | — | (23,811 | ) | — | — | (23,811 | ) | ||||||||||||||||||||||
Redemption of preferred stock | (1,225 | ) | (1,224,558 | ) | — | — | — | — | — | — | (1,224,558 | ) | |||||||||||||||||||||
Repurchase of stock warrant | — | — | — | — | (172,000 | ) | — | — | — | (172,000 | ) | ||||||||||||||||||||||
Special dividend—Morgan Stanley | — | — | — | — | — | 33,757 | — | — | 33,757 | ||||||||||||||||||||||||
Balance at August 31, 2010 | — | $ | — | 546,991 | $ | 5,470 | $ | 3,428,089 | $ | 2,787,822 | $ | (82,297 | ) | $ | (27,787 | ) | $ | 6,111,297 | |||||||||||||||
Balance at November 30, 2010 | — | — | 547,128 | 5,471 | 3,435,318 | 3,126,488 | (82,548 | ) | (27,883 | ) | 6,456,846 | ||||||||||||||||||||||
Comprehensive income: | |||||||||||||||||||||||||||||||||
Net income | — | — | — | — | — | 1,714,129 | — | — | 1,714,129 | ||||||||||||||||||||||||
Adjustments related to investment securities, net of tax | — | — | — | — | — | — | 54,897 | — | |||||||||||||||||||||||||
Adjustments related to cash flow hedges, net of tax | — | — | — | — | — | — | 7,330 | — | |||||||||||||||||||||||||
Adjustments related to pension and postretirement benefits, net of tax | — | — | — | — | — | — | 342 | — | |||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | — | 62,569 | — | 62,569 | ||||||||||||||||||||||||
Total comprehensive income | — | — | — | — | — | — | — | — | 1,776,698 | ||||||||||||||||||||||||
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 paid—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 |
For the Nine Months Ended August 31, | |||||||
2011 | 2010 | ||||||
(unaudited) | |||||||
(dollars in thousands) | |||||||
Cash flows from operating activities | |||||||
Net income | $ | 1,714,129 | $ | 415,146 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Provision for loan losses | 692,763 | 2,824,035 | |||||
Deferred income taxes | 351,854 | 63,131 | |||||
Depreciation and amortization on premises and equipment | 66,274 | 68,130 | |||||
Amortization of deferred revenues | (191,290 | ) | (137,492 | ) | |||
Other depreciation and amortization | (35,346 | ) | 57,947 | ||||
Loss (gain) on investments | 3,622 | (19,131 | ) | ||||
Loss on premises and equipment | 3,242 | 1,930 | |||||
Loss (gain) on loans sold | 28 | (439 | ) | ||||
Stock-based compensation expense | 33,690 | 29,554 | |||||
Gain on purchase of business | (15,917 | ) | — | ||||
Net change in loans originated for sale | 49,719 | (118,557 | ) | ||||
Changes in assets and liabilities: | |||||||
Decrease (increase) in other assets | 32,339 | (230,385 | ) | ||||
Increase (decrease) in accrued expenses and other liabilities | 106,908 | (247,107 | ) | ||||
Net cash provided by operating activities | 2,812,015 | 2,706,762 | |||||
Cash flows from investing activities | |||||||
Maturities of other short-term investments | 375,000 | 1,350,000 | |||||
Purchases of other short-term investments | — | (375,000 | ) | ||||
Maturities and sales of available-for-sale investment securities | 786,463 | 540,526 | |||||
Purchases of available-for-sale investment securities | (1,627,215 | ) | (1,239,631 | ) | |||
Maturities of held-to-maturity investment securities | 17,466 | 19,779 | |||||
Purchases of held-to-maturity investment securities | (550 | ) | (549 | ) | |||
Proceeds from sale of loans held for investment | 611 | — | |||||
Net principal disbursed on loans held for investment | (3,074,805 | ) | (2,035,023 | ) | |||
Purchase of loan receivables | (596,163 | ) | — | ||||
Purchase of business, net of cash acquired | (401,158 | ) | — | ||||
Purchase of other investment | (15,000 | ) | — | ||||
Decrease in restricted cash—special dividend escrow | — | 643,311 | |||||
Decrease in restricted cash—for securitization investors | 623,794 | 547,064 | |||||
Proceeds from sale of premises and equipment | 13 | 146 | |||||
Purchases of premises and equipment | (70,053 | ) | (29,538 | ) | |||
Net cash used for investing activities | (3,981,597 | ) | (578,915 | ) | |||
Cash flows from financing activities | |||||||
Net increase in short-term borrowings | 100,000 | — | |||||
Proceeds from issuance of securitized debt | 2,500,000 | 1,000,000 | |||||
Maturities of securitized debt | (5,114,986 | ) | (8,560,528 | ) | |||
Proceeds from issuance of other long-term borrowings | — | 1,003,427 | |||||
Maturities of other long-term borrowings | (345,048 | ) | (590,676 | ) | |||
Proceeds from issuance of common stock | 17,928 | — | |||||
Purchases of treasury stock | (207,560 | ) | (8,145 | ) | |||
Net increase in deposits | 3,147,752 | 1,177,096 | |||||
Proceeds from acquisition of deposits | — | 976,627 | |||||
Redemption of preferred stock | — | (1,224,558 | ) | ||||
Repurchase of warrant | — | (172,000 | ) | ||||
Dividend paid to Morgan Stanley | — | (775,000 | ) | ||||
Dividends paid on common and preferred stock | (69,712 | ) | (59,455 | ) | |||
Excess tax benefits related to stock-based compensation | — | 737 | |||||
Net cash provided by (used for) financing activities | 28,374 | (7,232,475 | ) | ||||
Net decrease in cash and cash equivalents | (1,141,208 | ) | (5,104,628 | ) | |||
Cash and cash equivalents, at beginning of period | 5,098,733 | 13,020,719 | |||||
Cash and cash equivalents, at end of period | $ | 3,957,525 | $ | 7,916,091 | |||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | |||||||
Cash paid during the period for: | |||||||
Interest expense | $ | 1,045,370 | $ | 1,125,181 | |||
Income taxes, net of income tax refunds | $ | 635,360 | $ | 112,027 | |||
Non-cash transactions: | |||||||
Assumption of SLC debt | $ | 2,921,372 | $ | — | |||
Special dividend—Morgan Stanley | $ | — | $ | 33,757 |
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 | Estimate at Closing December 31, 2010 | ||||||
Gross trust assets | $ | 3,977 | $ | 3,993 | |||
Less: 8.5% discount | (338 | ) | (339 | ) | |||
Net trust assets | 3,639 | 3,654 | |||||
Less: Principal amount of and accrued interest on trust debt | (3,193 | ) | (3,215 | ) | |||
Trust Certificate Purchase Price | $ | 446 | $ | 439 |
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) for the value of non-trust related liabilities assumed by the Company. The following table provides a summary of total consideration paid by Discover at the closing of the acquisition on December 31, 2010 and a summary of the consideration revised for post-closing adjustments (dollars in millions): | |||||||
Actual | Estimate at Closing December 31, 2010 | ||||||
Aggregate Merger Consideration | $ | 600 | $ | 600 | |||
Less: Purchase price adjustment(1) | (154 | ) | (161 | ) | |||
Trust Certificate Purchase Price | 446 | 439 | |||||
Less: Further adjustments provided for by Citibank | |||||||
Cash received for consent to insurance commutation | (16 | ) | (16 | ) | |||
Cash received related to reimbursable liabilities(1) | (29 | ) | (57 | ) | |||
Net cash consideration paid(1) | $ | 401 | $ | 366 |
(1) | Based on the final SLC closing balance sheet, the Company accrued a $35 million liability, at the end of the first quarter of fiscal 2011, payable to Citibank for post-closing adjustments arising from a $7 million increase in the Trust Certificate Purchase Price and a $28 million reduction in reimbursable liabilities, which together resulted in the difference between the actual and estimated numbers shown. The accrued amount was paid to Citibank during the second quarter of 2011. |
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 | $ | 3,050,784 | |
Cash | 155,347 | ||
Indemnification asset | 101,127 | ||
Student relationships intangible | 2,400 | ||
Trade name intangible | 3,800 | ||
Total intangible assets | 6,200 | ||
Other assets | 218,514 | ||
Total assets acquired | 3,531,972 | ||
Securitized debt | 2,921,372 | ||
Other liabilities | 38,178 | ||
Total liabilities assumed | 2,959,550 | ||
Net assets acquired | $ | 572,422 |
3. | Investment Securities |
The Company’s investment securities consist of the following (dollars in thousands): | |||||||
August 31, 2011 | November 30, 2010 | ||||||
U.S. Treasury securities | $ | 2,371,805 | $ | 1,575,403 | |||
U.S. government agency securities | 2,669,180 | 1,888,701 | |||||
States and political subdivisions of states | 39,670 | 51,774 | |||||
Other securities: | |||||||
Credit card asset-backed securities of other issuers | 356,940 | 1,031,112 | |||||
Corporate debt securities(1) | 501,705 | 507,896 | |||||
Residential mortgage-backed securities | 7,344 | 9,800 | |||||
Other debt and equity securities | 5,524 | 10,709 | |||||
Total other securities | 871,513 | 1,559,517 | |||||
Total investment securities | $ | 5,952,168 | $ | 5,075,395 |
(1) | Amount represents corporate debt obligations issued under the Temporary Liquidity Guarantee Program (TLGP) that are guaranteed by the Federal Deposit Insurance Corporation (FDIC). |
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, 2011 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S Treasury securities | $ | 2,322,042 | $ | 49,213 | $ | — | $ | 2,371,255 | |||||||
U.S government agency securities | 2,627,392 | 41,788 | — | $ | 2,669,180 | ||||||||||
Credit card asset-backed securities of other issuers | 348,606 | 8,335 | (1 | ) | $ | 356,940 | |||||||||
Corporate debt securities | 500,716 | 989 | — | $ | 501,705 | ||||||||||
Total available-for-sale investment securities | $ | 5,798,756 | $ | 100,325 | $ | (1 | ) | $ | 5,899,080 | ||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
U.S. Treasury securities(3) | $ | 550 | $ | — | $ | — | $ | 550 | |||||||
States and political subdivisions of states | 39,670 | 219 | (2,923 | ) | 36,966 | ||||||||||
Residential mortgage-backed securities | 7,344 | 805 | — | 8,149 | |||||||||||
Other debt securities(4) | 5,524 | — | — | 5,524 | |||||||||||
Total held-to-maturity investment securities | $ | 53,088 | $ | 1,024 | $ | (2,923 | ) | $ | 51,189 | ||||||
At November 30, 2010 | |||||||||||||||
Available-for-Sale Investment Securities(1) | |||||||||||||||
U.S Treasury securities | $ | 1,576,094 | $ | 344 | $ | (1,585 | ) | $ | 1,574,853 | ||||||
U.S government agency securities | 1,888,909 | 1,090 | (1,298 | ) | 1,888,701 | ||||||||||
Credit card asset-backed securities of other issuers | 1,017,183 | 13,983 | (54 | ) | 1,031,112 | ||||||||||
Corporate debt securities | 507,757 | 241 | (102 | ) | 507,896 | ||||||||||
Equity securities | 15 | 2 | — | 17 | |||||||||||
Total available-for-sale investment securities | $ | 4,989,958 | $ | 15,660 | $ | (3,039 | ) | $ | 5,002,579 | ||||||
Held-to-Maturity Investment Securities(2) | |||||||||||||||
U.S. Treasury securities(3) | $ | 550 | $ | — | $ | — | $ | 550 | |||||||
States and political subdivisions of states | 51,774 | 281 | (3,771 | ) | 48,284 | ||||||||||
Residential mortgage-backed securities | 9,800 | 869 | — | 10,669 | |||||||||||
Other debt securities(4) | 10,692 | — | — | 10,692 | |||||||||||
Total held-to-maturity investment securities | $ | 72,816 | $ | 1,150 | $ | (3,771 | ) | $ | 70,195 |
(1) | Available-for-sale investment securities are reported at fair value. |
(2) | Held-to-maturity investment securities are reported at amortized cost. |
(3) | Amount represents securities pledged as collateral to a government-related merchant for which transaction settlement occurs beyond the normal 24-hour period. |
(4) | Included in other debt securities at August 31, 2011 and November 30, 2010 are commercial advances of $2.8 million and $7.9 million respectively related to the Company’s Community Reinvestment Act strategies. |
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, 2011 and November 30, 2010 (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, 2011 | ||||||||||||||||||
Available-for-Sale Investment Securities | ||||||||||||||||||
U.S. Treasury securities | — | $ | — | $ | — | $ | — | $ | — | |||||||||
U.S. government agency securities | — | — | — | $ | — | $ | — | |||||||||||
Credit card asset-backed securities of other issuers | 1 | 4,126 | 1 | $ | — | $ | — | |||||||||||
Corporate debt securities | — | — | — | $ | — | $ | — | |||||||||||
Held-to-Maturity Investment Securities | ||||||||||||||||||
State and political subdivisions of states | 4 | $ | 6,084 | $ | 1 | $ | 21,538 | $ | 2,922 | |||||||||
At November 30, 2010 | ||||||||||||||||||
Available-for-Sale Investment Securities | ||||||||||||||||||
U.S. Treasury securities | 17 | $ | 1,262,670 | $ | 1,585 | $ | — | $ | — | |||||||||
U.S. government agency securities | 18 | $ | 1,181,148 | $ | 1,298 | $ | — | $ | — | |||||||||
Credit card asset-backed securities of other issuers | 23 | $ | 238,646 | $ | 54 | $ | — | $ | — | |||||||||
Corporate debt securities | 5 | $ | 230,441 | $ | 102 | $ | — | $ | — | |||||||||
Held-to-Maturity Investment Securities | ||||||||||||||||||
State and political subdivisions of states | 4 | $ | 7,731 | $ | 239 | $ | 27,603 | $ | 3,532 |
Maturities of available-for-sale debt securities and held-to-maturity debt securities at August 31, 2011 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 | $ | 590,462 | $ | 1,731,580 | $ | — | $ | — | $ | 2,322,042 | |||||||||
U.S government agency securities | 921,790 | 1,705,602 | — | — | 2,627,392 | ||||||||||||||
Credit card asset-backed securities of other issuers | 191,269 | 157,337 | — | — | 348,606 | ||||||||||||||
Corporate debt securities | 353,224 | 147,492 | — | — | 500,716 | ||||||||||||||
Total available-for-sale investment securities | $ | 2,056,745 | $ | 3,742,011 | $ | — | $ | — | $ | 5,798,756 | |||||||||
Held-to-maturity—Amortized Cost (2) | |||||||||||||||||||
U.S. Treasury securities | $ | 550 | $ | — | $ | — | $ | — | $ | 550 | |||||||||
State and political subdivisions of states | — | 2,085 | 3,375 | 34,210 | 39,670 | ||||||||||||||
Residential mortgage-backed securities | — | — | — | 7,344 | 7,344 | ||||||||||||||
Other debt securities | 275 | 2,641 | 153 | 2,455 | 5,524 | ||||||||||||||
Total held-to-maturity investment securities | $ | 825 | $ | 4,726 | $ | 3,528 | $ | 44,009 | $ | 53,088 | |||||||||
Available-for-sale—Fair Values (1) | |||||||||||||||||||
U.S Treasury securities | $ | 591,201 | $ | 1,780,054 | $ | — | $ | — | $ | 2,371,255 | |||||||||
U.S government agency securities | 922,717 | 1,746,463 | — | — | 2,669,180 | ||||||||||||||
Credit card asset-backed securities of other issuers | 192,728 | 164,212 | — | — | 356,940 | ||||||||||||||
Corporate debt securities | 353,547 | 148,158 | — | — | 501,705 | ||||||||||||||
Total available-for-sale investment securities | $ | 2,060,193 | $ | 3,838,887 | $ | — | $ | — | $ | 5,899,080 | |||||||||
Held-to-maturity—Fair Values (2) | |||||||||||||||||||
U.S. Treasury securities | $ | 550 | $ | — | $ | — | $ | — | $ | 550 | |||||||||
State and political subdivisions of states | — | 2,125 | 3,549 | 31,292 | 36,966 | ||||||||||||||
Residential mortgage-backed securities | — | — | — | 8,149 | 8,149 | ||||||||||||||
Other debt securities | 275 | 2,641 | 153 | 2,455 | 5,524 | ||||||||||||||
Total held-to-maturity investment securities | $ | 825 | $ | 4,766 | $ | 3,702 | $ | 41,896 | $ | 51,189 |
(1) | Available-for-sale investment securities are reported at fair value. |
(2) | Held-to-maturity investment securities are reported at amortized cost. |
4. | Loan Receivables |
August 31, 2011 | November 30, 2010 | ||||||
Loans held for sale(1) | $ | 738,382 | $ | 788,101 | |||
Loan portfolio: | |||||||
Credit card loans: | |||||||
Discover card(2) | 45,949,224 | 44,904,267 | |||||
Discover business card | 228,449 | 252,727 | |||||
Total credit card loans | 46,177,673 | 45,156,994 | |||||
Other consumer loans: | |||||||
Personal loans | 2,439,330 | 1,877,633 | |||||
Private student loans | 1,828,493 | 999,322 | |||||
Other | 11,790 | 14,363 | |||||
Total other consumer loans | 4,279,613 | 2,891,318 | |||||
PCI student loans(3) | 2,886,783 | — | |||||
Total loan portfolio | 53,344,069 | 48,048,312 | |||||
Total loan receivables | 54,082,451 | 48,836,413 | |||||
Allowance for loan losses | (2,273,058 | ) | (3,304,118 | ) | |||
Net loan receivables | $ | 51,809,393 | $ | 45,532,295 |
(1) | Amount represents federal student loans. At August 31, 2011 and November 30, 2010, $463.9 million and $500.2 million of federal student loan receivables, respectively, were pledged as collateral against a long-term borrowing. |
(2) | Amounts include $16.9 billion and $19.5 billion of underlying investors’ interest in trust debt at August 31, 2011 and November 30, 2010, respectively, and $17.0 billion and $14.9 billion in seller’s interest at August 31, 2011 and November 30, 2010, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for further information. |
(3) | Amount includes $2.9 billion of loans pledged as collateral against the notes issued from the SLC securitization trusts. See Note 5: Credit Card and Student Loan Securitization Activities. The remaining $9.9 million not pledged as collateral represents 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, 2011 | |||||||||||||||||||
Credit card loans: | |||||||||||||||||||
Discover card(1) | $ | 553,174 | $ | 561,127 | $ | 1,114,301 | $ | 498,752 | $ | 208,404 | |||||||||
Discover business card | 2,885 | 3,929 | 6,814 | 3,655 | 889 | ||||||||||||||
Total credit card loans | 556,059 | 565,056 | 1,121,115 | 502,407 | 209,293 | ||||||||||||||
Other consumer loans: | |||||||||||||||||||
Personal loans | 14,170 | 6,446 | 20,616 | 5,814 | 3,527 | ||||||||||||||
Private student loans (excluding PCI) | 12,415 | 2,150 | 14,565 | 2,150 | — | ||||||||||||||
Other(3) | 438 | 2,199 | 2,637 | — | 2,426 | ||||||||||||||
Total other consumer loans (excluding PCI) | 27,023 | 10,795 | 37,818 | 7,964 | 5,953 | ||||||||||||||
Total loan receivables (excluding PCI)(3) | $ | 583,082 | $ | 575,851 | $ | 1,158,933 | $ | 510,371 | $ | 215,246 | |||||||||
At November 30, 2010 | |||||||||||||||||||
Total loan receivables(1) | $ | 908,306 | $ | 993,618 | $ | 1,901,924 | $ | 853,757 | $ | 325,900 |
(1) | Consumer credit card loans that are 90 or more days delinquent and accruing interest include $36.4 million and $35 million of loans accounted for as troubled debt restructurings at August 31, 2011 and November 30, 2010, respectively. |
(2) | The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of these loans was $10.6 million and $35.6 million for the three months and nine months ended August 31, 2011, 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. |
(3) | Amount also excludes federal student loans that are held for sale. |
Net Charge-Offs: | For the Three Months Ended August 31, 2011 | For the Nine Months Ended August 31, 2011 | |||||||||||
Net Charge-offs | Net Charge-off Rate | Net Charge-offs | Net Charge-off Rate | ||||||||||
Credit card loans: | |||||||||||||
Discover card | $ | 436,242 | 3.84 | % | $ | 1,651,311 | 4.91 | % | |||||
Discover business card | 3,506 | 6.01 | % | 14,937 | 8.26 | % | |||||||
Total credit card loans | 439,748 | 3.85 | % | 1,666,248 | 4.93 | % | |||||||
Other consumer loans: | |||||||||||||
Personal loans | 16,000 | 2.73 | % | 50,980 | 3.19 | % | |||||||
Private student loans (excluding PCI) | 2,618 | 0.62 | % | 5,573 | 0.49 | % | |||||||
Other | 410 | 13.41 | % | 1,022 | 10.35 | % | |||||||
Total other consumer loans (excluding PCI) | 19,028 | 0.98 | % | 57,575 | 1.09 | % | |||||||
Net charge-offs as a percentage of total loans (excluding PCI) | $ | 458,776 | 3.63 | % | $ | 1,723,823 | 4.64 | % | |||||
Net charge-offs as a percentage of total loans (including PCI) | $ | 458,776 | 3.43 | % | $ | 1,723,823 | 4.41 | % |
Credit Risk Profile by FICO Score | |||
660 and Above | Less than 660 or No Score | ||
Discover card | 79% | 21% | |
Discover business card | 87% | 13% | |
Private student loans (excluding PCI) | 95% | 5% | |
Personal loans | 95% | 5% |
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Balance at beginning of period | $ | 2,632,320 | $ | 3,930,624 | $ | 3,304,118 | $ | 1,757,899 | |||||||
Additions: | |||||||||||||||
Addition to allowance related to securitized receivables(1) | — | — | — | 2,144,461 | |||||||||||
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 | |||||||||||
Deductions: | |||||||||||||||
Charge-offs: | |||||||||||||||
Discover card | (584,534 | ) | (982,920 | ) | (2,085,452 | ) | (3,203,959 | ) | |||||||
Discover business card | (4,416 | ) | (14,502 | ) | (17,672 | ) | (50,190 | ) | |||||||
Total credit card loans | (588,950 | ) | (997,422 | ) | (2,103,124 | ) | (3,254,149 | ) | |||||||
Personal loans | (16,458 | ) | (23,836 | ) | (52,438 | ) | (70,957 | ) | |||||||
Federal student loans | — | (11 | ) | — | (308 | ) | |||||||||
Private student loans | (2,663 | ) | (660 | ) | (5,646 | ) | (1,264 | ) | |||||||
Other | (411 | ) | (139 | ) | (1,025 | ) | (858 | ) | |||||||
Total other consumer loans | (19,532 | ) | (24,646 | ) | (59,109 | ) | (73,387 | ) | |||||||
Total charge-offs | (608,482 | ) | (1,022,068 | ) | (2,162,233 | ) | (3,327,536 | ) | |||||||
Recoveries: | |||||||||||||||
Discover card | 148,292 | 121,255 | 434,141 | 341,337 | |||||||||||
Discover business card | 910 | 875 | 2,735 | 2,516 | |||||||||||
Total credit card loans | 149,202 | 122,130 | 436,876 | 343,853 | |||||||||||
Personal loans | 458 | 421 | 1,458 | 942 | |||||||||||
Private student loans | 45 | 14 | 73 | 22 | |||||||||||
Other | 1 | 35 | 3 | 45 | |||||||||||
Total other consumer loans | 504 | 470 | 1,534 | 1,009 | |||||||||||
Total recoveries | 149,706 | 122,600 | 438,410 | 344,862 | |||||||||||
Net charge-offs | (458,776 | ) | (899,468 | ) | (1,723,823 | ) | (2,982,674 | ) | |||||||
Balance at end of period | $ | 2,273,058 | $ | 3,743,721 | $ | 2,273,058 | $ | 3,743,721 |
(1) | On December 1, 2009, upon adoption of FASB Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables. |
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 consumer loans is as follows (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)(1) | $ | 128,329 | $ | 219,422 | $ | 480,044 | $ | 723,909 | |||||||
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)(1) | $ | 22,807 | $ | 58,331 | $ | 86,762 | $ | 228,039 |
(1) | Beginning in 2011, net charge-offs of interest and fees include amounts related to other consumer loans. Prior to 2011 such amounts were not included as they were not material. |
Credit Card | Personal Loans | Student Loans | Other Loans | Total | |||||||||||||||
At August 31, 2011 | |||||||||||||||||||
Allowance for loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 1,963,962 | $ | 75,562 | $ | 43,406 | $ | 220 | $ | 2,083,150 | |||||||||
Troubled debt restructurings(2) | 189,908 | — | — | — | 189,908 | ||||||||||||||
Purchased credit-impaired(3) | — | — | — | — | — | ||||||||||||||
Total allowance for loan losses | $ | 2,153,870 | $ | 75,562 | $ | 43,406 | $ | 220 | $ | 2,273,058 | |||||||||
Recorded investment in loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 44,972,100 | $ | 2,439,330 | $ | 1,828,493 | $ | 11,790 | $ | 49,251,713 | |||||||||
Troubled debt restructurings(2) | 1,205,573 | — | — | — | 1,205,573 | ||||||||||||||
Purchased credit-impaired(3) | — | — | 2,886,783 | — | 2,886,783 | ||||||||||||||
Total recorded investment | $ | 46,177,673 | $ | 2,439,330 | $ | 4,715,276 | $ | 11,790 | $ | 53,344,069 | |||||||||
At November 30, 2010 | |||||||||||||||||||
Allowance for loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 3,095,046 | $ | 76,087 | $ | 18,569 | $ | 574 | $ | 3,190,276 | |||||||||
Troubled debt restructurings(2) | 113,842 | — | — | — | 113,842 | ||||||||||||||
Purchased credit-impaired(3) | — | — | — | — | — | ||||||||||||||
Total allowance for loan losses | $ | 3,208,888 | $ | 76,087 | $ | 18,569 | $ | 574 | $ | 3,304,118 | |||||||||
Recorded investment in loans evaluated for impairment as: | |||||||||||||||||||
Collectively evaluated for impairment(1) | $ | 44,851,650 | $ | 1,877,633 | $ | 999,322 | $ | 14,363 | $ | 47,742,968 | |||||||||
Troubled debt restructurings(2) | 305,344 | — | — | — | 305,344 | ||||||||||||||
Purchased credit-impaired(3) | — | — | — | — | — | ||||||||||||||
Total recorded investment | $ | 45,156,994 | $ | 1,877,633 | $ | 999,322 | $ | 14,363 | $ | 48,048,312 |
(1) | Represents loans evaluated for impairment in accordance with ASC 450-20, Loss Contingencies. |
(2) | Represents loans evaluated for impairment in accordance with ASC 310-10, Receivables, which consists of modified loans accounted for as troubled debt restructurings. The unpaid principal balance of such loans was $1.0 billion at August 31, 2011. All loans accounted for as troubled debt restructurings have a related allowance for loan losses. In the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the total allowance for loan losses as a result of this change was not material. |
(3) | Represents loans evaluated for impairment in accordance with ASC 310-30, Receivables-Loans and Debt Securities Acquired with Deteriorated Credit Quality. |
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 in the Company’s credit card portfolio is shown below (dollars in thousands): | |||||||||||||||
For the three months ended August 31, 2011(1) | For the nine months ended August 31, 2011(1) | ||||||||||||||
Temporary and Permanent Programs | External Programs | Temporary and Permanent Programs | External Programs | ||||||||||||
Average recorded investment in loans | $ | 519,884 | $ | 709,211 | $ | 534,479 | $ | 727,113 | |||||||
Interest income recognized during the time within the period these loans were impaired(2) | $ | 4,518 | $ | 15,391 | $ | 16,660 | $ | 46,974 | |||||||
Gross interest income that would have been recorded in accordance with the original terms(3) | $ | 16,411 | $ | 2,467 | $ | 47,950 | $ | 7,535 | |||||||
For the three months ended August 31, 2010 | For the nine months ended August 31, 2010 | ||||||||||||||
Permanent Programs | Permanent Programs | ||||||||||||||
Average recorded investment in loans | $ | 271,114 | $ | 248,686 | |||||||||||
Interest income recognized during the time within the period these loans were impaired(2) | $ | 765 | $ | 2.107 | |||||||||||
Gross interest income that would have been recorded in accordance with the original terms(3) | $ | 10,462 | $ | 28,707 |
(1) | In addition to loans modified through permanent workout programs, in the first quarter 2011, the Company began accounting for credit card loans modified through temporary hardship and external programs as troubled debt restructurings. The impact on the allowance for loan losses as a result of this change was not material. |
(2) | The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs. |
(3) | 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. |
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) | (846 | ) | |
Cash flows expected to be collected | 4,827 | ||
Less: Accretable yield (3) | (1,776 | ) | |
Fair value of loans acquired | $ | 3,051 |
(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. |
For the Three Months Ended August 31, 2011 | For the Nine Months Ended August 31, 2011 | |||||
Balance at beginning of period | $ | 1,772 | $ | — | ||
Acquisition of The Student Loan Corporation | — | 1,776 | ||||
Accretion into interest income | (54 | ) | (149 | ) | ||
Reclassifications from non-accretable difference | — | 91 | ||||
Balance at end of period | $ | 1,718 | $ | 1,718 |
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, 2011 | November 30, 2010 | ||||||
Cash collateral accounts (1) | $ | 226,579 | $ | 459,474 | |||
Collections and interest funding accounts | 585,030 | 904,284 | |||||
Restricted cash | 811,609 | 1,363,758 | |||||
Investors’ interests held by third-party investors | 12,621,054 | 14,921,057 | |||||
Investors’ interests held by wholly owned subsidiaries of Discover Bank | 4,327,121 | 4,608,210 | |||||
Seller’s interest | 17,030,805 | 14,923,722 | |||||
Loan receivables (2) | 33,978,980 | 34,452,989 | |||||
Allowance for loan losses allocated to securitized loan receivables (2) | (1,589,949 | ) | (2,431,399 | ) | |||
Net loan receivables | 32,389,031 | 32,021,590 | |||||
Other | 25,195 | 24,083 | |||||
Carrying value of assets of consolidated variable interest entities | $ | 33,225,835 | $ | 33,409,431 |
(1) | As of November 30, 2010, the full amount was pledged as collateral against a long-term borrowing. |
(2) | The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP. |
The tables below provide information concerning investors’ interests and related excess spreads at August 31, 2011 (dollars in thousands): | ||||||
Investors’ Interests(1) | # of Series Outstanding | |||||
Discover Card Master Trust I | $ | 3,830,858 | 7 | |||
Discover Card Execution Note Trust (DiscoverSeries notes) | 13,117,317 | 28 | ||||
Total investors’ interests | $ | 16,948,175 | 35 |
(1) | Investors’ interests include third-party interests and subordinated interests held by wholly-owned subsidiaries of Discover Bank. |
3-Month Rolling Average Excess Spread(1)(2) | ||
Group excess spread percentage | 16.92 | % |
DiscoverSeries excess spread percentage | 16.76 | % |
(1) | DCMT certificates refer to the higher of the Group excess spread or their applicable series excess spread (not shown) and DiscoverSeries notes refer to the higher of the Group or DiscoverSeries excess spread in assessing whether an economic early amortization has been triggered. |
(2) | Discount Series (DCMT 2009-SD) makes principal collections available for reallocation to other series to cover shortfalls in interest and servicing fees and to reimburse charge-offs. Three-month rolling average excess spread rates reflected the availability of these additional collections. |
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, 2011 | |||
Restricted cash | $ | 125,621 | |
Student loan receivables | $ | 2,876,923 | |
Other assets | $ | 5,209 | |
Carrying value of assets of consolidated variable interest entities | $ | 3,007,753 |
6. | Deposits |
A summary of interest-bearing deposit accounts is as follows (dollars in thousands): | |||||||
August 31, 2011 | November 30, 2010 | ||||||
Certificates of deposit in amounts less than $100,000(1) | $ | 19,524,679 | $ | 19,797,420 | |||
Certificates of deposit from amounts of $100,000(1)to less than $250,000(1) | 4,999,091 | 4,626,792 | |||||
Certificates of deposit in amounts of $250,000(1)or greater | 1,148,445 | 1,146,843 | |||||
Savings deposits, including money market deposit accounts | 11,797,822 | 8,738,784 | |||||
Total interest-bearing deposits | $ | 37,470,037 | $ | 34,309,839 | |||
Average annual interest rate | 2.67 | % | 3.12 | % |
(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, 2011, certificates of deposit maturing during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands): | |||
Year | Amount | ||
2011 | $ | 2,650,831 | |
2012 | $ | 10,787,166 | |
2013 | $ | 5,939,329 | |
2014 | $ | 2,576,005 | |
2015 | $ | 1,949,946 | |
Thereafter | $ | 1,768,938 |
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, 2011 | November 30, 2010 | ||||||||||||||||
Outstanding | Interest Rate | Outstanding | Interest Rate | Interest Rate Terms | Maturity | ||||||||||||
Securitized Debt | |||||||||||||||||
Fixed rate asset-backed securities (including discount of $1,339) | $ | 1,748,660 | 5.65 | % | $ | 2,598,343 | 5.47 | % | Various fixed rates | Various June 2013— September 2017 | |||||||
Floating rate asset-backed securities | 9,371,055 | 0.77 | % | 10,621,057 | 0.75 | % | 1-month LIBOR(1) + 3 to 130 basis points | Various September 2011— September 2015 | |||||||||
Floating rate asset-backed securities | 1,250,000 | 0.59 | % | 1,250,000 | 0.63 | % | 3-month LIBOR(1) + 34 basis points | December 2012 | |||||||||
Floating rate asset-backed securities and other borrowings | 250,000 | 0.89 | % | 450,000 | 0.98 | % | Commercial Paper rate + 70 basis points | April 2013 | |||||||||
Total Discover Card Master Trust I and Discover Card Execution Note Trust | 12,619,715 | 14,919,400 | |||||||||||||||
Floating rate asset-backed securities (including discount of $238,629) | 1,436,906 | 0.45 | % | — | 3-month LIBOR(1) + 7 to 45 basis points | Various April 2018— July 2036(2) | |||||||||||
Floating rate asset-backed securities (including discount of $3,847) | 648,407 | 4.25 | % | — | Prime rate +100 basis points | June 2031(2) | |||||||||||
Floating rate asset-backed securities (including premium of $2,927) | 165,597 | 4.00 | % | — | Prime rate + 75 basis points | July 2042(2) | |||||||||||
Floating rate asset-backed securities (including premium of $6,894) | 389,884 | 3.71 | % | — | 1-month LIBOR(1) + 350 basis points | July 2042(2) | |||||||||||
Total SLC Private Student Loan Trusts | 2,640,794 | — | |||||||||||||||
Total Long-Term Borrowings—owed to securitization investors | 15,260,509 | 14,919,400 | |||||||||||||||
Discover Financial Services (Parent Company) | |||||||||||||||||
Fixed rate senior notes due 2017 | |||||||||||||||||
Principal value (including discount of $472) | 399,528 | 6.45 | % | 399,467 | 6.45 | % | Fixed | June 2017 | |||||||||
Fair value adjustment(3) | 8,456 | (7,888 | ) | ||||||||||||||
Book value | 407,984 | 391,579 | |||||||||||||||
Fixed rate senior notes due 2019 | 400,000 | 10.25 | % | 400,000 | 10.25 | % | Fixed | July 2019 | |||||||||
Discover Bank | |||||||||||||||||
Subordinated bank notes due 2019 (including discount of $1,483) | 698,517 | 8.70 | % | 698,382 | 8.70 | % | Fixed | November 2019 | |||||||||
Subordinated bank notes due 2020 (including discount of $2,988) | 497,012 | 7.00 | % | 496,753 | 7.00 | % | Fixed | April 2020 | |||||||||
Floating rate secured borrowings | — | — | % | 93,980 | 0.79 | % | Commercial Paper rate + 50 basis points | December 2010 | |||||||||
Floating rate secured borrowings | — | — | % | 212,336 | 0.70 | % | 1-month LIBOR(1) + 45 basis points | December 2010 | |||||||||
Floating rate secured borrowings(4) | 454,178 | 0.72 | % | 492,910 | 0.66 | % | Commercial Paper rate + 50 basis points | August 2013(4) | |||||||||
Capital lease obligations | — | — | % | 388 | 6.26 | % | Fixed | June 2011 | |||||||||
Total long-term borrowings | $ | 17,718,200 | $ | 17,705,728 |
(1) | London Interbank Offered Rate (“LIBOR”). |
(2) | Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates. |
(3) | The Company uses interest rate swaps to hedge this long-term borrowing against changes in fair value attributable to changes in LIBOR. See Note 14: Derivatives and Hedging Activities. |
(4) | Under a program established by the U.S. Department of Education, this loan facility was entered into to fund certain federal student loans, which were held for sale at August 31, 2011 and November 30, 2010. Principal and interest payments on the underlying student loans will reduce the balance of the secured borrowing over time, with final maturity in August 2013. However, upon sale of the loans, this loan facility will be repaid. |
Year | Amount | ||
2011 | $ | 526,234 | |
2012 | 3,325,989 | ||
2013 | 5,632,873 | ||
2014 | 1,989,293 | ||
2015 | 599,819 | ||
Thereafter | 5,643,992 | ||
Total | $ | 17,718,200 |
8. | 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, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Current: | |||||||||||||||
U.S. federal | $ | 213,765 | $ | 68,942 | $ | 550,250 | $ | 166,541 | |||||||
U.S. state and local | 38,576 | 24,451 | 74,292 | 38,512 | |||||||||||
International | 747 | 53 | 3,018 | 298 | |||||||||||
Total | 253,088 | 93,446 | 627,560 | 205,351 | |||||||||||
Deferred: | |||||||||||||||
U.S. federal | 135,145 | 73,149 | 332,965 | 61,301 | |||||||||||
U.S. state and local | 10,024 | 4,931 | 18,882 | 1,830 | |||||||||||
International | 6 | — | 7 | — | |||||||||||
Total | 145,175 | 78,080 | 351,854 | 63,131 | |||||||||||
Income tax expense | $ | 398,263 | $ | 171,526 | $ | 979,414 | $ | 268,482 |
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, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
U.S. federal statutory income tax rate | 35.0 | % | 35.0 | % | 35.0 | % | 35.0 | % | |||
U.S. state and local income taxes, net of U.S. federal income tax benefits | 3.4 | 4.8 | 2.6 | 4.3 | |||||||
Valuation allowance - capital loss | — | — | (0.8 | ) | — | ||||||
Non-deductible compensation | — | 0.1 | — | 0.5 | |||||||
Other | (0.4 | ) | (0.2 | ) | (0.4 | ) | (0.5 | ) | |||
Effective income tax rate | 38.0 | % | 39.7 | % | 36.4 | % | 39.3 | % |
9. | Earnings Per Share |
The following table presents the calculation of basic and diluted EPS (in thousands, except per share amounts): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Numerator: | |||||||||||||||
Net income | $ | 648,818 | $ | 260,617 | $ | 1,714,129 | $ | 415,146 | |||||||
Preferred stock dividends | — | — | — | (23,811 | ) | ||||||||||
Preferred stock accretion | — | — | — | (66,492 | ) | ||||||||||
Net income available to common stockholders | 648,818 | 260,617 | 1,714,129 | 324,843 | |||||||||||
Income allocated to participating securities | (7,046 | ) | (2,423 | ) | (19,493 | ) | (3,230 | ) | |||||||
Net income allocated to common stockholders | $ | 641,772 | $ | 258,194 | $ | 1,694,636 | $ | 321,613 | |||||||
Denominator: | |||||||||||||||
Weighted average shares of common stock outstanding | 544,438 | 544,314 | 544,997 | 543,874 | |||||||||||
Effect of dilutive common stock equivalents | 743 | 2,768 | 701 | 6,237 | |||||||||||
Weighted average shares of common stock outstanding and common stock equivalents | 545,181 | 547,082 | 545,698 | 550,111 | |||||||||||
Basic earnings per share | $ | 1.18 | $ | 0.47 | $ | 3.11 | $ | 0.59 | |||||||
Diluted earnings per share | $ | 1.18 | $ | 0.47 | $ | 3.11 | $ | 0.58 |
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, | ||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||
Unexercised stock options | 348 | 3,944 | 374 | 3,418 | |||||||
Unexercised restricted stock units | 8 | — | 3 | — | |||||||
Warrants issued to the U.S. Treasury | — | 2,768 | — | 6,225 |
10. | Capital Adequacy |
The following table shows the actual capital amounts and ratios of the Company and the Bank as of August 31, 2011 and November 30, 2010 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, 2011 | ||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 9,493,172 | 17.0 | % | $ | 4,460,846 | ≥8.0% | $ | 5,576,057 | ≥10.0% | ||||||||
Discover Bank | $ | 8,562,286 | 15.6 | % | $ | 4,398,133 | ≥8.0% | $ | 5,497,666 | ≥10.0% | ||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 7,581,177 | 13.6 | % | $ | 2,230,423 | ≥4.0% | $ | 3,345,634 | ≥6.0% | ||||||||
Discover Bank | $ | 6,659,969 | 12.1 | % | $ | 2,199,066 | ≥4.0% | $ | 3,298,599 | ≥6.0% | ||||||||
Tier 1 capital (to average assets) | ||||||||||||||||||
Discover Financial Services | $ | 7,581,177 | 11.7 | % | $ | 2,599,434 | ≥4.0% | $ | 3,249,292 | ≥5.0% | ||||||||
Discover Bank | $ | 6,659,969 | 10.4 | % | $ | 2,560,346 | ≥4.0% | $ | 3,200,433 | ≥5.0% | ||||||||
November 30, 2010 | ||||||||||||||||||
Total capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 7,946,619 | 15.9 | % | $ | 3,989,689 | ≥8.0% | $ | 4,987,111 | ≥10.0% | ||||||||
Discover Bank | $ | 7,817,205 | 15.9 | % | $ | 3,923,344 | ≥8.0% | $ | 4,904,180 | ≥10.0% | ||||||||
Tier 1 capital (to risk-weighted assets) | ||||||||||||||||||
Discover Financial Services | $ | 6,095,000 | 12.2 | % | $ | 1,994,844 | ≥4.0% | $ | 2,992,266 | ≥6.0% | ||||||||
Discover Bank | $ | 5,975,824 | 12.2 | % | $ | 1,961,672 | ≥4.0% | $ | 2,942,508 | ≥6.0% | ||||||||
Tier 1 capital (to average assets) | ||||||||||||||||||
Discover Financial Services | $ | 6,095,000 | 9.9 | % | $ | 2,464,324 | ≥4.0% | $ | 3,080,406 | ≥5.0% | ||||||||
Discover Bank | $ | 5,975,824 | 9.8 | % | $ | 2,431,610 | ≥4.0% | $ | 3,039,512 | ≥5.0% |
11. | 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 2021. At August 31, 2011, future minimum payments on leases with original terms in excess of one year consist of the following (dollars in thousands): | ||||
Operating Leases | ||||
2011 | $ | 2,537 | ||
2012 | 10,401 | |||
2013 | 8,614 | |||
2014 | 7,161 | |||
2015 | 6,135 | |||
Thereafter | 14,458 | |||
Total minimum lease payments | $ | 49,306 |
• | 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, 2011 | |||
Diners Club: | |||
Merchant guarantee (in millions) | $ | 255 | |
PULSE: | |||
ATM guarantee (in thousands) | $ | 1,077 |
The table below summarizes certain information regarding merchant chargebacks guarantees: | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Losses related to merchant chargebacks (in thousands) | $ | 291 | $ | 1,036 | $ | 1,625 | $ | 2,294 | |||||||
Aggregate sales transaction volume (in millions)(1) | $ | 28,416 | $ | 25,990 | $ | 81,051 | $ | 74,645 |
(1) | Represents period transactions processed on the Discover Network to which a potential liability exists which, in aggregate, can differ from credit card sales volume. |
The Company has not recorded any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees on August 31, 2011 and November 30, 2010. 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, 2011 | November 30, 2010 | ||||||
Settlement withholdings and escrow deposits | $ | 21,948 | $ | 30,483 |
12. | Litigation |
13. | Fair Value Disclosures |
The following table provides the estimated fair values of financial instruments (dollars in thousands): | |||||||||||||||
August 31, 2011 | November 30, 2010 | ||||||||||||||
Carrying Value | Estimated Fair Value | Carrying Value | Estimated Fair Value | ||||||||||||
Financial Assets | |||||||||||||||
Cash and cash equivalents | $ | 3,957,525 | $ | 3,957,525 | $ | 5,098,733 | $ | 5,098,733 | |||||||
Restricted cash | $ | 937,230 | $ | 937,230 | $ | 1,363,758 | $ | 1,363,758 | |||||||
Other short-term investments | $ | — | $ | — | $ | 375,000 | $ | 375,000 | |||||||
Investment securities: | |||||||||||||||
Available-for-sale | $ | 5,899,080 | $ | 5,899,080 | $ | 5,002,579 | $ | 5,002,579 | |||||||
Held-to-maturity | $ | 53,088 | $ | 51,189 | $ | 72,816 | $ | 70,195 | |||||||
Net loan receivables | $ | 51,809,393 | $ | 52,802,885 | $ | 45,532,295 | $ | 45,835,543 | |||||||
Derivative financial instruments | $ | 60,955 | $ | 60,955 | $ | 4,995 | $ | 4,995 | |||||||
Financial Liabilities | |||||||||||||||
Deposits | $ | 37,586,884 | $ | 38,395,963 | $ | 34,413,383 | $ | 35,500,526 | |||||||
Short-term borrowings | $ | 100,000 | $ | 100,000 | $ | — | $ | — | |||||||
Long-term borrowings—owed to securitization investors | $ | 15,260,509 | $ | 15,698,374 | $ | 14,919,400 | $ | 15,148,534 | |||||||
Other long-term borrowings | $ | 2,457,691 | $ | 2,834,879 | $ | 2,786,328 | $ | 3,118,967 | |||||||
Derivative financial instruments | $ | 4 | $ | 4 | $ | 6,594 | $ | 6,594 |
Disclosures concerning 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)(1) | Significant Other Observable Inputs (Level 2)(1) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
Balance at August 31, 2011 | |||||||||||||||
Assets | |||||||||||||||
U.S Treasury securities | $ | 2,371,255 | $ | — | $ | — | $ | 2,371,255 | |||||||
U.S government agency securities | 2,669,180 | — | — | 2,669,180 | |||||||||||
Credit card asset-backed securities of other issuers | — | 356,940 | — | 356,940 | |||||||||||
Corporate debt securities | — | 501,705 | — | 501,705 | |||||||||||
Equity securities | — | — | — | — | |||||||||||
Available-for-sale investment securities | $ | 5,040,435 | $ | 858,645 | $ | — | $ | 5,899,080 | |||||||
Derivative financial instruments | $ | — | $ | 60,955 | $ | — | $ | 60,955 | |||||||
Liabilities | |||||||||||||||
Derivative financial instruments | $ | — | $ | 4 | $ | — | $ | 4 | |||||||
Balance at November 30, 2010 | |||||||||||||||
Assets | |||||||||||||||
U.S Treasury securities | $ | 1,574,853 | $ | — | $ | — | $ | 1,574,853 | |||||||
U.S government agency securities | 1,888,701 | — | — | 1,888,701 | |||||||||||
Credit card asset-backed securities of other issuers | — | 1,031,112 | — | 1,031,112 | |||||||||||
Corporate debt securities | — | 507,896 | — | 507,896 | |||||||||||
Equity securities | — | — | 17 | 17 | |||||||||||
Available-for-sale investment securities | $ | 3,463,554 | $ | 1,539,008 | $ | 17 | $ | 5,002,579 | |||||||
Derivative financial instruments | $ | — | $ | 4,995 | $ | — | $ | 4,995 | |||||||
Liabilities | |||||||||||||||
Derivative financial instruments | $ | — | $ | 6,594 | $ | — | $ | 6,594 |
(1) | There were no transfers between Levels 1 and 2 within the fair value hierarchy for the three and nine months ended August 31, 2011 and 2010. |
Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis (dollars in thousands) | |||||||||||||||||||||||
For the Nine Months Ended August 31, 2011 | Balance at November 30, 2010 | Total Realized and Unrealized Gains (Losses) | Sales | Net Transfers Into and/ or Out of Level 3 | Balance at August 31, 2011 | Change in unrealized gains (losses) related to financial instruments held at August 31, 2011 | |||||||||||||||||
Assets | |||||||||||||||||||||||
Equity securities | 17 | 144 | (161 | ) | — | — | — | ||||||||||||||||
Available-for-sale investment securities | $ | 17 | $ | 144 | $ | (161 | ) | $ | — | $ | — | — |
For the Three Months Ended August 31, 2010 | Balance at May 31, 2010 | Total Realized and Unrealized Gains (Losses) | Sales | Net Transfers Into and/ or Out of Level 3 | Balance at August 31, 2010 | Change in unrealized gains (losses) related to financial instruments held at August 31, 2010 | |||||||||||||||||||
Assets | |||||||||||||||||||||||||
Asset-backed commercial paper notes | 63,732 | 7,161 | (1) | (70,893 | ) | — | — | — | |||||||||||||||||
Equity securities | 17 | — | — | — | 17 | — | |||||||||||||||||||
Available-for-sale investment securities | $ | 63,749 | $ | 7,161 | $ | (70,893 | ) | $ | — | $ | 17 | — |
For the Nine Months Ended August 31, 2010 | Balance at November 30, 2009 | Derecognition of assets upon adoption of Statement No. 167 | Total Realized and Unrealized Gains (Losses) | Sales | Net Transfers Into and/ or Out of Level 3 | Balance at August 31, 2010 | Change in unrealized gains (losses) related to financial instruments held at August 31, 2010 | |||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||
Certificated retained interest in DCENT | $ | 2,204,969 | $ | (2,204,969 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Credit card asset-backed securities of other issuers | 381,705 | — | — | — | (381,705 | ) | — | — | ||||||||||||||||||||||
Asset-backed commercial paper notes | 58,792 | — | 12,101 | (1 | ) | (70,893 | ) | — | — | — | ||||||||||||||||||||
Equity securities | — | — | — | — | 17 | 17 | — | |||||||||||||||||||||||
Available-for-sale investment securities | $ | 2,645,466 | $ | (2,204,969 | ) | $ | 12,101 | $ | (70,893 | ) | $ | (381,688 | ) | $ | 17 | — | ||||||||||||||
Cash collateral accounts | $ | 822,585 | $ | (822,585 | ) | $ | — | $ | — | $ | — | $ | — | $ | — | |||||||||||||||
Interest-only strip receivable | 117,579 | (117,579 | ) | — | — | — | — | — | ||||||||||||||||||||||
Amounts due from asset securitization | $ | 940,164 | $ | (940,164 | ) | $ | — | $ | — | $ | — | $ | — | $ | — |
(1) | Reflects unrealized pretax gains recorded in other comprehensive income in the condensed consolidated statement of financial condition. |
14. | 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, 2011 and November 30, 2010. See Note 13: Fair Value Disclosures for a description of the valuation methodologies of derivatives. (Dollars in thousands, except notional amounts): | ||||||||||||||||||||||||||
August 31, 2011 | November 30, 2010 | |||||||||||||||||||||||||
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 | $ | 16,721 | $ | — | $ | 2,000,000 | $ | 4,989 | $ | — | |||||||||||||
Interest rate swaps—Fair Value hedge | $ | 1,543,905 | 64 | $ | 38,998 | $ | 4 | $ | 400,000 | $ | — | $ | 6,587 | |||||||||||||
Derivatives not designated as hedges: | ||||||||||||||||||||||||||
Foreign exchange forward contracts(1) | $ | 8,471 | 2 | $ | 38 | $ | — | $ | 7,800 | $ | 6 | $ | 7 | |||||||||||||
Interest rate swap | $ | 1,367,809 | 1 | $ | 5,198 | $ | — | $ | — | $ | — | $ | — |
(1) | The foreign exchange forward contracts have notional amounts of EUR 4 million and GBP 1.7 million as of August 31, 2011 and November 30, 2010. |
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, 2011 and 2010 (dollars in thousands): | |||||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||||
Location | 2011 | 2010 | 2011 | 2010 | |||||||||||||
Derivatives designated as hedges: | |||||||||||||||||
Interest Rate Swaps—Cash Flow Hedges: | |||||||||||||||||
Gain (loss) recognized in other comprehensive income after amounts reclassified into earnings, pre-tax | Other Comprehensive Income | $ | 13,113 | $ | 251 | $ | 11,711 | $ | 251 | ||||||||
Total gains (losses) recognized in other comprehensive income | $ | 13,113 | $ | 251 | $ | 11,711 | $ | 251 | |||||||||
Amount reclassified from other comprehensive income into income | Interest Income | $ | 1,892 | $ | 442 | $ | 5,636 | $ | 442 | ||||||||
Interest Rate Swaps—Fair Value Hedges: | |||||||||||||||||
Interest expense—ineffectiveness | 34,715 | — | 38,924 | — | |||||||||||||
Interest expense—other | 4,087 | — | 8,090 | (26 | ) | ||||||||||||
Gain (loss) on interest rate swaps | Interest Expense | 38,802 | — | 47,014 | (26 | ) | |||||||||||
Interest expense—ineffectiveness | (32,575 | ) | — | (34,064 | ) | — | |||||||||||
Interest expense—other | (1,608 | ) | — | (4,853 | ) | 70 | |||||||||||
Gain (loss) on hedged Item | Interest Expense | (34,183 | ) | — | (38,917 | ) | 70 | ||||||||||
Total gains (losses) recognized in income | $ | 6,511 | $ | 442 | $ | 13,733 | $ | 486 | |||||||||
Derivatives not designated as hedges: | |||||||||||||||||
Gain (loss) on forward contracts | Other Income | $ | 30 | $ | (301 | ) | $ | (703 | ) | $ | 458 | ||||||
Gain (loss) on interest rate swaps | Other Income | (2,037 | ) | — | (7,518 | ) | 6 | ||||||||||
Total gains (losses) on derivatives not designated as hedges recognized in income | $ | (2,007 | ) | $ | (301 | ) | $ | (8,221 | ) | $ | 464 |
15. | Segment Disclosures |
• | Direct Banking. The Direct Banking segment includes Discover card-branded credit cards issued to individuals and small businesses and other consumer products and services, including personal loans, student loans, prepaid cards and other consumer lending and deposit products offered through the Company’s Discover Bank subsidiary. The majority of the Direct Banking revenues relate to interest income earned on each of its loan products. Additionally, the Company’s credit card products generate substantially all of the Company’s revenues related to discount and interchange, fee products and loan fee income. |
• | Payment Services. The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s third-party issuing business, which includes credit, debit and prepaid cards issued on the Discover Network by third parties. The majority of the Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue (included in other income) from Diners Club. |
• | Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment. |
• | Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the operating segments. |
• | The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker. |
• | The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources. |
• | Income taxes are not specifically allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker. |
The following table presents segment data for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands): | |||||||||||
For the Three Months Ended | Direct Banking | Payment Services | Total | ||||||||
August 31, 2011 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 1,423,496 | $ | — | $ | 1,423,496 | |||||
Private student loans | 84,318 | — | 84,318 | ||||||||
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 | |||||
August 31, 2010 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 1,455,907 | $ | — | $ | 1,455,907 | |||||
Private student loans | 12,266 | — | 12,266 | ||||||||
Personal loans | 47,105 | — | 47,105 | ||||||||
Other | 20,656 | 5 | 20,661 | ||||||||
Total interest income | 1,535,934 | 5 | 1,535,939 | ||||||||
Interest expense | 389,059 | 78 | 389,137 | ||||||||
Net interest income (expense) | 1,146,875 | (73 | ) | 1,146,802 | |||||||
Provision for loan losses | 712,565 | — | 712,565 | ||||||||
Other income | 495,771 | 68,373 | 564,144 | ||||||||
Other expense | 534,782 | 31,456 | 566,238 | ||||||||
Income before income tax expense | $ | 395,299 | $ | 36,844 | $ | 432,143 |
For the Nine Months Ended | Direct Banking | Payment Services | Total | ||||||||
August 31, 2011 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 4,243,803 | $ | — | $ | 4,243,803 | |||||
Private student loans | 229,933 | — | 229,933 | ||||||||
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 | |||||
August 31, 2010 | |||||||||||
Interest income | |||||||||||
Credit card | $ | 4,423,654 | $ | — | $ | 4,423,654 | |||||
Private student loans | 33,025 | — | 33,025 | ||||||||
Personal loans | 129,832 | — | 129,832 | ||||||||
Other | 60,345 | 15 | 60,360 | ||||||||
Total interest income | 4,646,856 | 15 | 4,646,871 | ||||||||
Interest expense | 1,207,322 | 160 | 1,207,482 | ||||||||
Net interest income (expense) | 3,439,534 | (145 | ) | 3,439,389 | |||||||
Provision for loan losses | 2,824,035 | — | 2,824,035 | ||||||||
Other income | 1,423,823 | 199,041 | 1,622,864 | ||||||||
Other expense | 1,465,749 | 88,841 | 1,554,590 | ||||||||
Income (loss) before income tax expense | $ | 573,573 | $ | 110,055 | $ | 683,628 |
16. | Subsequent Events |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
• | Net income was $649 million in the third quarter 2011 as compared to $261 million in the third quarter 2010. |
• | Discover card sales volume showed strong year-over-year growth of 9% with $26.3 billion in volume in the quarter. |
• | Credit card loans increased $930 million, or 2%, as compared to the third quarter of 2010 and grew $1.2 billion, or 3%, from second quarter 2011. Total loans increased 8% from the prior year to $54.1 billion. |
• | Credit performance continued to improve in the third quarter of 2011. The delinquency rate for credit card loans over 30 days past due at August 31, 2011 was 2.43% compared to 2.79% at May 31, 2011. Our credit card net charge-off rate declined to 3.85% for the quarter as compared to 5.01% for the second quarter 2011. Additionally, we had a $359 million reduction of our allowance for loan losses during the third quarter of 2011. |
• | Payment Services continues to grow profitably with pretax income of $38 million in the quarter. Transaction volume for the segment was $45 billion in the quarter, an increase of 15% from the same period in the prior year. |
• | We agreed to acquire approximately $2.5 billion of private student loans from Citibank, N.A. ("Citi") for a purchase price equal to 99% of the outstanding aggregate principal and accrued interest balance of the purchased loans through the closing date. The acquisition is expected to close on or around September 30, 2011, subject to customary closing conditions. |
• | We repurchased 8.4 million shares of our common stock in the third quarter for approximately $198 million through our share repurchase program. |
• | We issued $800 million of credit card asset-backed securities in a registered public offering on September 20, 2011 at an interest rate of one-month LIBOR plus 21 basis points and with a maturity of three years. |
The following table presents segment data (dollars in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Direct Banking | |||||||||||||||
Interest income | |||||||||||||||
Credit card | 1,423,496 | 1,455,907 | 4,243,803 | 4,423,654 | |||||||||||
Private student loans | 84,318 | 12,266 | 229,933 | 33,025 | |||||||||||
Personal loans | 70,052 | 47,105 | 189,525 | 129,832 | |||||||||||
Other | 21,209 | 20,656 | 62,044 | 60,345 | |||||||||||
Total interest income | 1,599,075 | 1,535,934 | 4,725,305 | 4,646,856 | |||||||||||
Interest expense | 362,017 | 389,059 | 1,124,597 | 1,207,322 | |||||||||||
Net interest income | 1,237,058 | 1,146,875 | 3,600,708 | 3,439,534 | |||||||||||
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 | |||||||||||
Other income | 481,134 | 495,771 | 1,436,764 | 1,423,823 | |||||||||||
Other expense | 609,202 | 534,782 | 1,774,915 | 1,465,749 | |||||||||||
Income before income tax expense | 1,009,476 | 395,299 | 2,569,794 | 573,573 | |||||||||||
Payment Services | |||||||||||||||
Interest income | 17 | 5 | 29 | 15 | |||||||||||
Interest expense | 36 | 78 | 163 | 160 | |||||||||||
Net interest expense | (19 | ) | (73 | ) | (134 | ) | (145 | ) | |||||||
Provision for loan losses | — | — | — | — | |||||||||||
Other income | 70,829 | 68,373 | 221,667 | 199,041 | |||||||||||
Other expense | 33,205 | 31,456 | 97,784 | 88,841 | |||||||||||
Income before income tax expense | 37,605 | 36,844 | 123,749 | 110,055 | |||||||||||
Total income before income tax expense | $ | 1,047,081 | $ | 432,143 | $ | 2,693,543 | $ | 683,628 |
The following table presents information on transaction volume (in thousands): | |||||||||||||||
For the Three Months Ended August 31, | For the Nine Months Ended August 31, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Network Transaction Volume | |||||||||||||||
PULSE Network | $ | 35,109,450 | $ | 30,581,850 | $ | 106,208,008 | $ | 86,845,109 | |||||||
Third-Party Issuers | 1,983,863 | 1,793,785 | 5,593,364 | 5,034,051 | |||||||||||
Diners Club | 7,659,166 | 6,542,418 | 22,036,529 | 19,805,455 | |||||||||||
Total Payment Services | 44,752,479 | 38,918,053 | 133,837,901 | 111,684,615 | |||||||||||
Discover Network—Proprietary (1) | 27,133,026 | 24,880,163 | 77,601,894 | 71,684,416 | |||||||||||
Total Volume | $ | 71,885,505 | $ | 63,798,216 | $ | 211,439,795 | $ | 183,369,031 | |||||||
Transactions Processed on Networks | |||||||||||||||
Discover Network | 451,041 | 418,423 | 1,282,783 | 1,192,556 | |||||||||||
PULSE Network | 949,965 | 882,172 | 2,885,239 | 2,407,359 | |||||||||||
Total | 1,401,006 | 1,300,595 | 4,168,022 | 3,599,915 | |||||||||||
Credit Card Volume | |||||||||||||||
Discover Card Volume (2) | $ | 28,455,156 | $ | 25,552,568 | $ | 81,141,781 | $ | 73,644,406 | |||||||
Discover Card Sales Volume (3) | $ | 26,270,622 | $ | 23,992,715 | $ | 75,104,974 | $ | 69,251,162 |
(1) | Represents gross proprietary sales volume on the Discover Network. |
(2) | Represents Discover card activity related to net sales, balance transfers, cash advances and fee-based products. |
(3) | 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, | 2011 vs. 2010 increase (decrease) | For the Nine Months Ended August 31, | 2011 vs. 2010 increase (decrease) | ||||||||||||||||||||||||||
2011 | 2010 | $ | % | 2011 | 2010 | ||||||||||||||||||||||||
Interest income | $ | 1,599,092 | $ | 1,535,939 | $ | 63,153 | 4 | % | $ | 4,725,334 | $ | 4,646,871 | $ | 78,463 | 2 | % | |||||||||||||
Interest expense | 362,053 | 389,137 | (27,084 | ) | (7 | )% | 1,124,760 | 1,207,482 | (82,722 | ) | (7 | )% | |||||||||||||||||
Net interest income | 1,237,039 | 1,146,802 | 90,237 | 8 | % | 3,600,574 | 3,439,389 | 161,185 | 5 | % | |||||||||||||||||||
Provision for loan losses | 99,514 | 712,565 | (613,051 | ) | (86 | )% | 692,763 | 2,824,035 | (2,131,272 | ) | (76 | )% | |||||||||||||||||
Net interest income after provision for loan losses | 1,137,525 | 434,237 | 703,288 | 162 | % | 2,907,811 | 615,354 | 2,292,457 | NM | ||||||||||||||||||||
Other income | 551,963 | 564,144 | (12,181 | ) | (2 | )% | 1,658,431 | 1,622,864 | 35,567 | 2 | % | ||||||||||||||||||
Other expense | 642,407 | 566,238 | 76,169 | 14 | % | 1,872,699 | 1,554,590 | 318,109 | 21 | % | |||||||||||||||||||
Income (loss) before income tax expense | 1,047,081 | 432,143 | 614,938 | 142 | % | 2,693,543 | 683,628 | 2,009,915 | NM | ||||||||||||||||||||
Income tax expense | 398,263 | 171,526 | 226,737 | 132 | % | 979,414 | 268,482 | 710,932 | NM | ||||||||||||||||||||
Net income | $ | 648,818 | $ | 260,617 | $ | 388,201 | 149 | % | $ | 1,714,129 | $ | 415,146 | $ | 1,298,983 | NM |
• | The level and composition of loan receivables, including the proportion of credit card loans to other consumer loans, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates; |
• | The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income; |
• | The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate; |
• | The level and composition of other interest-bearing assets and liabilities, including our liquidity investment portfolio; |
• | Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the Federal Funds rate and LIBOR; and |
• | The effectiveness of interest rate swaps in our interest rate risk management program. |
Average Balance Sheet Analysis | |||||||||||||||||||||
For the Three Months Ended August 31, | |||||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||
Average Balance | Rate | Interest | Average Balance | Rate | Interest | ||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 3,453,928 | 0.25 | % | $ | 2,160 | $ | 8,352,952 | 0.25 | % | $ | 5,326 | |||||||||
Restricted cash | 1,184,566 | 0.11 | % | 336 | 1,062,261 | 0.20 | % | 533 | |||||||||||||
Other short-term investments | — | — | % | — | 375,000 | 1.07 | % | 1,011 | |||||||||||||
Investment securities | 5,814,467 | 1.07 | % | 15,676 | 1,196,306 | 1.85 | % | 5,574 | |||||||||||||
Loan receivables(1): | |||||||||||||||||||||
Credit card(2) | 45,343,304 | 12.46 | % | 1,423,496 | 44,905,220 | 12.86 | % | 1,455,907 | |||||||||||||
Personal loans | 2,321,496 | 11.97 | % | 70,052 | 1,639,319 | 11.40 | % | 47,105 | |||||||||||||
Federal student loans(3) | 747,719 | 1.57 | % | 2,957 | 2,253,184 | 1.38 | % | 7,832 | |||||||||||||
Private student loans | 4,588,400 | 7.29 | % | 84,318 | 838,237 | 5.81 | % | 12,266 | |||||||||||||
Other | 12,140 | 3.13 | % | 97 | 51,340 | 2.98 | % | 385 | |||||||||||||
Total loan receivables | 53,013,059 | 11.83 | % | 1,580,920 | 49,687,300 | 12.16 | % | 1,523,495 | |||||||||||||
Total interest-earning assets | 63,466,020 | 10.00 | % | 1,599,092 | 60,673,819 | 10.04 | % | 1,535,939 | |||||||||||||
Allowance for loan losses | (2,490,577 | ) | (3,856,016 | ) | |||||||||||||||||
Other assets | 3,796,491 | 3,973,848 | |||||||||||||||||||
Total assets | $ | 64,771,934 | $ | 60,791,651 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||
Time deposits(4) | $ | 24,829,744 | 3.30 | % | 206,645 | $ | 26,985,136 | 3.70 | % | 251,524 | |||||||||||
Money market deposits | 4,676,243 | 1.38 | % | 16,284 | 3,936,681 | 1.52 | % | 15,105 | |||||||||||||
Other interest-bearing deposits | 6,432,652 | 1.16 | % | 18,790 | 3,485,724 | 1.42 | % | 12,508 | |||||||||||||
Total interest-bearing deposits(5) | 35,938,639 | 2.67 | % | 241,719 | 34,407,541 | 3.22 | % | 279,137 | |||||||||||||
Borrowings: | |||||||||||||||||||||
Short-term borrowings | 167,804 | 0.08 | % | 33 | — | — | — | ||||||||||||||
Securitized borrowings | 15,624,848 | 2.05 | % | 80,573 | 14,964,828 | 1.77 | % | 66,677 | |||||||||||||
Other long-term borrowings(4) | 2,449,670 | 6.43 | % | 39,728 | 2,884,933 | 5.96 | % | 43,323 | |||||||||||||
Total borrowings | 18,242,322 | 2.62 | % | 120,334 | 17,849,761 | 2.44 | % | 110,000 | |||||||||||||
Total interest-bearing liabilities | 54,180,961 | 2.65 | % | 362,053 | 52,257,302 | 2.95 | % | 389,137 | |||||||||||||
Other liabilities and stockholders’ equity | 10,590,973 | 8,534,349 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 64,771,934 | $ | 60,791,651 | |||||||||||||||||
Net interest income | $ | 1,237,039 | $ | 1,146,802 | |||||||||||||||||
Net interest margin(6) | 9.26 | % | 9.16 | % | |||||||||||||||||
Net yield on interest-bearing assets(7) | 7.73 | % | 7.50 | % | |||||||||||||||||
Interest rate spread(8) | 7.35 | % | 7.09 | % |
For the Nine Months Ended August 31, | |||||||||||||||||||||
2011 | 2010 | ||||||||||||||||||||
Average Balance | Rate | Interest | Average Balance | Rate | Interest | ||||||||||||||||
Assets | |||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||
Cash and cash equivalents | $ | 3,885,023 | 0.24 | % | $ | 7,143 | $ | 10,528,297 | 0.25 | % | $ | 20,018 | |||||||||
Restricted cash | 1,365,770 | 0.14 | % | 1,452 | 2,401,644 | 0.15 | % | 2,646 | |||||||||||||
Other short-term investments | 203,832 | 1.07 | % | 1,639 | 189,234 | 0.90 | % | 1,437 | |||||||||||||
Investment securities | 5,469,488 | 1.04 | % | 42,535 | 910,722 | 2.34 | % | 15,966 | |||||||||||||
Loan receivables(1): | |||||||||||||||||||||
Credit card(2) | 45,021,656 | 12.56 | % | 4,243,803 | 45,931,331 | 12.83 | % | 4,423,654 | |||||||||||||
Personal loans | 2,127,084 | 11.87 | % | 189,525 | 1,526,095 | 11.33 | % | 129,831 | |||||||||||||
Federal student loans(3) | 761,580 | 1.58 | % | 9,019 | 2,044,432 | 1.20 | % | 18,462 | |||||||||||||
Private student loans | 4,156,790 | 7.37 | % | 229,933 | 781,773 | 5.63 | % | 33,026 | |||||||||||||
Other | 13,169 | 2.88 | % | 285 | 61,488 | 3.97 | % | 1,831 | |||||||||||||
Total loan receivables | 52,080,279 | 11.95 | % | 4,672,565 | 50,345,119 | 12.19 | % | 4,606,804 | |||||||||||||
Total interest-earning assets | 63,004,392 | 9.99 | % | 4,725,334 | 64,375,016 | 9.62 | % | 4,646,871 | |||||||||||||
Allowance for loan losses | (2,863,500 | ) | (3,967,079 | ) | |||||||||||||||||
Other assets | 3,781,777 | 4,004,750 | |||||||||||||||||||
Total assets | $ | 63,922,669 | $ | 64,412,687 | |||||||||||||||||
Liabilities and Stockholders’ Equity | |||||||||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||
Time deposits(4) | $ | 25,102,544 | 3.46 | % | 651,594 | $ | 27,637,969 | 3.90 | % | 808,646 | |||||||||||
Money market deposits | 4,511,303 | 1.40 | % | 47,490 | 4,359,380 | 1.40 | % | 45,715 | |||||||||||||
Other interest-bearing deposits | 5,576,319 | 1.21 | % | 50,500 | 2,593,249 | 1.47 | % | 28,560 | |||||||||||||
Total interest-bearing deposits(5) | 35,190,166 | 2.84 | % | 749,584 | 34,590,598 | 3.40 | % | 882,921 | |||||||||||||
Borrowings: | |||||||||||||||||||||
Short-term borrowings | 125,590 | 0.12 | % | 116 | — | — | — | ||||||||||||||
Securitized borrowings | 16,142,231 | 2.09 | % | 253,297 | 17,872,540 | 1.55 | % | 207,580 | |||||||||||||
Other long-term borrowings(4) | 2,472,765 | 6.56 | % | 121,763 | 2,705,586 | 5.76 | % | 116,981 | |||||||||||||
Total borrowings | 18,740,586 | 2.67 | % | 375,176 | 20,578,126 | 2.10 | % | 324,561 | |||||||||||||
Total interest-bearing liabilities | 53,930,752 | 2.78 | % | 1,124,760 | 55,168,724 | 2.92 | % | 1,207,482 | |||||||||||||
Other liabilities and stockholders’ equity | 9,991,917 | 9,243,963 | |||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 63,922,669 | $ | 64,412,687 | |||||||||||||||||
Net interest income | $ | 3,600,574 | $ | 3,439,389 | |||||||||||||||||
Net interest margin(6) | 9.21 | % | 9.10 | % | |||||||||||||||||
Net yield on interest-bearing assets(7) | 7.61 | % | 7.12 | % | |||||||||||||||||
Interest rate spread(8) | 7.21 | % | 6.70 | % |
(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 above. |
(2) | 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. Interest income on credit card loans includes $41.0 million and $124.2 million of amortization of balance transfer fees for the three and nine months ended August 31, 2010, respectively. |
(3) | Includes federal student loans held for sale. |
(4) | Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding. |
(5) | Includes the impact of FDIC insurance premiums and special assessments. |
(6) | Net interest margin represents net interest income as a percentage of average total loan receivables. |
(7) | Net yield on interest-earning assets represents net interest income as a percentage of average total interest-earning assets. |
(8) | 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, 2011 vs. August 31, 2010 | For the Nine Months Ended August 31, 2011 vs. August 31, 2010 | ||||||||||||||||||||||
Volume | Rate | Total | Volume | Rate | Total | ||||||||||||||||||
Increase/(decrease) in net interest income due to changes in: | |||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||
Cash and cash equivalents | $ | (3,066 | ) | $ | (100 | ) | $ | (3,166 | ) | $ | (12,235 | ) | $ | (640 | ) | $ | (12,875 | ) | |||||
Restricted cash | 343 | (539 | ) | (196 | ) | (1,105 | ) | (88 | ) | (1,193 | ) | ||||||||||||
Other short-term investments | (505 | ) | (506 | ) | (1,011 | ) | 115 | 87 | 202 | ||||||||||||||
Investment securities | 25,910 | (15,808 | ) | 10,102 | 45,211 | (18,642 | ) | 26,569 | |||||||||||||||
Loan receivables: | |||||||||||||||||||||||
Credit card | 78,559 | (110,970 | ) | (32,411 | ) | (86,712 | ) | (93,139 | ) | (179,851 | ) | ||||||||||||
Personal loans | 20,479 | 2,468 | 22,947 | 53,288 | 6,405 | 59,693 | |||||||||||||||||
Federal student loans | (11,144 | ) | 6,269 | (4,875 | ) | (16,550 | ) | 7,108 | (9,442 | ) | |||||||||||||
Private student loans | 68,155 | 3,897 | 72,052 | 183,740 | 13,167 | 196,907 | |||||||||||||||||
Other | (419 | ) | 130 | (289 | ) | (1,145 | ) | (401 | ) | (1,546 | ) | ||||||||||||
Total loan receivables | 155,630 | (98,206 | ) | 57,424 | 132,621 | (66,860 | ) | 65,761 | |||||||||||||||
Total interest income | 178,312 | (115,159 | ) | 63,153 | 164,607 | (86,143 | ) | 78,464 | |||||||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||
Interest-bearing deposits: | |||||||||||||||||||||||
Time deposits | (19,171 | ) | (25,708 | ) | (44,879 | ) | (70,429 | ) | (86,623 | ) | (157,052 | ) | |||||||||||
Money market deposits | 8,216 | (7,037 | ) | 1,179 | 1,599 | 176 | 1,775 | ||||||||||||||||
Other interest-bearing deposits | 20,278 | (13,996 | ) | 6,282 | 30,716 | (8,775 | ) | 21,941 | |||||||||||||||
Total interest-bearing deposits | 9,323 | (46,741 | ) | (37,418 | ) | (38,114 | ) | (95,222 | ) | (133,336 | ) | ||||||||||||
Borrowings: | |||||||||||||||||||||||
Short-term borrowings | 33 | — | 33 | 116 | — | 116 | |||||||||||||||||
Securitized borrowings | 3,042 | 10,854 | 13,896 | (32,085 | ) | 77,802 | 45,717 | ||||||||||||||||
Other long-term borrowings | (20,315 | ) | 16,720 | (3,595 | ) | (14,730 | ) | 19,512 | 4,782 | ||||||||||||||
Total borrowings | (17,240 | ) | 27,574 | 10,334 | (46,699 | ) | 97,314 | 50,615 | |||||||||||||||
Total interest expense | (7,917 | ) | (19,167 | ) | (27,084 | ) | (84,813 | ) | 2,092 | (82,721 | ) | ||||||||||||
Net interest income | $ | 186,229 | $ | (95,992 | ) | $ | 90,237 | $ | 249,420 | $ | (88,235 | ) | $ | 161,185 |
(1) | The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between August 31, 2011 and August 31, 2010 based on the percentage of the rate or volume variance to the sum of the two absolute variances. |
August 31, 2011 | November 30, 2010 | ||||||
Loans held for sale | $ | 738,382 | $ | 788,101 | |||
Loan portfolio: | |||||||
Credit card loans: | |||||||
Discover card | 45,949,224 | 44,904,267 | |||||
Discover business card | 228,449 | 252,727 | |||||
Total credit card loans | 46,177,673 | 45,156,994 | |||||
Other consumer loans: | |||||||
Personal loans | 2,439,330 | 1,877,633 | |||||
Private student loans | 1,828,493 | 999,322 | |||||
Other | 11,790 | 14,363 | |||||
Total other consumer loans | 4,279,613 | 2,891,318 | |||||
PCI student loans(1) | 2,886,783 | — | |||||
Total loan portfolio | 53,344,069 | 48,048,312 | |||||
Total loan receivables | 54,082,451 | 48,836,413 | |||||
Allowance for loan losses | (2,273,058 | ) | (3,304,118 | ) | |||
Net loan receivables | $ | 51,809,393 | $ | 45,532,295 |
(1) | Represents purchased credit-impaired private student loans acquired from SLC on December 31, 2010 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, | ||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||
Balance at beginning of period | $ | 2,632,320 | $ | 3,930,624 | $ | 3,304,118 | $ | 1,757,899 | |||||||
Additions: | |||||||||||||||
Addition to allowance related to securitized receivables(1) | — | — | — | 2,144,461 | |||||||||||
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 | |||||||||||
Deductions: | |||||||||||||||
Charge-offs: | |||||||||||||||
Discover card | (584,534 | ) | (982,920 | ) | (2,085,452 | ) | (3,203,959 | ) | |||||||
Discover business card | (4,416 | ) | (14,502 | ) | (17,672 | ) | (50,190 | ) | |||||||
Total credit card loans | (588,950 | ) | (997,422 | ) | (2,103,124 | ) | (3,254,149 | ) | |||||||
Personal loans | (16,458 | ) | (23,836 | ) | (52,438 | ) | (70,957 | ) | |||||||
Federal student loans | — | (11 | ) | — | (308 | ) | |||||||||
Private student loans | (2,663 | ) | (660 | ) | (5,646 | ) | (1,264 | ) | |||||||
Other | (411 | ) | (139 | ) | (1,025 | ) | (858 | ) | |||||||
Total other consumer loans | (19,532 | ) | (24,646 | ) | (59,109 | ) | (73,387 | ) | |||||||
Total charge-offs | (608,482 | ) | (1,022,068 | ) | (2,162,233 | ) | (3,327,536 | ) | |||||||
Recoveries: | |||||||||||||||
Discover card | 148,292 | 121,255 | 434,141 | 341,337 | |||||||||||
Discover business card | 910 | 875 | 2,735 | 2,516 | |||||||||||
Total credit card loans | 149,202 | 122,130 | 436,876 | 343,853 | |||||||||||
Personal loans | 458 | 421 | 1,458 | 942 | |||||||||||
Private student loans | 45 | 14 | 73 | 22 | |||||||||||
Other | 1 | 35 | 3 | 45 | |||||||||||
Total other consumer loans | 504 | 470 | 1,534 | 1,009 | |||||||||||
Total recoveries | 149,706 | 122,600 | 438,410 | 344,862 | |||||||||||
Net charge-offs | (458,776 | ) | (899,468 | ) | (1,723,823 | ) | (2,982,674 | ) | |||||||
Balance at end of period | 2,273,058 | $ | 3,743,721 | 2,273,058 | $ | 3,743,721 |
(1) | On December 1, 2009, upon adoption of the Financial Accounting Standards Board (“FASB”) Statements No. 166 and 167, the Company recorded $2.1 billion allowance for loan losses related to newly consolidated and reclassified credit card loan receivables. |
The following table presents a breakdown of the allowance for loan losses (dollars in thousands): | |||||||
August 31, 2011 | November 30, 2010 | ||||||
Discover card | $ | 2,139,610 | $ | 3,182,603 | |||
Discover business card | 14,260 | 26,285 | |||||
Total credit card loans | 2,153,870 | 3,208,888 | |||||
Personal loans | 75,562 | 76,087 | |||||
Private student loans | 43,406 | 18,569 | |||||
Other | 220 | 574 | |||||
Total other consumer loans | 119,188 | 95,230 | |||||
Total allowance for loan losses | $ | 2,273,058 | $ | 3,304,118 |
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, | ||||||||||||||||||||||||||
2011 | 2010 | 2011 | 2010 | ||||||||||||||||||||||||
$ | % | $ | % | $ | % | $ | % | ||||||||||||||||||||
Credit card loans | $ | 439,748 | 3.85 | % | $ | 875,292 | 7.73 | % | $ | 1,666,248 | 4.93 | % | $ | 2,910,296 | 8.44 | % | |||||||||||
Personal loans | $ | 16,000 | 2.73 | % | $ | 23,414 | 5.67 | % | $ | 50,980 | 3.19 | % | $ | 70,015 | 6.11 | % | |||||||||||
Private student loans (excluding PCI(1)) | $ | 2,618 | 0.62 | % | $ | 653 | 0.31 | % | $ | 5,573 | 0.49 | % | $ | 1,255 | 0.21 | % |
(1) | Charge-offs for PCI loans did not result in a charge to earnings during 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 (dollars in thousands): | |||||||||||||
August 31, 2011 | November 30, 2010 | ||||||||||||
$ | % | $ | % | ||||||||||
Loans 30 days delinquent or more: | |||||||||||||
Credit card loans | $ | 1,121,115 | 2.43 | % | $ | 1,831,119 | 4.06 | % | |||||
Personal loans | $ | 20,616 | 0.85 | % | $ | 29,486 | 1.57 | % | |||||
Private student loans (excluding PCI(1)) | $ | 14,565 | 0.80 | % | $ | 5,030 | 0.50 | % | |||||
Loans 90 days delinquent or more: | |||||||||||||
Credit card loans | $ | 565,056 | 1.22 | % | $ | 958,216 | 2.12 | % | |||||
Personal loans | $ | 6,446 | 0.26 | % | $ | 10,670 | 0.57 | % | |||||
Private student loans (excluding PCI(1)) | $ | 2,150 | 0.12 | % | $ | 1,408 | 0.14 | % |
(1) | Excludes PCI loans that were acquired as part of the SLC transaction 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. |
For the Three Months Ended August 31, | 2011 vs. 2010 increase (decrease) | For the Nine Months Ended August 31, | 2011 vs. 2010 increase (decrease) | ||||||||||||||||||||||||||
2011 | 2010 | $ | % | 2011 | 2010 | $ | % | ||||||||||||||||||||||
Discount and interchange revenue(1) | $ | 282,889 | $ | 273,932 | $ | 8,957 | 3 | % | $ | 809,631 | $ | 805,209 | $ | 4,422 | 1 | % | |||||||||||||
Fee products | 107,858 | 104,132 | 3,726 | 4 | % | 321,527 | 309,590 | 11,937 | 4 | % | |||||||||||||||||||
Loan fee income | 84,243 | 92,465 | (8,222 | ) | (9 | )% | 250,596 | 267,483 | (16,887 | ) | (6 | )% | |||||||||||||||||
Transaction processing revenue | 43,931 | 40,184 | 3,747 | 9 | % | 131,792 | 109,570 | 22,222 | 20 | % | |||||||||||||||||||
Merchant fees | 4,110 | 7,220 | (3,110 | ) | (43 | )% | 12,981 | 23,091 | (10,110 | ) | (44 | )% | |||||||||||||||||
(Loss) gain on investments | (3,614 | ) | 18,951 | (22,565 | ) | (119 | )% | (3,622 | ) | 19,131 | (22,753 | ) | (119 | )% | |||||||||||||||
Other income | 32,546 | 27,260 | 5,286 | 19 | % | 135,526 | 88,790 | 46,736 | 53 | % | |||||||||||||||||||
Total other income | $ | 551,963 | $ | 564,144 | $ | (12,181 | ) | (2 | )% | $ | 1,658,431 | $ | 1,622,864 | $ | 35,567 | 2 | % |
(1) | Net of rewards, including Cashback Bonus rewards, of $234 million and $194 million for the three months ended August 31, 2011 and 2010, respectively, and $664 million and $535 million for the nine months ended August 31, 2011 and 2010, respectively. |
For the Three Months Ended August 31, | 2011 vs. 2010 increase (decrease) | For the Nine Months Ended August 31, | 2011 vs. 2010 increase (decrease) | ||||||||||||||||||||||||||
2011 | 2010 | $ | % | 2011 | 2010 | $ | % | ||||||||||||||||||||||
Employee compensation and benefits | $ | 241,881 | $ | 204,210 | $ | 37,671 | 18 | % | $ | 684,782 | $ | 602,510 | $ | 82,272 | 14 | % | |||||||||||||
Marketing and business development | 133,398 | 130,532 | 2,866 | 2 | % | 393,244 | 313,175 | 80,069 | 26 | % | |||||||||||||||||||
Information processing and communications | 63,547 | 62,357 | 1,190 | 2 | % | 194,852 | 190,862 | 3,990 | 2 | % | |||||||||||||||||||
Professional fees | 106,042 | 85,289 | 20,753 | 24 | % | 301,122 | 239,169 | 61,953 | 26 | % | |||||||||||||||||||
Premises and equipment | 18,063 | 17,722 | 341 | 2 | % | 53,268 | 53,273 | (5 | ) | — | % | ||||||||||||||||||
Other expense | 79,476 | 66,128 | 13,348 | 20 | % | 245,431 | 155,601 | 89,830 | 58 | % | |||||||||||||||||||
Total other expense | $ | 642,407 | $ | 566,238 | $ | 76,169 | 14 | % | $ | 1,872,699 | $ | 1,554,590 | $ | 318,109 | 21 | % |
Total | Three Months or Less | Over Three Months Through Six Months | Over Six Months Through Twelve Months | Over Twelve Months | |||||||||||||||
Certificates of deposit in amounts less than $100,000(1) | $ | 19,524,679 | $ | 1,873,291 | $ | 2,115,900 | $ | 4,835,014 | $ | 10,700,474 | |||||||||
Certificates of deposit in amounts of $100,000 to less than $250,000(1) | 4,999,091 | 605,042 | 729,184 | 1,288,124 | 2,376,741 | ||||||||||||||
Certificates of deposit in amounts of $250,000(1)or greater | 1,148,445 | 172,498 | 218,013 | 286,318 | 471,616 | ||||||||||||||
Savings deposits, including money market deposit accounts | 11,797,822 | 11,797,822 | — | — | — | ||||||||||||||
Total interest-bearing deposits | $ | 37,470,037 | $ | 14,448,653 | $ | 3,063,097 | $ | 6,409,456 | $ | 13,548,831 |
(1) | $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was permanently increased to $250,000. |
Total | Less Than One Year | One Year Through Three Years | Four Years Through Five Years | After Five Years | |||||||||||||||
Scheduled maturities of long-term borrowings—owed to credit card securitization investors | $ | 12,619,715 | $ | 3,852,305 | $ | 7,167,952 | $ | 599,639 | $ | 999,819 |
For the three months ended, August 31, 2011 | For the nine months ended, August 31, 2011 | |||||
Maximum Daily Balance During the Period | Maximum Daily Balance During the Period | |||||
Overnight Federal Funds purchased | $ | 265,000 | $ | 265,000 | ||
Overnight repurchase agreements | — | 48,188 |
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 an identification for structured finance product ratings that was implemented for these products by the rating agencies as of September 2010. |
(2) | All Class C notes are currently held by subsidiaries of Discover Bank and therefore, are not publicly rated. |
At August 31, 2011, our liquidity investment portfolio and undrawn credit facilities were $26.3 billion, which was $3.8 billion higher than the balance at November 30, 2010 due to the addition of multi-year conduit capacity during 2011 in order to balance the flexibility and economics of our liquidity mix, partially offset by maturities of securitized debt. | |||||||
August 31, 2011 | November 30, 2010 | ||||||
(dollars in billions) | |||||||
Liquidity investment portfolio | |||||||
Cash and cash equivalents(1) | $ | 3.5 | $ | 4.7 | |||
Other short term investments | — | 0.4 | |||||
Investment securities | 5.9 | 5.0 | |||||
Total liquidity investment portfolio | 9.4 | 10.1 | |||||
Undrawn credit facilities(2) | |||||||
Private asset-backed securitizations | 6.5 | 3.3 | |||||
Unsecured committed credit facility | 2.4 | 2.4 | |||||
Federal Reserve discount window(3) | 8.0 | 6.7 | |||||
Total undrawn credit facilities | 16.9 | 12.4 | |||||
Total liquidity investment portfolio and undrawn credit facilities | $ | 26.3 | $ | 22.5 |
(1) | Cash-in-process is excluded from cash and cash equivalents for liquidity purposes. |
(2) | See "—Funding Sources—Additional Funding Sources" for additional information. |
(3) | Excludes $302 million and $1.5 billion of investments accounted for in the liquidity investment portfolio that were pledged to the Federal Reserve as of August 31, 2011 and November 30, 2010, 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, 2011 | |||||||||||||
Repurchase program (1) | 55,330 | $ | 25.68 | 55,330 | $ | 998,579,341 | |||||||
Employee transactions (2) | — | $ | — | N/A | N/A | ||||||||
July 1 - 31, 2011 | |||||||||||||
Repurchase program (1) | 716,784 | $ | 25.62 | 716,784 | $ | 980,214,629 | |||||||
Employee transactions (2) | 161,511 | $ | 26.55 | N/A | N/A | ||||||||
August 1 - 31, 2011 | |||||||||||||
Repurchase program (1) | 7,614,731 | $ | 23.36 | 7,614,731 | $ | 802,325,809 | |||||||
Employee transactions (2) | 8,784 | $ | 23.24 | N/A | N/A | ||||||||
Total | |||||||||||||
Repurchase program (1) | 8,386,845 | $ | 23.57 | 8,386,845 | $ | 802,325,809 | |||||||
Employee transactions (2) | 170,295 | $ | 27.11 | N/A | N/A |
Item 3. | Defaults Upon Senior Securities |
Item 4. | (Removed and Reserved) |
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 | |
10.1 | Third Amendment to the Discover Financial Services Change in Control Severance Policy, effective as of August 1, 2011 (filed as Exhibit 10.3 to Discover Financial Services' Quarterly Report on Form 10-Q for the quarter ended May 31, 2011 and incorporated herein by reference thereto). | |
10.2 | Asset Purchase Agreement between Discover Bank and Citibank, N.A. dated August 31, 2011. | |
10.3 | Amendment No. 3 to Discover Financial Services Employee Stock Purchase Plan. | |
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. |
Page | ||
ARTICLE I | ||
DEFINITIONS, ACCOUNTING TERMS AND INTERPRETATIONS | ||
Section 1.1 | Defined Terms | |
Section 1.2 | Computations of Time Periods | |
Section 1.3 | Accounting Terms and Principles | |
Section 1.4 | Certain Terms | |
ARTICLE II | ||
PURCHASE AND SALE | ||
Section 2.1 | Purchase and Sale of the Aquired Assets | |
Section 2.2 | Intent and Characterization | |
ARTICLE III | ||
REPRESENTATIONS AND WARRANTIES | ||
Section 3.1 | Representations and Warranties of each Party | |
Section 3.2 | Additional Representations and Warranties of the Seller | |
Section 3.3 | Additional Representations and Warranties of the Buyer | |
ARTICLE IV | ||
CLOSING | ||
Section 4.1 | Closing | |
ARTICLE V | ||
CONDITIONAL PRECEDENT | ||
Section 5.1 | Conditions to the Obligations of the Buyer | |
Section 5.2 | Conditions to the Obligations of the Seller | |
Section 5.3 | Closing Documents | |
ARTICLE VI | ||
COVENANTS | ||
Section 6.1 | No Public Announcements | |
Section 6.2 | Conduct of Business | |
Section 6.3 | Seller Actions |
Section 6.4 | Tax Matters | |
Section 6.5 | Exclusivity | |
Section 6.6 | Notification of Certain Matters | |
Section 6.7 | Appropriate Action | |
Section 6.8 | Further Assurances | |
Section 6.9 | Right of First Offer | |
Section 6.10 | Confidential Information | |
Section 6.11 | Nonpublic Personal Inforamtion | |
Section 6.12 | Access to Information | |
Section 6.13 | Borrower Communications | |
ARTICLE VII | ||
INDEMNIFICATION | ||
Section 7.1 | Liability of the Buyer and the Seller; Indemnities | |
Section 7.2 | Remedies Exclusive | |
Section 7.3 | Mitigation | |
ARTICLE VIII | ||
TERMINATION, AMENDMENT AND WAIVER | ||
Section 8.1 | Termination | |
Section 8.2 | Effect of Termination | |
Section 8.3 | Amendment | |
Section 8.4 | Waiver | |
Section 8.5 | Survival | |
ARTICLE IX | ||
MISCELLANEOUS | ||
Section 9.1 | Assignments | |
Section 9.2 | Costs and Expenses | |
Section 9.3 | Relationship of Parties | |
Section 9.4 | Notices, Etc. | |
Section 9.5 | Governing Law | |
Section 9.6 | Entire Agreement; No Third Party Beneficiaries | |
Section 9.7 | Submission to Jurisdiction; Service of Process | |
Section 9.8 | Waiver of Jury Trial | |
Section 9.9 | Severability | |
Section 9.10 | Article and Section Titles | |
Section 9.11 | Execution in Counterparts | |
(a) | The terms “herein,” “hereof,” “hereto” and “hereunder” and similar terms refer to this Agreement as a whole and not to any particular Article, Section, subsection or clause in this Agreement. |
(b) | Unless otherwise expressly indicated herein, (i) references in this Agreement to an Appendix, Article, Section, clause or sub-clause refer to the appropriate Appendix, Article, Section, clause or sub-clause in or to this Agreement and (ii) the words “above” and “below,” when following a reference to a clause or a sub-clause of this Agreement, refer to a clause or sub-clause within, respectively, the same Section or clause. |
(c) | The definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms and to the masculine as well as to the feminine and neuter genders of such term. |
(d) | References in this Agreement to any statute shall be to such statute as amended or modified from time to time and to any successor legislation thereto, in each case as in effect at the time any such reference is operative. |
(e) | The term “including” when used in this Agreement means “including without limitation” except when used in the computation of time periods. |
(f) | The terms “Seller” and “Buyer” include their respective permitted successors and assigns hereunder. |
(g) | References in this Agreement (including in Appendix A) to another agreement, instrument or other document means such agreement, instrument or other document as the same may be amended, supplemented or otherwise modified from time to time in accordance with the terms |
(h) | In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring either Party by virtue of the authorship of any of the provisions of this Agreement. |
(a) | On the terms and subject to the satisfaction of the conditions set forth in this Agreement, including the conditions precedent set forth in Article V, and in reliance on the representations, warranties, covenants and agreements set forth in this Agreement, the Seller agrees to sell, transfer, assign and grant to the Buyer, and the Buyer agrees to purchase, on the Closing Date without recourse to the Seller and without representations or warranties (except as specifically set forth herein), all of the Seller’s right, title and interest in, to and under (i) the Loans that are identified on the Loan Transmittal Summary Form (the “Purchased Loans”) and all obligations with respect thereto, (ii) all principal, interest, fees and other payments and reimbursements of principal and interest with respect to the Purchased Loans (collectively, “Collections”) received or deemed to have been received, in each case, after the Closing Date, whether accruing before, on or after the Closing Date), (iii) all other claims, rights and remedies (including pursuant to any Proceeding) as against the Borrowers of the Purchased Loans, (iv) the Loan Files related to the Purchased Loans including the Notes evidencing the Purchased Loans, (v) subject to Section 6.11(b), all Nonpublic Personal Information related to the Purchased Loans, (vi) all documents, books, records and other information maintained by or on behalf of the Seller with respect to the Purchased Loans, (vii) all insurance policies. risk sharing agreements and other agreements or arrangements supporting or securing payment of the Purchased Loans, and (viii) all proceeds of the property referenced in clauses (i) through (vii) above (collectively, the “Acquired Assets”), in consideration of the payment of the Estimated Purchase Price to the Seller in the manner provided in Section 2.1(b) and subsequently adjusted pursuant to Section 2.1(e). The Estimated Purchase Price will be based upon the Estimated Schedule of Purchased Loans determined as of the Measuring Date and will be adjusted after the Closing Date pursuant to Section 2.1(e) based upon the Schedule of Purchased Loans. |
(b) | Delivery or transfer of the Acquired Assets shall be made on the Closing Date. On the Closing Date, the Buyer shall pay or cause to be paid to the Seller the Estimated Purchase Price by wire transfer of immediately available funds in U.S. dollars to the account specified by the Seller to the Buyer by written notice at least two (2) Business Days prior to the Closing Date. |
(c) | Upon receipt of (i) evidence of the payment of the Estimated Purchase Price and (ii) a fully executed Bill of Sale, Assignment and Assumption Agreement, the Seller shall cause the |
(d) | The sale and purchase of the Acquired Assets on the Closing Date shall be consummated upon (i) the payment by the Buyer to the Seller of the Estimated Purchase Price in the manner provided in Section 2.1(b) and (ii) the execution and delivery by the Seller and the Buyer of the Bill of Sale, Assignment and Assumption Agreement. Upon the satisfaction of such conditions, such sale and purchase shall be effective as of 11:59 p.m. (New York City time) on the Closing Date. |
(e) | Within sixty (60) days after the Closing Date, the Buyer shall provide the Seller with the Schedule of Purchased Loans and shall calculate the Purchase Price based upon the Schedule of Purchased Loans, subject to the Seller timely providing any information reasonably requested by the Buyer to prepare the Schedule of Purchased Loans. The Seller shall have fifteen (15) Business Days after delivery of the Schedule of Purchased Loans and Purchase Price calculation to review and comment on the Schedule of Purchased Loans and the Purchase Price calculation. During this period the Seller and the Buyer (to the extent available to it) will provide information relating to the Schedule of Purchased Loans and calculation of the Purchase Price as reasonably requested by the other, and the Buyer will meet with the Seller to discuss this information and the calculations. If during this fifteen (15) Business Day period the Seller does not notify the Buyer that it disagrees with the Buyer’s Purchase Price calculation, then the Buyer’s calculation will be final and binding on the Buyer and the Seller as of the end of such fifteen (15) Business Day period. If during this fifteen (15) Business Day period the Seller notifies the Buyer that the Seller disagrees with the Buyer’s calculation, the Buyer and the Seller will meet to attempt to resolve any differences. If they are unable to agree on the adjustments within the next thirty (30) days, then the Buyer and the Seller will be free to pursue an additional review by jointly selecting an independent accounting firm to review the calculations and make a determination as to the Purchase Price. If the Seller and the Buyer are unable to agree on an accounting firm, then they will apply to the American Arbitration Association to make the selection. (The independent accounting firm selected pursuant to this Section 2.1(e) is referred to herein as the “Arbitration Firm”). The Arbitration Firm will be instructed to complete its review within twenty (20) days and to calculate the Purchase Price in accordance with this Section 2.1. The decision of the Arbitration Firm will be final and binding on the Buyer and the Seller. |
(f) | If the Purchase Price as finally determined pursuant to Section 2.1(e) exceeds the Estimated Purchase Price, then the Buyer shall pay the Seller the amount of such excess no later than fifteen (15) Business Days after the date of final determination pursuant to Section 2.1(e) by wire transfer of immediately available funds in U.S. dollars to the account specified by the Seller to the Buyer by written notice at least two (2) Business Days prior to such payment. If the Purchase Price as finally determined pursuant to Section 2.1(e) is less than the Estimated Purchase Price, then the Seller shall refund to the Buyer the amount of such difference within |
(g) | After the Closing Date, the Seller shall promptly (and in any event within two (2) Business days after receipt and identification thereof) remit or credit, or cause to be remitted or credited, to the Buyer all funds received by the Seller that constitute Collections received after the Closing Date with respect to any Purchased Loans. |
(h) | The Buyer will be responsible for the expense of any notices sent to the applicable Borrowers regarding the purchase and sale of the Loans; provided that the Seller shall cooperate with all reasonable requests by the Buyer to accurately and timely deliver all such notifications. Such notices shall be in form and substance and in accordance with timing mutually agreed upon by both parties. |
(q) | The Seller and the Buyer intend that the transfer and assignment of the Acquired Assets pursuant to this Agreement and the Bill of Sale, Assignment and Assumption Agreement constitute a valid sale of the Acquired Assets from the Seller to the Buyer, conveying good title to the Acquired Assets free and clear of any Lien, and the beneficial interest in and title to the Acquired Assets shall not be part of the Seller’s estate in the event of the bankruptcy of the Seller or the appointment of a receiver or conservator with respect to the Seller. The Seller and the Buyer intend and agree to treat the transfer and assignment of the Acquired Assets as an absolute transfer for Tax, financial and accounting purposes, and as an absolute and complete conveyance of title for property Law purposes. |
(r) | In the event (but only in the event) that the conveyance of the Acquired Assets is characterized by a court or other Governmental Authority as security for a loan rather than a sale, the Seller will be deemed to have granted to the Buyer, and the Seller hereby grants to the Buyer, a security interest in all of its right, title and interest in, to and under the Acquired Assets as security for a loan in the amount of the Purchase Price. |
(a) | Organization; Power. Such Party is duly organized or formed, validly existing and in good standing under the Laws of the jurisdiction of its organization or formation, has all requisite corporate or similar power and authority to carry on its business as now conducted and to |
(b) | Authorization; Enforceability; Due Execution and Delivery. Such Party has all necessary corporate or similar power and authority to execute and deliver the Transaction Documents to which it is a party, to perform its obligations thereunder and to consummate the Transaction contemplated thereby. The execution and delivery by such Party of the Transaction Documents to which it is a party and the consummation by such Party of the Transaction contemplated thereby have been duly and validly authorized by all necessary corporate or similar action of such Party, and no other proceedings on the part of such Party are necessary to authorize the execution and delivery of the Transaction Documents or to consummate the Transaction contemplated thereby. The Transaction Documents to which such Party is a party have been (or at the time of the Closing, will be) duly and validly executed and delivered by such Party and, assuming the due authorization, execution and delivery of each other party thereto, the Transaction Documents to which it is a party each constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms (except as such enforceability may be limited by bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and other similar Laws of general applicability relating to or affecting creditor’s rights, and to general equitable principles, regardless of whether considered in a proceeding in equity or at law). |
(c) | Government and Third Party Approvals; No Conflicts. Except as would not reasonably be expected to have a material adverse effect on such Party’s ability to timely perform its material obligations under the Transaction Documents to which it is a party, the execution and delivery of the Transaction Documents to which such Party is a party by such Party and the consummation of the Transaction contemplated thereby do not and will not (i) require any consent, approval, registration or filing with any Governmental Authority or any other third party by such Party except for those that have been obtained and are in full force and effect, (ii) violate any Law, the certificate of incorporation, the articles of association or by-laws or other organizational documents of such Party or its Subsidiaries or any Order applicable to such Party, (iii) violate, conflict with or result in a default under any indenture, agreement or other instrument binding upon such Party or its Subsidiaries or assets or give rise to a right thereunder to require any payment by such Party or its Subsidiaries or (iv) result in any Lien on any assets of such Party or its Subsidiaries. |
(d) | Litigation. There is no Proceeding by or before any arbitrator or Governmental Authority pending or, to the knowledge of such Party, threatened, against such Party or its Subsidiaries, and there is no Order, before any arbitrator or Governmental Authority, in each case, as to which there is a reasonable possibility of an adverse determination that would reasonably be expected to have a material adverse effect on such Party’s ability to timely perform its material obligations under any Transaction Documents to which it is a party. |
(e) | Compliance with Law. Such Party and each of its Subsidiaries is in compliance with all |
(g) | Investment Company Act Status. Such Party is not an investment company as defined in, or subject to regulation under, the U.S. Investment Company Act of 1940. |
(a) | Representations and Warranties regarding the Acquired Assets. The Seller affirms each of its representations and warranties set forth in Appendix B and as of the Closing Date affirms the accuracy of the information provided in the Bill of Sale, Assignment and Assumption Agreement, including the information in the Loan Transmittal Summary Form. The Seller affirms the accuracy of the information in the Estimated Schedule of Purchased Loans as of the date specified therein. |
(b) | Compliance with Laws with respect to Origination of Loans. With respect to each state or jurisdiction therein in which the Seller or any of its Affiliates undertakes origination activities of Loans, the Seller or such Affiliate is and has been in compliance in all material respects with such state’s or jurisdiction’s (as applicable) Laws, settlement agreements and other standards and procedures, including those promulgated by agencies or officers thereof, applicable to it and pertaining to the conduct of participants in the student loan industry, including any applicable voluntary code of conduct, to the extent the Seller or any such Affiliate has assented thereto. |
(c) | Compliance with Laws with respect to the Purchased Loans Generally. Neither the Seller nor any of its Affiliates, nor any of their respective Representatives is or has been in violation in any respect of any Law or Order applicable to the Purchased Loans, including all Laws applicable to the marketing, origination, ownership, sale, servicing and collection of the Purchased Loans and the Seller’s business, except for such violation that has not had and would not have, individually or in the aggregate, a Seller Material Adverse Effect. The servicing and collection practices used by the Seller and its Affiliates with respect to the Purchased Loans are and have been compliant with all applicable Laws and have met customary standards and practices utilized by similar student lenders in their servicing businesses, except for such non-compliance that has not had and would not have, individually or in the aggregate, a Seller Material Adverse Effect. |
(d) | Data Processing Systems. All automated data processing systems used by or on behalf of the Seller comply and have complied in all material respects with all applicable Law governing loan origination or servicing, including, the Gramm-Leach-Bliley Act of 1999 restrictions, information reporting requirements of the Internal Revenue Service and credit bureau report format requirements of the Consumer Data Industry Association and applicable state Law |
(e) | Seller Information. The Seller is a national banking association. |
(f) | Borrower Incentive Programs. Since December 31, 2010, none of the Seller, its Affiliates or their respective Representatives have offered Borrowers of any Purchased Loans any borrower incentive programs not (A) required by Law or (B) put into effect with respect to the related Purchased Loans on or prior to December 31, 2010. |
(g) | No Other Representations or Warranties. Except for the representations and warranties contained in Section 3.1, Section 3.2 and Appendix B, and the information provided in the Bill of Sale, Assignment and Assumption Agreement, neither the Seller nor any other Person on behalf of the Seller or any of its Subsidiaries or Affiliates makes any express or implied representation or warranty with respect to the Seller or any of its Subsidiaries or Affiliates or with respect to the Acquired Assets or any other information provided to the Buyer in connection with the Transaction. |
(a) | Additional Funds. The Buyer has, and as of the Closing will have, cash on hand sufficient to (i) enable the Buyer to perform its obligations hereunder, (ii) consummate the Transaction and (iii) pay all costs and expenses incurred by the Buyer in connection with this Agreement and the other Transaction Documents and the Transaction, including (x) the Purchase Price and (y) any other payments or obligations of the Buyer pursuant to the Transaction Documents. |
(a) | Subject to the satisfaction or, if permissible, waiver of the conditions set forth in Article V, and provided that this Agreement has not been terminated pursuant to Section 8.1, the closing of the Transaction (the “Closing”) will take place at 10:00 a.m., New York time, on September 30, 2011, at the offices of Skadden, Arps, Slate, Meagher & Flom LLP, Four Times Square, New York, New York 10036, unless another time, date or place is agreed to in writing by the Parties (such date on which the Closing occurs being the “Closing Date”); provided that neither Party shall unreasonably withhold, condition or delay its assent to the other Party’s request to change such time, date or place. |
(b) | Each condition precedent to the Closing will be deemed to have been satisfied or waived upon the execution and delivery by the Seller and the Buyer of the Bill of Sale, Assignment and |
(a) | no Governmental Authority shall have commenced, enacted, issued, promulgated, enforced or entered any suit, proceeding, Order or other Law which is then in effect and has the effect of making the Transaction illegal or otherwise prohibiting the consummation of the Transaction; |
(b) | the Seller shall have executed and delivered to the Buyer a special power of attorney and blanket endorsement with respect to the Purchased Loans in favor of the Buyer, substantially in the form of Appendix C, authorizing the Buyer to endorse each of the Notes evidencing such Purchased Loans on the Seller’s behalf; |
(c) | the representations and warranties of the Seller contained in the Transaction Documents to which it is a party shall be true and correct (without giving effect to any limitation as to materiality or Seller Material Adverse Effect or similar qualifiers set forth therein) at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Seller Material Adverse Effect; |
(d) | the Seller shall have performed and complied in all material respects with all material agreements and covenants required by the Transaction Documents to be performed or complied with by the Seller at or prior to the Closing; |
(e) | since the date hereof, there shall not have been any receiver or conservator appointed for the Seller or all or any substantial part of its property; |
(f) | the corrections to the Estimated Schedule of Purchased Loans described in Section 5.2(c) do not result, in the aggregate, in a change to the Estimated Purchase Price of more than $25,000,000; and |
(g) | all documents and certificates specified in Section 5.3 to be delivered by the parties to the Transaction Documents (other than the Buyer) on the Closing Date shall be duly executed and delivered by all signatories as required pursuant to the respective terms thereof. |
(a) | no Governmental Authority shall have commenced, enacted, issued, promulgated, enforced or entered any suit, proceeding, Order or other Law which is then in effect and has the effect of making the Transaction illegal or otherwise prohibiting the consummation of the Transaction; |
(b) | the representations and warranties of the Buyer contained in the Transaction Documents to which it is a party shall be true and correct (without giving effect to any limitation as to materiality or Buyer Material Adverse Effect or similar qualifiers set forth therein) at and as of the Closing Date with the same force and effect as if made at and as of the Closing Date (other than those representations and warranties that address matters only as of a particular date or only with respect to a specific period of time, which need only be true and correct as of such date or with respect to such period), except where the failure of such representations and warranties to be true and correct would not reasonably be expected to have, individually or in the aggregate, a Buyer Material Adverse Effect; |
(c) | the Buyer shall have delivered to the Seller the Estimated Schedule of Purchased Loans no less than 15 calendar days prior to the Closing, and the Buyer and its Affiliates shall have cooperated with the Seller in identifying and correcting any deficiencies contained in the Estimated Schedule of Purchased Loans, each to the extent necessary for the Seller to reasonably affirm the accuracy of the information in the Estimated Schedule of Purchased Loans as of the date specified therein as required by Section 3.2(a); |
(d) | the Buyer shall have performed and complied in all material respects with all material agreements and covenants required by the Transaction Documents to be performed or complied with by the Buyer at or prior to the Closing; |
(e) | since the date hereof, there shall not have been any receiver or conservator appointed for the Buyer or all or any substantial part of its property; and |
(f) | all documents, certificates and opinions specified in Section 5.3 to be delivered by the other parties to the Transaction Documents (other than the Seller) on the Closing Date shall be duly executed and delivered by all signatories as required pursuant to the respective terms thereof. |
(a) | the Bill of Sale, Assignment and Assumption Agreement (together with the Loan Transmittal Summary Form to be delivered electronically in the form of a Student Loan Tape to the Buyer by the Seller); |
(b) | a certificate issued by the Comptroller of the Currency, as to the corporate existence of the Seller, dated as of a date within thirty (30) days prior to the Closing Date to be delivered by |
(c) | a certificate of good standing of the Buyer dated as of a date within thirty (30) days prior to the Closing Date to be delivered by the Buyer; |
(d) | a limited power of attorney executed by Ricardo Arroyo, Chief Financial Officer of Citibank, N.A., appointing each of Calvin Balliet, Charles Jacques, Daniel Madias and James von Moltke to act as attorneys-in-fact on behalf of Citibank, N.A., with respect to this Agreement and the other Transaction Documents and a Secretary’s Certificate of the Seller attaching its charter, bylaws, board resolutions authorizing the Transaction and the execution and delivery (by power of attorney or otherwise) of the Transaction Documents (which resolutions need not specifically reference the Transaction) and an incumbency certificate; and |
(e) | a Secretary’s Certificate of the Buyer attaching its charter, bylaws, board resolutions authorizing the Transaction and an incumbency certificate. |
(a) | commence a lawsuit against any party other than the Buyer or its Affiliates that may affect the Acquired Assets or the servicing or administration of the Purchased Loans, except for lawsuits brought in the ordinary course of business by the Seller as plaintiff against a Borrower relating to the collection of Purchased Loans, provided that such consent will not be |
(b) | offer Borrowers of any Purchased Loans any borrower incentive programs not (A) required by Law or (B) put into effect with respect to the related Purchased Loans prior to the date hereof; or |
(c) | amend or otherwise modify the terms of any Purchased Loan or change in any material respect the manner in which the Purchased Loans are serviced unless required by Law. |
(a) | All applicable sales, use, transfer, stamp, stock transfer or similar Taxes that are or become due and payable as a result of the Transaction, if any, whether such Taxes are imposed by Law on the Seller, the Buyer, or any of their Affiliates (such Taxes, “Transfer Taxes”), shall be borne fifty (50) percent by the Buyer and fifty (50) percent by the Seller. Any Tax Returns with respect to Transfer Taxes shall be prepared by the Party hereto that customarily has primary responsibility for filing such Tax Returns pursuant to applicable Law. Buyer and Seller will provide to one another a true copy of each such Tax Return as filed and evidence of the timely filing thereof. |
(b) | Each Party shall, and shall cause its Affiliates to, (i) provide cooperation and assistance to the other Party hereto, as reasonably requested, in preparing and filing Tax Returns relating to the Acquired Assets and responding to Tax Contests relating to the Acquired Assets; (ii) until the later of (x) the tenth (10th) anniversary of the Closing Date and (y) the expiration of the applicable statute of limitations, retain such information, records, and documents as may be necessary for purposes of preparing and filing such Tax Returns or responding to such Tax Contests; (iii) make available to the other Party, as reasonably requested, such information, records, and documents as may be necessary for purposes of preparing and filing such Tax Returns or responding to such Tax Contests; and (iv) use reasonable efforts, as reasonably requested, to obtain any certificate or other document from any Governmental Authority or any other Person or take any other action, in each case, as may be necessary to mitigate, reduce, or eliminate any Taxes relating to the Acquired Assets that could be imposed on the other Party (including, but not limited to, Taxes resulting from the Transaction). |
(c) | Neither Party nor any of their respective Affiliates shall be entitled, under this agreement, to any information regarding, any access to, any right to review or any right to obtain any consolidated, combined, affiliated or unitary Tax Return which includes the Seller or the Buyer. |
(d) | Unless otherwise required by Law, any payment made pursuant to Article VII shall be treated for all Tax purposes as an adjustment to the Purchase Price. |
(a) | At any time prior to the fifth anniversary of the Closing Date, in the event that the Seller intends to sell, assign, transfer, convey or otherwise dispose of all or any portion of the Retained Portfolio (such portion, the “Offered Assets”) in a transaction in which the book value of the Offered Assets constitutes twenty-five (25) per cent or more of the book value of the assets to be sold, assigned, transferred, conveyed or otherwise disposed of, the Seller shall give the Buyer written notice (the “Seller’s Notice”) of such intended sale, assignment, transfer, conveyance or other disposition, and, for a period of 45 days commencing on the date of its receipt of such written notice, the Buyer will have the exclusive right to offer to purchase the Offered Assets. During such 45-day period, the Seller shall not sell, assign, transfer, convey or otherwise dispose of all or any portion of the Retained Portfolio. In the event that the Buyer exercises its right to offer, the Seller and the Buyer agree to negotiate in good faith the purchase price and other terms of such purchase. In the event that the Buyer does not exercise its right to offer pursuant to this Section 6.9(a), then the Seller shall be free (without having to provide the Buyer with a further right to offer pursuant to this Section 6.9(a)) for a period of 90 days from the 45th day following the date of the Buyer’s receipt of the Seller’s Notice, to sell the |
(b) | In the event that the Buyer exercises its right to offer pursuant to Section 6.9(a) and the Seller and the Buyer cannot reach mutually agreeable terms for the purchase by the Buyer of the Offered Assets as provided by Section 6.9(a), then the Seller shall be free (without having to provide the Buyer with a further right to offer pursuant to Section 6.9(a)), for a period of 90 days from the 45th day following the date of the Buyer’s receipt of the Seller’s Notice, to sell the Offered Assets to any Third Party Purchaser on terms that are no less favorable to the Seller than the most favorable terms offered by the Buyer (the “First Offer Terms”); provided that such sale complies with the provisions of this Section 6.9. If the proposed terms of a third party purchase for the Offered Assets (the “Third Party Terms”) are less favorable to the Seller than the First Offer Terms, the Seller shall not sell, assign, transfer, convey or otherwise dispose any of the Offered Assets unless the Seller shall first reoffer the Offered Assets to the Buyer by giving written notice (the “Reoffer Notice”) thereof, stating the Seller’s intention to transfer the Offered Assets upon terms less favorable than the First Offer Terms. The Buyer shall then have the irrevocable and exclusive option to submit a second offer for the Offered Assets by notifying the Seller in writing of the terms upon which the Buyer proposes to purchase the Offered Assets (the “Reoffer Terms”) within 15 Business Days from the date of the Reoffer Notice, provided that, for the avoidance of doubt, the Reoffer Terms may be the First Offer Terms. If the Buyer has not exercised its option to submit Reoffer Terms or if the Third Party Terms are no less favorable to the Seller than the Reoffer Terms, then the Seller may (without having to provide the Buyer with a further right to offer or reoffer pursuant to Section 6.9(a) or this Section 6.9(b)) sell the Offered Assets to a Third Party Purchaser within 90 days following the 15th Business Day from the date of the Reoffer Notice, on Third Party Terms that are no less favorable to the Seller than the Reoffer Terms; provided that such sale complies with the provisions of this Section 6.9. The Seller shall certify to the Buyer that, in its sole and absolute discretion, the Third Party Terms are no less favorable to the Seller than the Reoffer Terms. |
(a) | Each Party shall keep confidential and shall not make available or disclose Confidential Information of the other Party to any Person, or make or permit any use of such Confidential Information without the prior written consent of the other Party. Notwithstanding the foregoing, Confidential Information of the other Party may be disclosed on an as needed basis to the Representatives and Affiliates of the receiving Party as required for the purpose of fulfilling the receiving Party’s obligations or exercising its rights under the Transaction Documents and each Party may utilize applicable Confidential Information (if any) in preparing financial statements, tax returns, and tax information it is required to file under applicable Law; provided, that each Party shall be responsible for any unauthorized disclosure of such Confidential Information by its Representatives and Affiliates. Each Party shall take reasonable steps to ensure that any such Confidential Information disclosed to any such Representatives or Affiliates in accordance with this Section 6.10 is treated as confidential by such Representatives and Affiliates in a manner no less protective of the Confidential Information than is required under this Agreement. |
(b) | The provisions of Section 6.10 shall not apply to any Confidential Information which: (i) is or becomes commonly known to the public other than by breach of this Agreement or any other agreement that the receiving Party has with any party; (ii) is obtained from a third party who is lawfully authorized to disclose such information free from any obligation of confidentiality; or (iii) is independently developed without reference to any Confidential Information of the other Party. |
(c) | Nothing in Section 6.10 shall prevent either Party from disclosing Confidential Information of the other Party where it is required to be disclosed by judicial, administrative, governmental or regulatory process in connection with any action, suit, proceeding or claim or otherwise by any applicable Law; provided, however, that a Party that is so required to disclose such Confidential Information shall, if legally permitted, give the other Party reasonable prior notice as soon as possible of such required disclosure so as to enable such other Party to seek relief from such disclosure requirement or measures to protect the confidentiality of the disclosure. |
(d) | Each Party shall immediately inform the other Party if it becomes aware of the possession, use or knowledge of any of such other Party’s Confidential Information by any Person not authorized to possess, use or have knowledge of such Confidential Information and shall at the request of such other Party provide such reasonable assistance as is required by such other Party to mitigate any damage caused thereby. |
(a) | The Parties acknowledge that the Acquired Assets include all Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans. To the extent that any such Nonpublic Personal Information is nonetheless deemed to be owned by the Seller, the Buyer shall have the right to use any such Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans for any purpose permitted by applicable Law, and the Seller hereby provides the Buyer with an irrevocable, fully paid up, perpetual license to use such Nonpublic Personal Information for such purposes. This Section 6.11(a) shall not apply to any Nonpublic Personal Information that: (x) the Seller or one of its Affiliates has independently obtained or will independently obtain without reference to any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with Purchased Loans, or (y) is known to the Seller prior to the Closing Date other than in connection with the Purchased Loans. |
(b) | The Seller shall not use or disclose any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans; provided, that the Seller may use such Nonpublic Personal Information (a) as necessary to carry out its rights and responsibilities under this Agreement and the other Transaction Documents, or (b) to the extent required to do so under applicable Law or required to do so in connection with complying with any applicable Law. The foregoing shall not apply to any Nonpublic Personal Information that: (x) the Seller or one of its Affiliates has independently obtained or will independently obtain without reference to any Nonpublic Personal Information obtained by or on behalf of the Seller or the Buyer in connection with the Purchased Loans, or (y) is known to the Seller |
(a) | Until the earlier of the Closing Date or the date, if any, on which this Agreement is terminated pursuant to Section 8.1, to the extent permitted by applicable Law, the Seller shall (i) provide the Buyer and its Representatives access during normal business hours and, following reasonable notice from the Buyer, to all documents, instruments, agreements, books, records, Loan Files and other information with respect to the Acquired Assets as the Buyer may reasonably request and (ii) permit such Persons to have reasonable access to such personnel of the Seller during normal business hours as the Buyer may reasonably request; provided, however, that the Seller shall not be required to provide access to any information or documents which would, in the reasonable judgment of the Seller, (x) breach any agreement with any third party if the Seller shall have used its reasonable best efforts to obtain the consent of such third party to such access or disclosure, (y) constitute a waiver of the attorney-client or other privilege held by the Seller or (z) violate any applicable Laws. If any material is withheld by the Seller pursuant to the proviso of the preceding sentence, the Seller shall inform the Buyer as to the general nature of what is being withheld. |
(b) | No information provided or obtained pursuant to this Section 6.12 shall affect any representation or warranty in this Agreement of either Party or any condition to the obligations of the Parties. The Parties shall comply with, and shall cause their respective Representatives to comply with, all of their respective obligations pursuant to Section 6.10 with respect to the information provided or obtained pursuant to this Section 6.12. |
(a) | Subject to the terms of this Agreement, from and after the Closing Date, the Seller shall indemnify, defend, save and hold harmless the Buyer and its Affiliates and each of its and their respective Representatives (collectively, the “Buyer Indemnified Parties”) from and against any and all Losses, as such Losses are incurred, resulting from, arising out of or related to (i) any breach by the Seller of any of its representations, warranties or covenants in this Agreement, the Bill of Sale, Assignment and Assumption Agreement or in any certificate delivered pursuant to the terms hereof or thereof (to the extent relating to such representations |
(b) | Subject to the terms of this Agreement, from and after the Closing Date, the Buyer shall indemnify, defend, save and hold harmless the Seller and its Affiliates and each of its and their respective Representatives (collectively, the “Seller Indemnified Parties” and, together with the Buyer Indemnified Parties, the “Indemnified Parties”) from and against any and all Losses, as such Losses are incurred, resulting from, arising out of or related to any breach by the Buyer of any of its representations, warranties or covenants in this Agreement, the Bill of Sale, Assignment and Assumption Agreement or in any certificate delivered pursuant to the terms hereof or thereof (to the extent relating to such representations and warranties) or the failure of any such representation or warranty to be accurate. |
(c) | Notwithstanding anything set forth in this Agreement to the contrary, Losses shall be determined without duplication of any other Loss for which an indemnification claim has been made under any other representation, warranty, covenant, or agreement contained in the Transaction Documents and shall be net of any other recoveries actually received by the applicable Indemnified Party in connection with the facts giving rise to the right of indemnification, but without any obligation on the part of such indemnified Party to make such other claims or pursue such other recoveries except to the extent provided in Section 7.3. |
(d) | “Losses” means all costs, expenses, damages, obligations, Liabilities, purchase obligations (including the amount paid in such purchase and costs and expenses associated therewith), assessments, judgments, losses (including lost profits, opportunity costs and diminution in value), settlements, awards and fees (including reasonable legal, accounting or other professional fees); provided, however, that “Losses” shall not include lost profits, opportunity costs, diminution in value, damages based upon a multiple of earnings or similar financial measure or exemplary or punitive damages, in each case, except to the extent awarded against an Indemnified Party in a Third Party Claim. For the avoidance of doubt, damages or losses resulting from the failure of the Buyer or any of its Affiliates to receive any amounts with respect to any Purchased Loan (whether or not then due), including any principal, interest, discount or other fees, assessments or other amounts in respect thereof, shall in no event constitute or be deemed to be lost profits, opportunity costs or diminution in value or exemplary or punitive damages, but shall be deemed to be an indemnifiable Loss; provided, however, that Losses with respect to any Purchased Loan arising out of a breach of any representation or warranty set forth in Section 3.2(a) or Appendix B of this Agreement shall not exceed the Principal Balance of such Purchased Loan plus accrued and unpaid interest thereon plus any Mitigation Loss pursuant to Section 7.3. |
(a) | by mutual written consent of each of the Buyer and the Seller; |
(b) | by written notice of either the Buyer or the Seller, if any Governmental Authority of competent jurisdiction shall have issued an Order or taken any other action permanently restraining, enjoining or otherwise prohibiting the Transaction, and such Order or other action shall have become final and nonappealable; or |
(c) | by the Seller, on the one hand, or by the Buyer, on the other hand, if the Closing shall not have occurred on or before date that is 75 days after the date hereof (the “Termination Date”); provided that the right to terminate this Agreement under this Section 8.1(c) shall not be available to either Party whose material misrepresentation, inaccuracy, breach of warranty, default or failure to fulfill any covenant or obligation under this Agreement has been the cause of, or resulted in, the failure of the Closing to occur on or before such date. |
(a) | Addresses for Notices. All notices, demands, requests, consents and other communications provided for, or required to be given, in this Agreement shall be given in writing, or by any telecommunications device capable of creating a written record (including electronic mail) and addressed to the Party to be notified at its respective addresses set forth below. The Parties may change their respective addresses for notices from time to time by written notice to the other Party subject to written acknowledgment of receipt by the other Party. |
(b) | Effectiveness of Notices. All notices, demands, requests, consents and other communications described in Section 9.4(a) above shall be effective (i) if delivered by hand, including any overnight courier service, upon personal delivery, (ii) if delivered by mail, when received in the mails and (iii) if delivered by electronic mail or any other telecommunications device, when transmitted to an electronic mail address (or by another means of electronic delivery) as provided in Section 9.4(a) above. |
(a) | Each of the Buyer and the Seller hereby irrevocably and unconditionally submits, for itself and its property, to the non-exclusive jurisdiction of the Supreme Court of the State of New York sitting in the Borough of Manhattan in The City of New York and of the United States District Court for the Southern District of New York sitting in the Borough of Manhattan in The City of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, and hereby irrevocably agree that all claims in |
(b) | Each Party irrevocably consents to the service of the summons and complaint and any other process in any other action or proceeding relating to the Transaction, on behalf of itself or its property, by personal delivery of copies of such process to such Party. Nothing contained in this Section 9.7 will affect the right of either Party to serve process in any other manner permitted by Law or commence legal proceedings or otherwise proceed against the other Party in any other jurisdiction. |
(a) | Title. As of the Closing Date, the Seller has good and marketable title to, and is the sole owner of, the Acquired Assets, free and clear of all Liens, charges, claims, offsets, defenses, counterclaims or encumbrances of any nature and no right of rescission, offsets, defenses or counterclaims have been asserted or threatened with respect to the Acquired Assets. The sale of the Acquired Assets pursuant to the Agreement and the Bill of Sale, Assignment and Assumption constitutes an absolute transfer of all right, title and interest of the Seller in, to and under the Acquired Assets, free and clear of any Lien or adverse claim. Each of the Purchased Loans was acquired by the Seller from SLC pursuant to the Asset Purchase Agreement, dated as of September 17, 2010, by and among SLC, Citibank (South Dakota) National Association, SLC Student Loan Receivables I, Inc. and the Seller. |
(b) | Uniform Commercial Code Matters. The Purchased Loans constitute either “Payment Intangibles” or “Instruments” within the meaning of the applicable Uniform Commercial Code. |
(c) | Description. The description of the Purchased Loans set forth in the Agreement and in the Loan Transmittal Summary Form is true, complete and correct as of the date specified. |
(d) | Authorization. The Seller is authorized to sell, assign and transfer the Acquired Assets, and the sale, assignment and transfer of the Acquired Assets will be made pursuant to and consistent with the Laws and regulations under which the Seller operates, and will not violate any decree, judgment or order of any court or agency, or conflict with or result in a breach of any of the terms, conditions or provisions of any agreement or instrument to which the Seller is a party or by which the Seller or its property is bound, or will constitute a default (or an event which could constitute a default with the passage of time or notice or both) thereunder. |
(e) | Binding Obligation. The Purchased Loans were each in full force and effect in accordance with their terms and were the legal, valid and binding obligation of the respective Borrower thereunder subject to no defenses (except the defense of infancy). |
(f) | No Consents. No consents and approvals are required by the terms of the Acquired Assets for the consummation of the sale of such Acquired Assets under the Agreement to the Buyer. |
(g) | Servicing, etc. Due diligence and reasonable care, and in any event at least that degree of care, skill and attention that is required to be exercised with respect to the “Education Loans” under the 2008 Agreement, have been exercised by the Seller and its Affiliates in the making, administering, servicing and collecting on the Purchased Loans. |
(h) | Accordance with Program and Law. Each Purchased Loan has been duly made and serviced |
(i) | Promissory Notes. Except for Purchased Loans executed electronically, there was only one executed copy of the Note evidencing each Purchased Loan, which Note is in the possession of the Seller or SLC on behalf of the Seller. For Purchased Loans that were executed electronically, the Seller or SLC on behalf of the Seller has possession of the electronic records evidencing the Note. There exists a Loan File (which may be in hard copy, electronic format or some combination of both) pertaining to each Purchased Loan containing a fully executed Note and application, copies of all written correspondence with the Borrower and notes of other communications with the Borrower, and all other documentation necessary to allow the owner or servicer thereof to collect and enforce such Purchased Loan. The files referred to in the previous sentence are currently in the possession the Seller or SLC on behalf of the Seller. |
(j) | No Other Notations. The Notes that constitute or evidence the Purchased Loans do not have any marks or notations indicating that they had been pledged, assigned or otherwise conveyed to any person other than the Buyer. |
(k) | No Other Security Interest. The Seller has not pledged, assigned, sold, granted a security interest in or other Lien on, or otherwise conveyed any of the Acquired Assets except with respect to security interests that have been terminated. The Seller has not authorized the filing of and is not aware of any financing statements against the Seller that included a description of collateral covering all or any portion of the Acquired Assets except with respect to security interests that have been terminated. |
(l) | Assignability. If the Seller or one of its Subsidiaries is not the original payee of any Note evidencing a Purchased Loan, such Note has been duly and effectively transferred to the Seller in accordance with all applicable requirements of Law and in any event such Purchased Loan and the Note evidencing such Purchased Loan does not require notice to or consent from any Person (including the Borrower) with respect to transfer, sale or assignment of the rights and duties of the holder thereof and does not contain any provision that restricts the ability of the holder thereof or the Buyer to exercise its rights thereunder. |
(m) | No Modification of Purchased Loans. No Purchased Loan has been modified, extended or renegotiated in any way not provided for in the Note (as originally executed and delivered). |
(n) | Fully Disbursed. Each of the Purchased Loans is fully disbursed and provides that period payments must be made in order to fully amortize the amount financed over its term to maturity (exclusive of any deferral or forbearance periods). |
1. | Effective on the later of December 31, 2010 or the close of the transaction contemplated by the Separation Agreement between Citibank, N.A. (“CBNA”), The Student Loan Corporation (“SLC”) and Discover Bank (the “Transaction”), the Plan is amended to provide that any employee of Discover Financial Services or its Subsidiary Companies (as defined in the Plan) (“Company”) who was employed by CBNA or SLC on the day prior to the close of the Transaction shall be eligible to participate in the Plan beginning on the date such employee becomes an Eligible Employee. |
2. | Effective December 1, 2010, the Plan is amended to provide that for purposes of determining eligibility to participate in the Plan, any employee of the Company who was employed by an entity from which the Company bought assets or stock on the day immediately preceding the closing date of such purchase of assets or stock shall be given credit for all prior service with such entity, unless otherwise provided in the purchase agreement between the Company and the entity. |
3. | Section 4 is hereby amended effective December 1, 2008 to clarify the enrollment process by replacing the first sentence of the second paragraph with the following: |
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 |
Loan Receivables (Credit Risk Profile by FICO Score) (Details)
|
9 Months Ended |
---|---|
Aug. 31, 2011
|
|
Discover Card [Member]
|
|
Credit Risk Profile Less than 660 or No Score, Percentage | 21.00% |
Credit Risk Profile 660 and Above, Percentage | 79.00% |
Discover Business Card [Member]
|
|
Credit Risk Profile Less than 660 or No Score, Percentage | 13.00% |
Credit Risk Profile 660 and Above, Percentage | 87.00% |
Private Student Loans (Excluding PCI) [Member]
|
|
Credit Risk Profile Less than 660 or No Score, Percentage | 5.00% |
Credit Risk Profile 660 and Above, Percentage | 95.00% |
Personal Loans [Member]
|
|
Credit Risk Profile Less than 660 or No Score, Percentage | 5.00% |
Credit Risk Profile 660 and Above, Percentage | 95.00% |
Condensed Consolidated Statements of Financial Condition (Parenthetical) (USD $)
In Thousands, except Share data |
Aug. 31, 2011
|
Nov. 30, 2010
|
||||||
---|---|---|---|---|---|---|---|---|
Statement of Financial Position [Abstract] | ||||||||
Available-for-sale, amortized cost | $ 5,798,756 | [1] | $ 4,989,958 | [1] | ||||
Held-to-maturity, fair value | $ 51,189 | [2] | $ 70,195 | [2] | ||||
Common stock, par value | $ 0.01 | $ 0.01 | ||||||
Common stock, shares authorized | 2,000,000,000 | 2,000,000,000 | ||||||
Common stock, shares issued | 549,475,683 | 547,128,270 | ||||||
Treasury stock, shares | 11,278,326 | 2,446,506 | ||||||
|
Condensed Consolidated Statements of Income (USD $)
In Thousands, except Per Share data |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2011
|
Aug. 31, 2010
|
Aug. 31, 2011
|
Aug. 31, 2010
|
|
Interest income: | ||||
Credit card loans | $ 1,423,496 | $ 1,455,907 | $ 4,243,803 | $ 4,423,654 |
Other loans | 157,424 | 67,588 | 428,762 | 183,150 |
Investment securities | 15,676 | 5,574 | 42,535 | 15,966 |
Other interest income | 2,496 | 6,870 | 10,234 | 24,101 |
Total interest income | 1,599,092 | 1,535,939 | 4,725,334 | 4,646,871 |
Interest expense: | ||||
Deposits | 241,719 | 279,137 | 749,584 | 882,921 |
Short-term borrowings | 33 | 0 | 116 | 0 |
Long-term borrowings | 120,301 | 110,000 | 375,060 | 324,561 |
Total interest expense | 362,053 | 389,137 | 1,124,760 | 1,207,482 |
Net interest income | 1,237,039 | 1,146,802 | 3,600,574 | 3,439,389 |
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 |
Net interest income after provision for loan losses | 1,137,525 | 434,237 | 2,907,811 | 615,354 |
Other income: | ||||
Discount and interchange revenue, net | 282,889 | 273,932 | 809,631 | 805,209 |
Fee products revenue | 107,858 | 104,132 | 321,527 | 309,590 |
Loan fee income | 84,243 | 92,465 | 250,596 | 267,483 |
Transaction processing revenue | 43,931 | 40,184 | 131,792 | 109,570 |
Merchant fees | 4,110 | 7,220 | 12,981 | 23,091 |
Gain (loss) on investment | (3,614) | 18,951 | (3,622) | 19,131 |
Other income | 32,546 | 27,260 | 135,526 | 88,790 |
Total other income | 551,963 | 564,144 | 1,658,431 | 1,622,864 |
Other expense: | ||||
Employee compensation and benefits | 241,881 | 204,210 | 684,782 | 602,510 |
Marketing and business development | 133,398 | 130,532 | 393,244 | 313,175 |
Information processing and communications | 63,547 | 62,357 | 194,852 | 190,862 |
Professional fees | 106,042 | 85,289 | 301,122 | 239,169 |
Premises and equipment | 18,063 | 17,722 | 53,268 | 53,273 |
Other expense | 79,476 | 66,128 | 245,431 | 155,601 |
Total other expense | 642,407 | 566,238 | 1,872,699 | 1,554,590 |
Income before income tax expense | 1,047,081 | 432,143 | 2,693,543 | 683,628 |
Income tax expense | 398,263 | 171,526 | 979,414 | 268,482 |
Net income (loss) | 648,818 | 260,617 | 1,714,129 | 415,146 |
Net income allocated to common stockholders | $ 641,772 | $ 258,194 | $ 1,694,636 | $ 321,613 |
Basic earnings per share | $ 1.18 | $ 0.47 | $ 3.11 | $ 0.59 |
Diluted earnings per share | $ 1.18 | $ 0.47 | $ 3.11 | $ 0.58 |
Dividends paid per share | $ 0.06 | $ 0.02 | $ 0.14 | $ 0.06 |
Earnings Per Share (Schedule of Anti-Dilutive Securities Excluded from Computation of EPS) (Details)
In Thousands |
3 Months Ended | 9 Months Ended | ||
---|---|---|---|---|
Aug. 31, 2011
|
Aug. 31, 2010
|
Aug. 31, 2011
|
Aug. 31, 2010
|
|
Unexercised Stock Options [Member]
|
||||
Anti-dilutive securities excluded from computation of earnings per share amount | 348 | 3,944 | 374 | 3,418 |
Warrant Issued to the U.S. Treasury [Member]
|
||||
Anti-dilutive securities excluded from computation of earnings per share amount | 0 | 2,768 | 0 | 6,225 |
Unexercised Restricted Stock Units [Member]
|
||||
Anti-dilutive securities excluded from computation of earnings per share amount | 8 | 0 | 3 | 0 |
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, 2011
|
May 31, 2011
|
Nov. 30, 2010
|
Aug. 31, 2010
|
May 31, 2010
|
Nov. 30, 2009
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Allowance for loans evaluated for impairment | $ 2,273,058,000 | $ 2,632,320,000 | $ 3,304,118,000 | $ 3,743,721,000 | $ 3,930,624,000 | $ 1,757,899,000 | ||||||||
Recorded investment in loans evaluated for impairment | 53,344,069,000 | 48,048,312,000 | ||||||||||||
Unpaid principal balance of modified loans accounted for as troubled debt restructurings | 1,000,000,000 | |||||||||||||
Credit Card Receivable [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 2,153,870,000 | 3,208,888,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 46,177,673,000 | 45,156,994,000 | ||||||||||||
Credit Card Receivable [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 1,963,962,000 | [1] | 3,095,046,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 44,972,100,000 | [1] | 44,851,650,000 | [1] | ||||||||||
Credit Card Receivable [Member] | Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 189,908,000 | [2] | 113,842,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 1,205,573,000 | [2] | 305,344,000 | [2] | ||||||||||
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 Consumer Loans [Member] | Personal Loans [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 75,562,000 | 76,087,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 2,439,330,000 | 1,877,633,000 | ||||||||||||
Total Other Consumer Loans [Member] | Personal Loans [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 75,562,000 | [1] | 76,087,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 2,439,330,000 | [1] | 1,877,633,000 | [1] | ||||||||||
Total Other Consumer Loans [Member] | Personal 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 Consumer 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 Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 43,406,000 | [1] | 18,569,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 1,828,493,000 | [1] | 999,322,000 | [1] | ||||||||||
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [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 Consumer Loans [Member] | Other Consumer Loans [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 220,000 | 574,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 11,790,000 | 14,363,000 | ||||||||||||
Total Other Consumer Loans [Member] | Other Consumer Loans [Member] | Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 220,000 | [1] | 574,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 11,790,000 | [1] | 14,363,000 | [1] | ||||||||||
Total Other Consumer Loans [Member] | Other Consumer 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 Consumer Loans [Member] | Other Consumer 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 | 43,406,000 | 18,569,000 | ||||||||||||
Recorded investment in loans evaluated for impairment | 4,715,276,000 | 999,322,000 | ||||||||||||
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 | 2,886,783,000 | [3] | 0 | [3] | ||||||||||
Collectively Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 2,083,150,000 | [1] | 3,190,276,000 | [1] | ||||||||||
Recorded investment in loans evaluated for impairment | 49,251,713,000 | [1] | 47,742,968,000 | [1] | ||||||||||
Troubled Debt Restructurings [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 189,908,000 | [2] | 113,842,000 | [2] | ||||||||||
Recorded investment in loans evaluated for impairment | 1,205,573,000 | [2] | 305,344,000 | [2] | ||||||||||
Purchased Credit Impaired [Member]
|
||||||||||||||
Allowance for loans evaluated for impairment | 0 | [3] | 0 | [3] | ||||||||||
Recorded investment in loans evaluated for impairment | $ 2,886,783,000 | [3] | $ 0 | [3] | ||||||||||
|
Derivatives and Hedging Activities (Fair Value and Related Outstanding Notional Amounts of Derivative Instruments) (Details)
In Thousands, unless otherwise specified |
Aug. 31, 2011
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Other Assets [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Other Assets [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Other Liabilities [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Other Liabilities [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Cash Flow Hedge [Member]
Interest Rate Swap [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Other Assets [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Other Assets [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Other Liabilities [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Other Liabilities [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Fair Value Hedge [Member]
Interest Rate Swap [Member]
Designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Foreign Exchange Forward Contracts [Member]
EUR (€)
|
Nov. 30, 2010
Foreign Exchange Forward Contracts [Member]
GBP (£)
|
Aug. 31, 2011
Foreign Exchange Forward Contracts [Member]
Other Assets [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Foreign Exchange Forward Contracts [Member]
Other Assets [Member]
Not designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Foreign Exchange Forward Contracts [Member]
Other Liabilities [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Foreign Exchange Forward Contracts [Member]
Other Liabilities [Member]
Not designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Foreign Exchange Forward Contracts [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Foreign Exchange Forward Contracts [Member]
Not designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Interest Rate Swap [Member]
Other Assets [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Interest Rate Swap [Member]
Other Assets [Member]
Not designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Interest Rate Swap [Member]
Other Liabilities [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Interest Rate Swap [Member]
Other Liabilities [Member]
Not designated as hedges [Member]
USD ($)
|
Aug. 31, 2011
Interest Rate Swap [Member]
Not designated as hedges [Member]
USD ($)
|
Nov. 30, 2010
Interest Rate Swap [Member]
Not designated as hedges [Member]
USD ($)
|
||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Statement [Line Items] | ||||||||||||||||||||||||||||||||||
Notional Amount of Interest Rate Cash Flow Hedge Derivatives | $ 2,000,000 | $ 2,000,000 | ||||||||||||||||||||||||||||||||
Notional Amount of Interest Rate Fair Value Hedge Derivatives | 1,543,905 | 400,000 | ||||||||||||||||||||||||||||||||
Notional Amount of Foreign Currency Derivative Instruments Not Designated as Hedging Instruments | 4,000 | 1,700 | 8,471 | [1] | 7,800 | [1] | ||||||||||||||||||||||||||||
Notional Amount | 1,367,809 | 0 | ||||||||||||||||||||||||||||||||
Number of Transactions | 8 | 64 | 2 | [1] | 1 | |||||||||||||||||||||||||||||
Interest Rate Cash Flow Hedge Asset at Fair Value | 16,721 | 4,989 | ||||||||||||||||||||||||||||||||
Interest Rate Fair Value Hedge Asset at Fair Value | 38,998 | 0 | ||||||||||||||||||||||||||||||||
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Asset at Fair Value | 38 | [1] | 6 | [1] | ||||||||||||||||||||||||||||||
Interest Rate Derivative Instruments Not Designated as Hedging Instruments, Asset at Fair Value | 5,198 | 0 | ||||||||||||||||||||||||||||||||
Interest Rate Cash Flow Hedge Liability at Fair Value | 0 | 0 | ||||||||||||||||||||||||||||||||
Interest Rate Fair Value Hedge Liability at Fair Value | 4 | 6,587 | ||||||||||||||||||||||||||||||||
Foreign Currency Derivative Instruments Not Designated as Hedging Instruments, Liability at Fair Value | 0 | [1] | 7 | [1] | ||||||||||||||||||||||||||||||
Interest Rate Derivative Instruments Not Designated as Hedging Instrument Liability at Fair Value | $ 0 | $ 0 | ||||||||||||||||||||||||||||||||
|
Background and Basis of Presentation Background and Basis of Presentation (Policies)
|
9 Months Ended |
---|---|
Aug. 31, 2011
|
|
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] | 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 relatively liquid nature of these assets, particularly given the short maturities of the assets in which the restricted cash is invested. Other short-term investments. The carrying value of other short-term investments 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 maturities of less than one year. Available-for-sale investment securities. Investment securities classified as available-for-sale consist of credit card asset-backed securities issued by other financial institutions, U.S. Treasury and government agency securities, and corporate debt securities. The fair value for the U.S. Treasury and government agency securities are valued based on quoted market prices for the same or similar securities. The fair value estimation techniques for the credit card asset-backed securities issued by other financial institutions and corporate debt securities are discussed below. Held-to-maturity investment securities. Held-to-maturity investment securities are generally valued based on quoted market prices for the same or similar securities. Net loan receivables. The Company’s loan receivables are comprised of credit card and installment loans, including the private student loans acquired from SLC. To estimate the fair value of loan receivables, loans are aggregated into pools of similar loan types, characteristics and expected repayment terms. The fair values of all loan receivables are estimated by discounting expected future cash flows using rates at which similar loans could be made under current market conditions. Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps and foreign currency forward contracts. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and option volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. See Note 14: Derivatives and Hedging Activities for more information. Deposits. The carrying values of money market deposits, non-interest bearing deposits, interest-bearing demand deposits and savings deposits approximate fair value due to the 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. Federal Funds purchased and repurchase agreements 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. 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. Other long-term borrowings. Fair values of other long-term borrowings are determined utilizing current observable market prices for those transactions, if available. If there are no observable market transactions, then fair values 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis. ASC 820 defines fair value, establishes a fair value hierarchy that distinguishes between valuations that are based on observable inputs from those based on unobservable inputs, and requires certain disclosures about those measurements. In general, 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. 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. 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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability. on. Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended August 31, 2011 and 2010, the Company had no impairments related to these assets. As of August 31, 2011, the Company had not made any fair value elections with respect to any of its eligible assets and liabilities as permitted under ASC 825-10-25. |
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. |
Fair Value Disclosures (Estimated Fair Values of Financial Instruments) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
Nov. 30, 2010
|
---|---|---|
Statement [Line Items] | ||
Available-for-sale investment securities, fair value | $ 5,899,080 | $ 5,002,579 |
Derivative financial instruments, assets | 60,955 | 4,995 |
Derivative financial instruments, liabilities | 4 | 6,594 |
Variable Interest Entity, Primary Beneficiary [Member] | Carrying Value [Member]
|
||
Statement [Line Items] | ||
Restricted cash | 937,230 | 1,363,758 |
Long-term borrowings - owed to securitization investors, carrying value | 15,260,509 | 14,919,400 |
Variable Interest Entity, Primary Beneficiary [Member] | Estimated Fair Value [Member]
|
||
Statement [Line Items] | ||
Restricted cash | 937,230 | 1,363,758 |
Long-term borrowings - owed to securitization investors, carrying value | 15,698,374 | 15,148,534 |
Carrying Value [Member]
|
||
Statement [Line Items] | ||
Cash and cash equivalents | 3,957,525 | 5,098,733 |
Other short-term investments | 0 | 375,000 |
Available-for-sale investment securities, fair value | 5,899,080 | 5,002,579 |
Held-to-maturity investment securities, amortized cost | 53,088 | 72,816 |
Net loan receivables, carrying value | 51,809,393 | 45,532,295 |
Derivative financial instruments, assets | 60,955 | 4,995 |
Deposits | 37,586,884 | 34,413,383 |
Short-term borrowings | 100,000 | 0 |
Long-term borrowings - owed to securitization investors, carrying value | 2,457,691 | 2,786,328 |
Derivative financial instruments, liabilities | 4 | 6,594 |
Estimated Fair Value [Member]
|
||
Statement [Line Items] | ||
Cash and cash equivalents | 3,957,525 | 5,098,733 |
Other short-term investments | 0 | 375,000 |
Available-for-sale investment securities, fair value | 5,899,080 | 5,002,579 |
Held-to-maturity investment securities, amortized cost | 51,189 | 70,195 |
Net loan receivables, carrying value | 52,802,885 | 45,835,543 |
Derivative financial instruments, assets | 60,955 | 4,995 |
Deposits | 38,395,963 | 35,500,526 |
Short-term borrowings | 100,000 | 0 |
Long-term borrowings - owed to securitization investors, carrying value | 2,834,879 | 3,118,967 |
Derivative financial instruments, liabilities | $ 4 | $ 6,594 |
Document and Entity Information
|
9 Months Ended | |
---|---|---|
Aug. 31, 2011
|
Sep. 23, 2011
|
|
Document And Entity Information | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Aug. 31, 2011 | |
Document Fiscal Year Focus | 2011 | |
Document Fiscal Period Focus | Q3 | |
Entity Registrant Name | Discover Financial Services | |
Entity Central Index Key | 0001393612 | |
Current Fiscal Year End Date | --11-30 | |
Entity Filer Category | Large Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 549,637,090 |
Loan Receivables (Delinquent and Non-Accruing Loans) (Details) (USD $)
|
3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
|
Aug. 31, 2011
|
Nov. 30, 2010
|
||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | $ 583,082,000 | $ 583,082,000 | $ 908,306,000 | [1] | ||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 575,851,000 | 575,851,000 | 993,618,000 | [1] | ||||||
Financing Receivable, Recorded Investment, Past Due | 1,158,933,000 | 1,158,933,000 | 1,901,924,000 | [1] | ||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 510,371,000 | 510,371,000 | 853,757,000 | [1] | ||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 215,246,000 | [2] | 215,246,000 | [2] | 325,900,000 | [1],[2] | ||||
Estimated Gross Interest Income Based on Original Terms | 10,600,000 | 35,600,000 | ||||||||
Credit Card Receivable [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 556,059,000 | 556,059,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 565,056,000 | 565,056,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 1,121,115,000 | 1,121,115,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 502,407,000 | 502,407,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 209,293,000 | [2] | 209,293,000 | [2] | ||||||
Credit Card Receivable [Member] | Discover Card [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 553,174,000 | 553,174,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 561,127,000 | 561,127,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 1,114,301,000 | [1] | 1,114,301,000 | [1] | ||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 498,752,000 | 498,752,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 208,404,000 | 208,404,000 | ||||||||
Credit Card Receivable [Member] | Discover Business Card [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 2,885,000 | 2,885,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 3,929,000 | 3,929,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 6,814,000 | 6,814,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 3,655,000 | 3,655,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 889,000 | 889,000 | ||||||||
Total Other Consumer Loans [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 27,023,000 | 27,023,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 10,795,000 | 10,795,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 37,818,000 | 37,818,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 7,964,000 | 7,964,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 5,953,000 | [2] | 5,953,000 | [2] | ||||||
Total Other Consumer Loans [Member] | Personal Loans [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 14,170,000 | 14,170,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 6,446,000 | 6,446,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 20,616,000 | 20,616,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 5,814,000 | 5,814,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 3,527,000 | 3,527,000 | ||||||||
Total Other Consumer Loans [Member] | Private Student Loans (Excluding PCI) [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 12,415,000 | 12,415,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 2,150,000 | 2,150,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 14,565,000 | 14,565,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 2,150,000 | 2,150,000 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 0 | 0 | ||||||||
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable Recorded Investment 30 to 89 Days Past Due | 438,000 | 438,000 | ||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | 2,199,000 | 2,199,000 | ||||||||
Financing Receivable, Recorded Investment, Past Due | 2,637,000 | 2,637,000 | ||||||||
Financing Receivable, Recorded Investment, 90 Days Past Due and Still Accruing | 0 | 0 | ||||||||
Financing Receivable, Recorded Investment, Nonaccrual Status | 2,426,000 | 2,426,000 | ||||||||
Consumer Credit Card Financing Receivable [Member]
|
||||||||||
Financing Receivable, Recorded Investment, Past Due [Line Items] | ||||||||||
Financing Receivable, Recorded Investment, Equal to Greater than 90 Days Past Due | $ 36,400,000 | $ 36,400,000 | $ 35,000,000 | |||||||
|
Loan Receivables (Tables)
|
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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Loans and Leases Receivable Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Receivables | The Company has three portfolio segments: credit card loans, other consumer loans and purchased credit-impaired (“PCI”) student loans acquired in the SLC transaction (See Note 2: Business Combinations). Within these portfolio segments, the Company has classes of receivables which are depicted in the table below (dollars in thousands):
____________________________
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Delinquent and Non-Accruing Loans |
______________________
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Company's Net Charge-offs |
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Credit Risk Profile by FICO Score |
|
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Changes in the Company's Allowance for Loan Losses |
______________________
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Net Charge Offs of Interest and Fee Revenues on Loan Receivables |
_________________________
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Allowance for Loan Losses and Recorded Investment in Loan Portfolio |
_________________________
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Loans in the Company's Temporary, Permanent and External Programs |
____________________________
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Contractually Required Payments Receivable, Cash Flows Expected to be Collected and Fair Value as of the Acquisition Date |
______________________
|
[1],[2],[3] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Changes in Accretable Yield for 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, 2011 (dollars in millions):
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Loan Receivables (Loan Receivables) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
May 31, 2011
|
Nov. 30, 2010
|
Aug. 31, 2010
|
May 31, 2010
|
Nov. 30, 2009
|
|||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Loans held for sale | $ 738,382 | $ 788,101 | |||||||||||
Credit card loans | 46,177,673 | 45,156,994 | |||||||||||
Other Consumer Loans | 4,279,613 | 2,891,318 | |||||||||||
Acquired private student loans carrying amount | 2,886,783 | 0 | |||||||||||
Total loan portfolio | 53,344,069 | 48,048,312 | |||||||||||
Total loan receivables | 54,082,451 | 48,836,413 | |||||||||||
Allowance for loan losses | (2,273,058) | (2,632,320) | (3,304,118) | (3,743,721) | (3,930,624) | (1,757,899) | |||||||
Loans Receivable, Net | 51,809,393 | 45,532,295 | |||||||||||
Loans Held For Sale [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Loans held for sale | 738,382 | 788,101 | [1] | ||||||||||
Federal Student Loans Pledged as Collateral [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Loans held for sale | 463,900 | 500,200 | |||||||||||
Loan Portfolio [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Total loan portfolio | 53,344,069 | 48,048,312 | |||||||||||
Credit Card Receivable [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Credit card loans | 46,177,673 | 45,156,994 | |||||||||||
Total loan portfolio | 46,177,673 | 45,156,994 | |||||||||||
Allowance for loan losses | (2,153,870) | (3,208,888) | |||||||||||
Credit Card Receivable [Member] | Discover Card [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Credit card loans | 45,949,224 | 44,904,267 | [2] | ||||||||||
Credit Card Receivable [Member] | Investors Interest in Trust Debt [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Credit card loans | 16,900,000 | 19,500,000 | |||||||||||
Credit Card Receivable [Member] | Seller's Interest in Trust Debt [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Credit card loans | 17,000,000 | 14,900,000 | |||||||||||
Credit Card Receivable [Member] | Discover Business Card [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Credit card loans | 228,449 | 252,727 | |||||||||||
Total Other Consumer Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Other Consumer Loans | 4,279,613 | 2,891,318 | |||||||||||
Total Other Consumer Loans [Member] | Personal Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Total loan portfolio | 2,439,330 | 1,877,633 | |||||||||||
Allowance for loan losses | (75,562) | (76,087) | |||||||||||
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Total loan portfolio | 11,790 | 14,363 | |||||||||||
Allowance for loan losses | (220) | (574) | |||||||||||
PCI Student Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Acquired private student loans carrying amount | 2,886,783 | 0 | [3] | ||||||||||
Private Student Loans Eligible for Reimbursement [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Acquired private student loans carrying amount | 9,900 | ||||||||||||
Private Student Loans Pledged as Collateral [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Acquired private student loans carrying amount | 2,900,000 | ||||||||||||
Personal Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Other Consumer Loans | 2,439,330 | 1,877,633 | |||||||||||
Private Student Loans (Excluding PCI) [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Other Consumer Loans | 1,828,493 | 999,322 | |||||||||||
Other Consumer Loans [Member]
|
|||||||||||||
Accounts, Notes, Loans and Financing Receivable [Line Items] | |||||||||||||
Other Consumer Loans | $ 11,790 | $ 14,363 | |||||||||||
|
Commitments, Contingencies and Guarantees (Settlement Withholdings and Escrow Deposits) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
Nov. 30, 2010
|
---|---|---|
Commitments Contingencies and Guarantees [Abstract] | ||
Settlement withholdings and escrow deposits | $ 21,948 | $ 30,483 |
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Deposits
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Deposits | Deposits The Company offers its deposit products, including certificates of deposit, money market accounts, online savings accounts and Individual Retirement Account (IRA) certificates of deposit to customers through two channels: (i) through direct marketing, internet origination and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements with securities brokerage firms (“brokered deposits”). As of August 31, 2011 and November 30, 2010, the Company had approximately $24.5 billion and $20.6 billion, respectively, of direct-to-consumer deposits and approximately $13.0 billion and $13.7 billion, respectively, of brokered deposits.
_______________________
|
Credit Card and Student Loan Securitization Activities (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
|
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Transfers and Servicing of Financial Assets [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Value of Assets of the Company's Credit Card Consolidated Variable Interest Entities |
_______________________
|
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Investors' Interests and Related Excess Spreads |
______________________
______________________
|
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Carrying Value of Assets of the Company's Student Loan Consolidated Variable Interest Entities |
|
Investment Securities (Schedule of Fair Value, Amortized Cost, Gross Unrealized Gains and Gross Unrealized Losses) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
Nov. 30, 2010
|
||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|
Available-for-sale securities, amortized cost | $ 5,798,756 | [1] | $ 4,989,958 | [1] | ||||||||
Available-for-sale securities, gross unrealized gains | 100,325 | [1] | 15,660 | [1] | ||||||||
Available-for-sale securities, gross unrealized losses | (1) | [1] | (3,039) | [1] | ||||||||
Available-for-sale investment securities, fair value | 5,899,080 | [1] | 5,002,579 | [1] | ||||||||
Held-to-maturity investment securities, amortized cost | 53,088 | [2] | 72,816 | |||||||||
Held-to-maturity securities, gross unrealized gains | 1,024 | [2] | 1,150 | [2] | ||||||||
Held-to-maturity securities, gross unrealized losses | (2,923) | [2] | (3,771) | [2] | ||||||||
Held-to-maturity, fair value | 51,189 | [2] | 70,195 | [2] | ||||||||
Community Reinvestment Act [Member] | Other Debt Securities [Member]
|
||||||||||||
Held-to-maturity investment securities, amortized cost | 2,800 | 7,900 | ||||||||||
U.S. Treasury Securities [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 2,322,042 | 1,576,094 | [1] | |||||||||
Available-for-sale securities, gross unrealized gains | 49,213 | 344 | [1] | |||||||||
Available-for-sale securities, gross unrealized losses | 0 | (1,585) | [1] | |||||||||
Available-for-sale investment securities, fair value | 2,371,255 | [1] | 1,574,853 | [1] | ||||||||
Held-to-maturity investment securities, amortized cost | 550 | 550 | ||||||||||
Held-to-maturity securities, gross unrealized gains | 0 | 0 | [2],[3] | |||||||||
Held-to-maturity securities, gross unrealized losses | 0 | 0 | [2],[3] | |||||||||
Held-to-maturity, fair value | 550 | [2],[3] | 550 | [2],[3] | ||||||||
U.S. Government Agency Securities [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 2,627,392 | 1,888,909 | [1] | |||||||||
Available-for-sale securities, gross unrealized gains | 41,788 | 1,090 | [1] | |||||||||
Available-for-sale securities, gross unrealized losses | 0 | (1,298) | [1] | |||||||||
Available-for-sale investment securities, fair value | 2,669,180 | [1] | 1,888,701 | [1] | ||||||||
States and Political Subdivisions of States [Member]
|
||||||||||||
Held-to-maturity investment securities, amortized cost | 39,670 | 51,774 | ||||||||||
Held-to-maturity securities, gross unrealized gains | 219 | 281 | [2] | |||||||||
Held-to-maturity securities, gross unrealized losses | (2,923) | (3,771) | [2] | |||||||||
Held-to-maturity, fair value | 36,966 | [2] | 48,284 | [2] | ||||||||
Credit Card Asset-Backed Securities of Other Issuers [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 348,606 | 1,017,183 | [1] | |||||||||
Available-for-sale securities, gross unrealized gains | 8,335 | 13,983 | [1] | |||||||||
Available-for-sale securities, gross unrealized losses | 1 | (54) | [1] | |||||||||
Available-for-sale investment securities, fair value | 356,940 | [1] | 1,031,112 | [1] | ||||||||
Corporate Debt Securities [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 500,716 | 507,757 | [1] | |||||||||
Available-for-sale securities, gross unrealized gains | 989 | 241 | [1] | |||||||||
Available-for-sale securities, gross unrealized losses | 0 | (102) | [1] | |||||||||
Available-for-sale investment securities, fair value | 501,705 | [1] | 507,896 | [1] | ||||||||
Residential Mortgage-Backed Securities [Member]
|
||||||||||||
Held-to-maturity investment securities, amortized cost | 7,344 | 9,800 | ||||||||||
Held-to-maturity securities, gross unrealized gains | 805 | 869 | [2] | |||||||||
Held-to-maturity securities, gross unrealized losses | 0 | 0 | [2] | |||||||||
Held-to-maturity, fair value | 8,149 | [2] | 10,669 | [2] | ||||||||
Equity Securities [Member]
|
||||||||||||
Available-for-sale securities, amortized cost | 15 | [1] | ||||||||||
Available-for-sale securities, gross unrealized gains | 2 | [1] | ||||||||||
Available-for-sale securities, gross unrealized losses | 0 | [1] | ||||||||||
Available-for-sale investment securities, fair value | 17 | [1] | ||||||||||
Other Debt Securities [Member]
|
||||||||||||
Held-to-maturity investment securities, amortized cost | 5,524 | 10,692 | ||||||||||
Held-to-maturity securities, gross unrealized gains | 0 | 0 | [2],[4] | |||||||||
Held-to-maturity securities, gross unrealized losses | 0 | 0 | [2],[4] | |||||||||
Held-to-maturity, fair value | $ 5,524 | [2],[4] | $ 10,692 | [2],[4] | ||||||||
|
Business Combinations (Calculation of Trust Certificate Purchase Price) (Details) (Student Loan Corporation [Member], USD $)
In Millions |
Aug. 31, 2011
|
Dec. 31, 2010
Estimated Purchase Price [Member]
|
---|---|---|
Gross trust assets | $ 3,977 | $ 3,993 |
Less: 8.5% discount | (338) | (339) |
Net trust assets | 3,639 | 3,654 |
Less: Principal amount of and accrued interest on trust debt | (3,193) | (3,215) |
Trust certificate purchase price | $ 446 | $ 439 |
Investment Securities (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Investment Securities |
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Schedule of Fair Value, Amortized Cost, Gross Unrealized Gains and Gross Unrealized Losses |
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Schedule of Fair Value of Securities in a Continuous Unrealized Loss Position for Less than Twelve Months and more than Twelve Months |
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Maturities of Available-for-sale Debt Securities and Held-to-maturity Debt Securities |
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Commitments, Contingencies and Guarantees
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Aug. 31, 2011
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Commitments Contingencies and Guarantees [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Commitments, Contingencies and Guarantees | Commitments, Contingencies and Guarantees
Unused commitments to extend credit. At August 31, 2011, the Company had unused commitments to extend credit for consumer loans and commercial loans of approximately $164 billion. Such commitments arise primarily from agreements with customers for unused lines of credit on certain credit cards and certain other consumer loan products, provided there is no violation of conditions in the related agreement. These commitments, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualification. Commitments to purchase private student loans. Prior to its acquisition by Discover Bank on December 31, 2010, SLC had an agreement with Citibank providing for the origination and servicing of private student loans. Citibank would originate and fund such loans and, after final disbursement, SLC would purchase the loans from Citibank. This agreement between SLC and Citibank was terminated on December 31, 2010, at which time Discover Bank entered into an agreement with Citibank to purchase (i) eligible private student loans originated by Citibank prior to December 31, 2010 and (ii) any private student loans originated by Citibank on or after December 31, 2010 under a new loan origination agreement entered into between Citibank and SLC on December 31, 2010. Discover Bank has agreed to purchase the loans at the funded amount (plus accrued interest and less any capitalized fees for any loans first funded prior to December 31, 2010) and, for any loans first funded by Citibank on December 31, 2010 or later, pay a premium equal to 0.125%. Discover Bank completed the first purchase of loan participations under this agreement on January 3, 2011. The agreement has been amended to extend to December 31, 2012, effective only upon the closing of Discover Bank's purchase of private student loans from Citibank pursuant to an asset purchase agreement dated August 31, 2011. Although the agreement does not set forth a minimum or maximum amount of loans to be purchased, Discover Bank must purchase all eligible loans originated by Citibank, which the Company estimates to be $1.0 billion to $1.5 billion over the life of the agreement, as amended. As of August 31, 2011, Discover Bank had an outstanding commitment to purchase $88.2 million of loans under this agreement. Secured Borrowing Representations and Warranties. As part of the Company’s financing activities, the Company provides representations and warranties that certain assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is performed by the Company which is intended to ensure that asset guideline qualifications are met. If the assets pledged as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through the allocation of excess seller’s interest or from additional transfers from the unrestricted pool of receivables. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors’ interests would be triggered. In its student loan securitizations, the Company would generally repurchase the loans from the trust at the outstanding principal amount plus interest. The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests in credit card asset-backed securities plus the principal amount of any other outstanding secured borrowings. The Company has recorded substantially all of the maximum potential amount of future payments in long-term borrowings on the Company’s statement of financial condition. The Company has not recorded any incremental contingent liability associated with its secured borrowing representations and warranties. Management believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured borrowing arrangements, including an early amortization event, is low. Guarantees. The Company has obligations under certain guarantee arrangements, including contracts and indemnification agreements, which contingently require the Company to make payments to the guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. The Company’s use of guarantees is disclosed below by type of guarantee. Counterparty Settlement Guarantees. Diners Club and DFS Services LLC, on behalf of PULSE, have various counterparty exposures, which are listed below.
With regard to the counterparty settlement guarantees discussed above, the Company believes that the estimated amounts of maximum potential future payments are not representative of the Company’s actual potential loss exposure given Diners Club’s and PULSE’s insignificant historical losses from these counterparty exposures. As of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements for these counterparty exposures, and management believes that the probability of any payments under these arrangements is low. The Company also retains counterparty exposure for the obligations of Diners Club licensees that participate in the Citishare network, an electronic funds processing network. Through the Citishare network, Diners Club customers are able to access certain ATMs directly connected to the Citishare network. The Company’s maximum potential future payment under this counterparty exposure is limited to $15 million, subject to annual adjustment based on actual transaction experience. However, as of August 31, 2011, the Company had not recorded any contingent liability in the condensed consolidated financial statements related to this counterparty exposure, and management believes that the probability of any payments under this arrangement is low. Merchant Chargeback Guarantees. The Company issues and permits third parties to issue payment cards and owns and operates the Discover Network. The Company is contingently liable for certain transactions processed on the Discover Network in the event of a dispute between the payment card customer and a merchant. The contingent liability arises if the disputed transaction involves a merchant or merchant acquirer with whom the Discover Network has a direct relationship. If a dispute is resolved in the customer’s favor, the Discover Network will credit or refund the disputed amount to the Discover Network card issuer, who in turn credits its customer’s account. The Discover Network will then charge back the disputed amount of the payment card transaction to the merchant or merchant acquirer, where permitted by the applicable agreement, to seek recovery of amounts already paid to the merchant for payment card transactions. If the Discover Network is unable to collect the amount subject to dispute from the merchant or merchant acquirer (e.g., in the event of merchant default or dissolution) or after expiration of the time period for chargebacks in the applicable agreement, the Discover Network will bear the loss for the amount credited or refunded to the customer. In most instances, a loss by the Discover Network is unlikely to arise in connection with payments on card transactions because most products or services are delivered when purchased, and credits are issued by merchants on returned items in a timely fashion, thus minimizing the likelihood of cardholder disputes with respect to amounts paid by the Discover Network. However, where the product or service is not scheduled to be provided to the customer until a later date following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases. The maximum potential amount of obligations of the Discover Network arising as a result of such contingent obligations is estimated to be the portion of the total Discover Network transaction volume processed to date for which timely and valid disputes may be raised under applicable law and relevant issuer and customer agreements. There is no limitation on the maximum amount the Company may be liable to pay to issuers. However, the Company believes that such amount is not representative of the Company’s actual potential loss exposure based on the Company’s historical experience. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether the current or cumulative transaction volumes may include or result in disputed transactions.
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Business Combinations
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Aug. 31, 2011
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Business Combinations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Business Combinations | Business Combinations 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 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.
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Net assets acquired. The Company acquired net assets (including $155 million of cash) with an aggregate fair value of $572 million in exchange for cash consideration of $556 million, resulting in the recognition of a bargain purchase gain of approximately $16 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. Adjustments to these amounts may occur during 2011, as the Company completes its final valuation analysis of assets acquired and liabilities assumed.
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 five 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 $101 million indemnification asset at the acquisition date. 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 $1.1 billion as of August 31, 2011. The initial value of the indemnification asset is based on the insured portion of expected credit losses reflected in the initial carrying value of the related loans. 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 purchased credit-impaired (“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. |
Derivatives and Hedging Activities (Tables)
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value and Related Outstanding Notional Amounts of Derivative Instruments |
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Impact of the Derivative Instruments on Income |
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Income Taxes
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Aug. 31, 2011
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Income Tax Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Income Taxes | Income Taxes
The Company is under continuous examination by the IRS and the tax authorities for various states. The tax years under examination vary by jurisdiction; for example, the current IRS examination covers 1999 through the short period June 30, 2007 when Discover was a subsidiary of Morgan Stanley. The Company was recently notified by the IRS that the years 2008 through 2009, which are after Discover spun off from Morgan Stanley, are going to be audited. The Company regularly assesses the likelihood of additional assessments in each of the taxing jurisdictions resulting from these and subsequent years' examinations. As part of its audit of 1999 through 2005, the IRS has proposed additional tax assessments. In August 2010, the Company filed an appeal with the IRS to protest the proposed adjustments. The Company does not anticipate that a resolution of this matter will occur within the next twelve months as it is in the preliminary stage. Due to uncertainty of the outcome of the appeal, the Company is unable to determine if the total amount of unrecognized tax benefits will significantly increase or decrease within the next twelve months. However, the Company believes that its reserve is sufficient to cover any penalties and interest that would result in an increase in federal taxes due. |
Fair Value Disclosures
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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Fair Value Disclosures [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Fair Value Disclosures | Fair Value Disclosures The Company is required to disclose the fair value of financial instruments for which it is practical to estimate fair value. To obtain fair values, observable market prices are used if available. In some instances, observable market prices are not readily available and fair value is determined using present value or other techniques appropriate for a particular financial instrument. These techniques involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange. The use of different assumptions or estimation techniques may have a material effect on the estimated fair value amounts.
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 relatively liquid nature of these assets, particularly given the short maturities of the assets in which the restricted cash is invested. Other short-term investments. The carrying value of other short-term investments 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 maturities of less than one year. Available-for-sale investment securities. Investment securities classified as available-for-sale consist of credit card asset-backed securities issued by other financial institutions, U.S. Treasury and government agency securities, and corporate debt securities. The fair value for the U.S. Treasury and government agency securities are valued based on quoted market prices for the same or similar securities. The fair value estimation techniques for the credit card asset-backed securities issued by other financial institutions and corporate debt securities are discussed below. Held-to-maturity investment securities. Held-to-maturity investment securities are generally valued based on quoted market prices for the same or similar securities. Net loan receivables. The Company’s loan receivables are comprised of credit card and installment loans, including the private student loans acquired from SLC. To estimate the fair value of loan receivables, loans are aggregated into pools of similar loan types, characteristics and expected repayment terms. The fair values of all loan receivables are estimated by discounting expected future cash flows using rates at which similar loans could be made under current market conditions. Derivative financial instruments. The Company’s derivative financial instruments consist of interest rate swaps and foreign currency forward contracts. The valuation of these instruments is determined using widely accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity, and uses observable market-based inputs, including interest rate curves and option volatility. The fair values of interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments (or receipts) are based on an expectation of future interest rates (forward curves) derived from observable market interest rate curves. See Note 14: Derivatives and Hedging Activities for more information. Deposits. The carrying values of money market deposits, non-interest bearing deposits, interest-bearing demand deposits and savings deposits approximate fair value due to the 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. Federal Funds purchased and repurchase agreements 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. 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. Other long-term borrowings. Fair values of other long-term borrowings are determined utilizing current observable market prices for those transactions, if available. If there are no observable market transactions, then fair values 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. Assets and Liabilities Measured at Fair Value on a Recurring Basis. ASC 820 defines fair value, establishes a fair value hierarchy that distinguishes between valuations that are based on observable inputs from those based on unobservable inputs, and requires certain disclosures about those measurements. In general, 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. 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. 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. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and involves consideration of factors specific to the asset or liability.
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At August 31, 2011, amounts reported in credit card asset-backed securities issued by other institutions reflected senior-rated Class A securities having a par value of $302.0 million and more junior-rated Class B and Class C securities with par values of $32.0 million and $22.3 million, respectively. The Class A securities had a weighted-average coupon of 0.67% and a weighted-average remaining maturity of 12.9 months, the Class B, 0.52% and 14.1 months, respectively, and the Class C, 0.63% and 10.6 months, respectively. The assets underlying these securities are predominantly prime general-purpose credit card loan receivables. Amounts reported in corporate debt securities reflected AAA-rated corporate debt obligations issued under the Temporary Liquidity Guarantee Program (“TLGP”) that are guaranteed by the Federal Deposit Insurance Corporation (“FDIC”) with a par value of $495.0 million, a weighted-average coupon of 2.42% and a weighted-average remaining maturity of 8.6 months. Regarding the corporate debt obligations issued under TLGP, fair values estimates are derived utilizing a spread relative to an underlying benchmark curve which reflects the terms and conditions of specific instruments being valued. Regarding credit card asset-backed securities, the expected cash flow models used to derive fair value estimates utilize observable market data to the extent available and other valuation inputs such as benchmark yields, reported trades, broker quotes, issuer spreads, bids and offers, the priority of which may vary based on availability of information. The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis. Net transfers into and/or out of Level 3 are presented using beginning of the period fair values excluding purchases and other settlements. There were no Level 3 assets or liabilities measured at fair value on a recurring basis at any point during the quarter ended August 31, 2011.
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Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis. The Company also has assets that under certain conditions are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible assets. For these assets, measurement at fair value in periods subsequent to their initial recognition is applicable if one or more is determined to be impaired. During the three and nine months ended August 31, 2011 and 2010, the Company had no impairments related to these assets. As of August 31, 2011, the Company had not made any fair value elections with respect to any of its eligible assets and liabilities as permitted under ASC 825-1 |
Commitments, Contingencies and Guarantees (Narrative) (Details) (USD $)
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9 Months Ended |
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Aug. 31, 2011
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Private Student Loans [Member] | Minimum [Member]
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Range of loans to be purchased | $ 1,000,000,000 |
Private Student Loans [Member] | Maximum [Member]
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Range of loans to be purchased | 1,500,000,000 |
Private Student Loans [Member]
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Premium on loans funded by seller | 0.125% |
Commitments to Extend Credit [Member]
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Range of loans to be purchased | 164,000,000,000 |
Loan Purchase Commitments [Member]
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Commitments to extend credit | 88,200,000 |
Citishare Network Guarantee [Member] | ATM Guarantee [Member]
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Guarantor Obligations, Maximum Exposure, Undiscounted | $ 15,000,000 |
Earnings Per Share
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Aug. 31, 2011
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings Per Share | Earnings Per Share
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Derivatives and Hedging Activities (Impact of the Derivative Instruments on Income) (Details) (USD $)
In Thousands |
3 Months Ended | 9 Months Ended | ||
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Aug. 31, 2011
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Aug. 31, 2010
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Aug. 31, 2011
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Aug. 31, 2010
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Fair Value Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Derivative [Member] | Interest Expense [Member]
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Statement [Line Items] | ||||
Gain (loss) on derivatives | $ 38,802 | $ 0 | $ 47,014 | $ (26) |
Fair Value Hedging [Member] | Designated as hedges [Member] | Hedged Item [Member] | Interest Expense [Member]
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Statement [Line Items] | ||||
Change in Unrealized Gain (Loss) on Hedged Item in Fair Value Hedge | (34,183) | 0 | (38,917) | 70 |
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member]
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Statement [Line Items] | ||||
Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges, Pretax, Accumulated Other Comprehensive Income (Loss) | 13,113 | 251 | 11,711 | 251 |
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Interest Income [Member]
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Statement [Line Items] | ||||
Interest Rate Cash Flow Hedge Gain (Loss) Reclassified to Earnings, Net | 1,892 | 442 | 5,636 | 442 |
Cash Flow Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Other Comprehensive Income [Member]
|
||||
Statement [Line Items] | ||||
Unrealized Gain (Loss) on Interest Rate Cash Flow Hedges, Pretax, Accumulated Other Comprehensive Income (Loss) | 13,113 | 251 | 11,711 | 251 |
Fair Value Hedging [Member] | Interest Rate Swap [Member] | Designated as hedges [Member] | Interest Expense [Member]
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Statement [Line Items] | ||||
Interest expense - ineffectiveness | 34,715 | 0 | 38,924 | 0 |
Gain (Loss) on Components Excluded from Assessment of Interest Rate Fair Value Hedge Effectiveness | 4,087 | 0 | 8,090 | (26) |
Fair Value Hedging [Member] | Designated as hedges [Member] | Interest Expense [Member]
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Statement [Line Items] | ||||
Gain Loss on Interest Rate Fair Value Hedged Items Ineffectiveness | (32,575) | 0 | (34,064) | 0 |
Gain Loss on Components Excluded from Assessment of Interest Rate Fair Value Hedged Items Effectiveness | (1,608) | 0 | (4,853) | 70 |
Gain (loss) on derivatives | 6,511 | 442 | 13,733 | 486 |
Interest Rate Swap [Member] | Not designated as hedges [Member] | Other Income [Member]
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Statement [Line Items] | ||||
Gain (loss) on derivatives | (2,037) | 0 | (7,518) | 6 |
Foreign Exchange Forward [Member] | Not designated as hedges [Member] | Other Income [Member]
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||||
Statement [Line Items] | ||||
Gain (loss) on derivatives | 30 | (301) | (703) | 458 |
Not designated as hedges [Member]
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||||
Statement [Line Items] | ||||
Gain (loss) on derivatives | $ (2,007) | $ (301) | $ (8,221) | $ 464 |
Capital Adequacy (Tables)
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Aug. 31, 2011
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Compliance With Regulatory Capital Requirements Under Banking Regulations [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Capital Adequacy |
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Borrowings
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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Debt Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Disclosure | Borrowings
__________________________
Maturities. At August 31, 2011, long-term borrowings maturities during the remainder of 2011, over the next four years and thereafter were as follows (dollars in thousands):
The Company has an unsecured credit agreement that is effective through May 2012. The agreement provides for a revolving credit commitment of up to $2.4 billion (of which the Company may borrow up to 30% and Discover Bank may borrow up to 100% of the total commitment). As of August 31, 2011, the Company had no outstanding balances due under the facility. The credit agreement provides for a commitment fee on the unused portion of the facility, which can range from 0.07% to 0.175% depending on the index debt ratings. Loans outstanding under the credit facility bear interest at a margin above the Federal Funds rate, LIBOR, the EURIBOR or the Euro Reference rate. The terms of the credit agreement include various affirmative and negative covenants, including financial covenants related to the maintenance of certain capitalization and tangible net worth levels, and certain double leverage, delinquency and Tier 1 capital to managed loans ratios. The credit agreement also includes customary events of default with corresponding grace periods, including, without limitation, payment defaults, cross-defaults to other agreements evidencing indebtedness for borrowed money and bankruptcy-related defaults. The commitment may be terminated upon an event of default. The Company also has access to committed undrawn capacity through private securitizations to support the funding of its credit card loan receivables. As of August 31, 2011, the total commitment of secured credit facilities through private providers was $6.8 billion, of which $250 million had been used and was included in long-term borrowings at August 31, 2011. Access to the unused portions of the secured credit facilities is dependent upon the agreement with each of the providers which have various expirations in 2012, 2013 and 2014. Borrowings outstanding under each facility bear interest at a margin above LIBOR or the asset-backed commercial paper costs of each individual conduit provider. The terms of each agreement provide for a commitment fee to be paid on the unused capacity, and include various affirmative and negative covenants, including performance metrics and legal requirements similar to those required to issue any term securitization transaction. Short-Term Borrowings. Short-term borrowings consist of overnight Federal Funds purchased with original maturities less than one year. Total short-term borrowings as of August 31, 2011 were $100 million and the weighted-average interest rate was 0.06%. There were no outstanding short-term borrowings as of November 30, 2010. |
Loan Receivables (Information Regarding Net Charge-offs of Interest and Fee Revenues on Credit Card Loans ) (Details) (USD $)
In Thousands |
3 Months Ended | 9 Months Ended | |||||||
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Aug. 31, 2011
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Aug. 31, 2010
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Aug. 31, 2011
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Aug. 31, 2010
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Loans and Leases Receivable Disclosure [Abstract] | |||||||||
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) | $ 128,329 | $ 219,422 | [1] | $ 480,044 | [1] | $ 723,909 | [1] | ||
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income) | $ 22,807 | $ 58,331 | [1] | $ 86,762 | [1] | $ 228,039 | [1] | ||
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Condensed Consolidated Statements of Cash Flows (USD $)
In Thousands |
9 Months Ended | |
---|---|---|
Aug. 31, 2011
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Aug. 31, 2010
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Cash flows from operating activities | ||
Net income | $ 1,714,129 | $ 415,146 |
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||
Provision for loan losses | 692,763 | 2,824,035 |
Deferred income taxes | 351,854 | 63,131 |
Depreciation and amortization on premises and equipment | 66,274 | 68,130 |
Amortization of deferred revenues | (191,290) | (137,492) |
Other depreciation and amortization | (35,346) | 57,947 |
Gain (loss) on investment | (3,622) | 19,131 |
Loss (gain) on equipment | (3,242) | (1,930) |
Loss on loans sold | 28 | 439 |
Stock-based compensation expense | 33,690 | 29,554 |
Gain on purchase of business | 15,917 | 0 |
Net change in loans originated for sale | 49,719 | (118,557) |
Changes in assets and liabilities: | ||
(Increase) decrease in other assets | 32,339 | (230,385) |
Increase (decrease) in accrued expenses and other liabilities | 106,908 | (247,107) |
Net cash provided by operating activities | 2,812,015 | 2,706,762 |
Cash flows from investing activities | ||
Maturities of other short-term investments | 375,000 | 1,350,000 |
Purchases of other short-term investments | 0 | (375,000) |
Maturities and sales of available-for-sale investment securities | 786,463 | 540,526 |
Purchases of available-for-sale investment securities | (1,627,215) | (1,239,631) |
Maturities of held-to-maturity investment securities | 17,466 | 19,779 |
Purchases of held-to-maturity invetment securities | (550) | (549) |
Proceeds from sale of loans held for investment | 611 | 0 |
Net principal disbursed on loans held for investment | (3,074,805) | (2,035,023) |
Purchase of loan receivables | (596,163) | 0 |
Purchase of business, net of cash acquired | (401,158) | 0 |
Purchase of other investment | (15,000) | 0 |
Decrease in restricted cash-special dividend escrow | 0 | 643,311 |
Decrease (increase) in restricted cash-for securitization investors | 623,794 | 547,064 |
Proceeds from sale of equipment | 13 | 146 |
Purchases of premises and equipment | (70,053) | (29,538) |
Net cash used for investing activities | (3,981,597) | (578,915) |
Cash flows from financing activities | ||
Net increase (decrease) in short-term borrowings | 100,000 | 0 |
Proceeds from issuance of securitized debt | 2,500,000 | 1,000,000 |
Maturities of securitized debt | (5,114,986) | (8,560,528) |
Proceeds from issuance of other long-term borrowings | 0 | 1,003,427 |
Maturities of other long-term borrowings | (345,048) | (590,676) |
Proceeds from issuance of common stock | 17,928 | 0 |
Purchases of treasury stock | (207,560) | (8,145) |
Net increase (decrease) in deposits | 3,147,752 | 1,177,096 |
Proceeds from acquisition of deposits | 0 | 976,627 |
Redemption of preferred stock | 0 | (1,224,558) |
Repurchase of Warrants | 0 | 172,000 |
Dividend paid to Morgan Stanley | 0 | (775,000) |
Dividends paid on common and preferred stock | (69,712) | (59,455) |
Excess tax benefits related to stock-based compensation | 0 | 737 |
Net cash used for financing activities | 28,374 | (7,232,475) |
Net increase (decrease) in cash and cash equivalents | (1,141,208) | (5,104,628) |
Cash and cash equivalents, at beginning of period | 5,098,733 | 13,020,719 |
Cash and cash equivalents, at end of period | 3,957,525 | 7,916,091 |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | ||
Interest expense | 1,045,370 | 1,125,181 |
Income taxes, net of income tax refunds | 635,360 | 112,027 |
Non-cash transactions: | ||
Assumption of SLC debt | 2,921,372 | 0 |
Special dividend-Morgan Stanley | $ 0 | $ 33,757 |
Derivatives and Hedging Activities (Narrative) (Details) (USD $)
In Millions |
9 Months Ended |
---|---|
Aug. 31, 2011
|
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Derivative Instruments and Hedging Activities Disclosure [Abstract] | |
Cash flow hedge gain (loss) to be reclassified within twelve months | $ 7.7 |
Derivative, Collateral, Right to Reclaim Cash | 4 |
Additional collateral securities | $ 53 |
Investment Securities
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Investments, Debt and Equity Securities [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Investment Securities | Investment Securities
___________________________
_________________________
During the three and nine months ended August 31, 2011, the Company received $170.5 million and $803.9 million, respectively, of proceeds related to maturities or redemptions of investment securities, as compared to $159.7 million and $560.3 million for the three and nine months ended August 31, 2010, respectively. For the three and nine months ended August 31, 2011, approximately $165.0 million and $786.5 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers. For the three and nine months ended August 31, 2010, approximately $75.2 million and $469.6 million, respectively, of these proceeds related to maturities of credit card asset-backed securities of other issuers. The Company records unrealized gains and losses on its available-for-sale investment securities in other comprehensive income. For the three months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $61.0 million ($38.2 million after tax) and a net unrealized loss of $13.6 million ($8.5 million after tax), respectively, in other comprehensive income. For the nine months ended August 31, 2011 and 2010, the Company recorded a net unrealized gain of $87.7 million ($54.9 million after tax) and a net unrealized loss of $9.9 million ($6.3 million after tax), respectively, in other comprehensive income. Additionally for the nine months ended August 31, 2010, the Company reversed an unrealized gain of $7.5 million ($4.7 million after tax) from other comprehensive income upon liquidation of the collateral supporting the Golden Key U.S. LLC investment. At August 31, 2011 and November 30, 2010, the Company had $2.9 million and $3.5 million, respectively, of gross unrealized losses in a continuous loss position for more than 12 months on its held-to-maturity investment securities in states and political subdivisions of states. The Company believes the unrealized loss on these investments is the result of changes in interest rates subsequent to the Company’s acquisitions of these securities and that the reduction in value is temporary. The Company does not intend to sell these investments nor does it expect to be required to sell these investments before recovery of their amortized cost bases, but rather expects to collect all amounts due according to the contractual terms of these securities.
_____________________________
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Business Combinations (Fair Value of Assets Acquired and Liabilities Assumed) (Details) (USD $)
In Thousands |
Dec. 31, 2010
|
---|---|
Business Combinations [Abstract] | |
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value | $ 3,051,000 |
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value | 3,051,000 |
Student Loan Corporation [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 3,531,972 |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities | 2,959,550 |
Net assets acquired | 572,422 |
Student Loan Corporation [Member] | Loans Receivable [Member]
|
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Business Combinations [Abstract] | |
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value | 3,050,784 |
Certain Loans Acquired in Transfer Not Accounted for as Debt Securities, Acquired During Period, at Acquisition, at Fair Value | 3,050,784 |
Student Loan Corporation [Member] | Cash [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 155,347 |
Student Loan Corporation [Member] | Indemnification Asset [Member]
|
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 101,127 |
Student Loan Corporation [Member] | Intangible Assets [Member]
|
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 6,200 |
Student Loan Corporation [Member] | Customer Relationships [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 2,400 |
Student Loan Corporation [Member] | Trade Names [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 3,800 |
Student Loan Corporation [Member] | Other Assets [Member]
|
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Assets | 218,514 |
Student Loan Corporation [Member] | Debt [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities | 2,921,372 |
Student Loan Corporation [Member] | Other Liabilities [Member]
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Business Combinations [Abstract] | |
Business Combination, Recognized Identifiable Assets Acquired and Liabilities Assumed, Financial Liabilities | $ 38,178 |
Earnings Per Share (Tables)
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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Earnings Per Share [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of Basic and Diluted EPS |
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Schedule of Anti-dilutive Securities Excluded from Computation of EPS |
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Credit Card and Student Loan Securitization Activities (Narrative) (Details)
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3 Months Ended | 9 Months Ended |
---|---|---|
Aug. 31, 2011
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Aug. 31, 2011
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Transfers and Servicing of Financial Assets [Abstract] | ||
Excess spread rate minimum | 0.00% | |
Average excess spread rate calculation period, months | 3 months | |
Excess of the total investors' interests | 7.00% | |
Excess spread rate trigger | 4.50% | |
Increasing funding requirements as excess spread levels decline below preset levels | 0.00% |
Credit Card and Student Loan Securitization Activities (Investors' Interests and Related Excess Spreads) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
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Investors Interests | 16,948,175 | [1] | ||||||
Number of Series Outstanding | 35 | |||||||
Discover Card Master Trust I [Member]
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Investors Interests | 3,830,858 | [1] | ||||||
Number of Series Outstanding | 7 | |||||||
Discover Card Execution Note Trust (DiscoverSeries Notes) [Member]
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||||||||
Investors Interests | 13,117,317 | [1] | ||||||
Number of Series Outstanding | 28 | |||||||
Group Excess Spread Percentage [Member]
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||||||||
Three Month Rolling Average Excess Spread Percentage | 16.92% | [2],[3] | ||||||
Discover Series Excess Spread Percentage [Member]
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Three Month Rolling Average Excess Spread Percentage | 16.76% | [2],[3] | ||||||
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Loan Receivables (Changes in the Company's Allowance for Loan Losses) (Details) (USD $)
In Thousands |
3 Months Ended | 9 Months Ended | |||||||
---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
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Aug. 31, 2010
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Aug. 31, 2011
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Aug. 31, 2010
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Balance at beginning of year | $ 2,632,320 | $ 3,930,624 | $ 3,304,118 | $ 1,757,899 | |||||
Addition to allowance related to securitized receivables | 0 | 0 | [1] | 0 | [1] | 2,144,461 | [1] | ||
Provision for loan losses | 99,514 | 712,565 | 692,763 | 2,824,035 | |||||
Total charge-offs | (608,482) | (1,022,068) | (2,162,233) | (3,327,536) | |||||
Total recoveries | (149,706) | (122,600) | (438,410) | (344,862) | |||||
Net Charge-offs | (458,776) | (899,468) | (1,723,823) | (2,982,674) | |||||
Balance at end of year | 2,273,058 | 3,743,721 | 2,273,058 | 3,743,721 | |||||
Credit Card Receivable [Member]
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|||||||||
Balance at beginning of year | 3,208,888 | ||||||||
Total charge-offs | (588,950) | (997,422) | (2,103,124) | (3,254,149) | |||||
Total recoveries | (149,202) | (122,130) | (436,876) | (343,853) | |||||
Balance at end of year | 2,153,870 | 2,153,870 | |||||||
Credit Card Receivable [Member] | Discover Card [Member]
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|||||||||
Total charge-offs | (584,534) | (982,920) | (2,085,452) | (3,203,959) | |||||
Total recoveries | (148,292) | (121,255) | (434,141) | (341,337) | |||||
Credit Card Receivable [Member] | Discover Business Card [Member]
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|||||||||
Total charge-offs | (4,416) | (14,502) | (17,672) | (50,190) | |||||
Total recoveries | (910) | (875) | (2,735) | (2,516) | |||||
Total Other Consumer Loans [Member]
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|||||||||
Total charge-offs | (19,532) | (24,646) | (59,109) | (73,387) | |||||
Total recoveries | (504) | (470) | (1,534) | (1,009) | |||||
Total Other Consumer Loans [Member] | Personal Loans [Member]
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|||||||||
Balance at beginning of year | 76,087 | ||||||||
Total charge-offs | (16,458) | (23,836) | (52,438) | (70,957) | |||||
Total recoveries | (458) | (421) | (1,458) | (942) | |||||
Balance at end of year | 75,562 | 75,562 | |||||||
Total Other Consumer Loans [Member] | Federal Student Loans [Member]
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|||||||||
Total charge-offs | 0 | (11) | 0 | (308) | |||||
Total Other Consumer Loans [Member] | Other Consumer Loans [Member]
|
|||||||||
Balance at beginning of year | 574 | ||||||||
Total charge-offs | (411) | (139) | (1,025) | (858) | |||||
Total recoveries | (1) | (35) | (3) | (45) | |||||
Balance at end of year | 220 | 220 | |||||||
Total Other Consumer Loans [Member] | Private Student Loans [Member]
|
|||||||||
Total charge-offs | (2,663) | (660) | (5,646) | (1,264) | |||||
Total recoveries | $ (45) | $ (14) | $ (73) | $ (22) | |||||
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Deposits (Certificates of Deposits) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
---|---|
Deposits [Abstract] | |
2011 | $ 2,650,831 |
2012 | 10,787,166 |
2013 | 5,939,329 |
2014 | 2,576,005 |
2015 | 1,949,946 |
Thereafter | $ 1,768,938 |
Loan Receivables
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9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Aug. 31, 2011
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Loans and Leases Receivable Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Loan Receivables | Loan Receivables The Company has three portfolio segments: credit card loans, other consumer loans and purchased credit-impaired (“PCI”) student loans acquired in the SLC transaction (See Note 2: Business Combinations). Within these portfolio segments, the Company has classes of receivables which are depicted in the table below (dollars in thousands):
____________________________
Credit Quality Indicators. The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in determining its allowance for loan losses. Credit card and closed-end consumer loan receivables are placed on nonaccrual status upon receipt of notification of the bankruptcy or death of a customer or suspected fraudulent activity on an account. In some cases of suspected fraudulent activity, loan receivables may resume accruing interest upon completion of the fraud investigation. Information related to the delinquencies and net charge-offs in the Company’s loan portfolio, which excludes loans held for sale, is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “Purchased Credit-Impaired Loans” (dollars in thousands):
______________________
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 score, relating to the customer’s broader credit performance. FICO scores are generally obtained at origination of the account and monthly or quarterly thereafter. The following table provides the most recent FICO scores available for the Company’s customers as of August 31, 2011, as a percentage of each class of loan receivables:
Allowance for Loan Losses. The Company maintains an allowance for loan losses at an appropriate level to absorb probable losses inherent in the loan portfolio. The Company considers the collectibility of all amounts contractually due on its loan receivables, including those components representing interest and fees. Accordingly, the allowance for loan losses represents the estimated uncollectible principal, interest and fee components of loan receivables. The allowance is evaluated monthly and is maintained through an adjustment to the provision for loan losses. Charge-offs of principal amounts of loans outstanding are deducted from the allowance and subsequent recoveries of such amounts increase the allowance. Charge-offs of loan balances representing unpaid interest and fees result in a reversal of interest and fee income, respectively, which is effectively a reclassification of provision for loan loss. For its credit card loan receivables, the Company bases its allowance for loan losses on several analyses that help estimate incurred losses as of the balance sheet date. While the Company’s estimation process includes historical data and analysis, there is a significant amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the allowance. The Company uses a migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. The loan balances used in the migration analysis represent all amounts contractually due and, as a result, the migration analysis captures principal, interest and fee components in estimating uncollectible accounts. The Company uses other analyses to estimate losses incurred on non-delinquent accounts. The considerations in these analyses include past performance, risk management techniques applied to various accounts, historical behavior of different account vintages, current economic conditions, recent trends in delinquencies, bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates, and forecasting uncertainties. The Company does not identify individual loans for impairment, but instead estimates its allowance for credit card loan losses on a pooled basis, which includes loans that are delinquent and/or no longer accruing interest. For its other consumer loans, the Company considers historical and forecasted estimates of incurred losses in estimating the related allowance for loan losses. The Company may also consider other factors, such as current economic conditions, recent trends in delinquencies and bankruptcy filings, account collection management, policy changes, account seasoning, loan volume and amounts, payment rates and forecasting uncertainties. The following table provides changes in the Company’s allowance for loan losses for the three and nine months ended August 31, 2011 and 2010 (dollars in thousands):
______________________
_________________________
The following table provides additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio (which excludes loans held for sale) by impairment methodology (dollars in thousands):
_________________________
Impaired Loans and Troubled Debt Restructurings. The Company has loan modification programs that provide for temporary or permanent hardship relief for credit card loans to borrowers experiencing financial hardship. The temporary hardship program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than twelve months. The permanent workout program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. These programs do not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. The Company also makes loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program (referred to below as external programs). These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. Credit card loan receivables modified and included in a temporary, permanent or external program are accounted for as a troubled debt restructuring and are recorded at their present value with impairment measured as the difference between the loan balance and the discounted present value of cash flows expected to be collected. Consistent with the Company’s measurement of impairment of modified loans on a pooled basis, the Company uses as its discount rate the average current annual percentage rate it applies to non-impaired credit card loans, similar to what would have applied to the pool of modified loans prior to impairment.
____________________________
Purchased Credit-Impaired Loans. Purchased loans with evidence of credit deterioration after origination for which it is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. The private student loans acquired in The Student Loan Corporation transaction comprise the Company’s only PCI loans at August 31, 2011. PCI loans are subject to interest income recognition on the basis of expected cash flows rather than contractual cash flows, pursuant to ASC Subtopic 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality. The Company accounts for the entire portfolio of acquired private student loans on the basis of expected cash flows. The loan portfolio was acquired at a discount related, at least in part, to a decline in the credit quality of the loans after their origination, and management has concluded it is probable that it will be unable to collect all contractually required payments due. However, the Company is unable to specifically identify which loans it will be unable to collect. The PCI student loans were aggregated into pools based on common risk characteristics. Loans were grouped primarily on the basis of origination date as loans originated in a particular year generally reflect the application of common origination strategies and/or underwriting criteria. Because student loan payments are deferred while a student is in school and all loans in deferment are considered performing, the segmentation between performing and non-performing loans is not considered an accurate risk indicator and was therefore not used as a basis for segmentation. The loan pools match the composition of the securitization trusts in which the acquired loans are held. Each pool is accounted for as a single asset and each has a single composite interest rate, total contractual cash flows and total expected cash flows. As of the December 31, 2010 acquisition date, the PCI student loans had an aggregate outstanding balance of approximately $3.8 billion, including accrued interest, and a fair value (initial carrying value) of approximately $3.1 billion. Of the $3.8 billion aggregate outstanding balance of loans acquired, loans with an aggregate outstanding balance of approximately $31 million were non-performing as of the acquisition date. PCI student loans had an outstanding balance of $3.4 billion, including accrued interest, and a related carrying amount of $2.9 billion as of August 31, 2011. At the time of acquisition, these loans were recorded at fair value. The Company estimated the initial fair value of the acquired loans based on the cash flows expected to be collected, discounted at a market rate of interest. Expected cash flows used in the initial fair value measurement reflect the effect of expected losses and prepayments as well as anticipated changes in the interest rate indices applicable to these variable rate loans. Interest income is recognized on each pool of PCI student loans through accretion on a level-yield basis over the life of the loan pool of the difference between the carrying amount of the loan pool and the expected cash flows (accretable yield). The initial estimate of the fair value of the PCI student loans includes the impact of expected credit losses, and therefore, no allowance for loan losses was recorded at the purchase date. The difference between contractually required cash flows and cash flows expected to be collected, as measured at the acquisition date, is referred to as the non-accretable difference. Charge-offs are absorbed by the non-accretable difference and do not result in a charge to earnings. The estimate of cash flows expected to be collected is updated each reporting period to reflect management’s latest assumptions about expected credit losses and borrower prepayments, and interest rates in effect in the current period. To the extent expected credit losses increase after the date of acquisition, the Company must record an allowance for loan losses through the provision for loan losses, which would reduce net income. There has not been any significant credit deterioration since the acquisition date, and therefore no allowance has been established for the PCI student loans at August 31, 2011. Changes in expected cash flows related to changes in prepayments or interest rate indices for variable rate loans generally are recorded prospectively as adjustments to interest income. To the extent that a significant increase in cash flows due to lower expected losses is deemed probable, the Company will first reverse any previously established allowance for loan losses and then increase the amount of remaining accretable yield. The increase to yield would be recognized prospectively over the remaining life of the loan pool. An increase in the accretable yield would reduce the remaining non-accretable difference available to absorb subsequent charge-offs. Certain PCI student loans in one of the pools are covered by an indemnification agreement with Citibank for credit losses. The indemnified loans are presented along with all other PCI student loans and the related indemnification asset is recognized as a separate asset on the Company’s condensed consolidated statement of financial condition. See Note 2: Business Combinations for a description of the indemnification asset.
______________________
The following table provides changes in accretable yield for the acquired loans for the three and nine month periods ended August 31, 2011 (dollars in millions):
During the nine months ended August 31, 2011, the Company reclassified $91 million from non-accretable difference because of an increase in expected cash flows. This amount will be recognized prospectively as an adjustment to yield over the remaining life of the pools. At August 31, 2011, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which includes loans not yet in repayment) were 2.60% and 0.83% , respectively. These rates include private student loans that are greater than 120 days delinquent that are covered by an indemnification agreement or insurance arrangements through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans for the three and nine months ended August 31, 2011 was 1.23% and 1.22%, respectively. |
Commitments, Contingencies and Guarantees (Merchant Chargeback Guarantee) (Details) (Merchant Chargebacks [Member], USD $)
|
3 Months Ended | 9 Months Ended | ||||||||
---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
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Aug. 31, 2010
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Aug. 31, 2011
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Aug. 31, 2010
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Merchant Chargebacks [Member]
|
||||||||||
Losses related to merchant chargebacks | $ 291,000 | $ 1,036,000 | $ 1,625,000 | $ 2,294,000 | ||||||
Aggregate sales transaction volume | $ 28,416,000,000 | [1] | $ 25,990,000,000 | [1] | $ 81,051,000,000 | [1] | $ 74,645,000,000 | [1] | ||
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Investment Securities (Schedule of Investment Securities) (Details) (USD $)
In Thousands |
Aug. 31, 2011
|
Nov. 30, 2010
|
|||
---|---|---|---|---|---|
Total investment securities | $ 5,952,168 | $ 5,075,395 | |||
U.S. Treasury Securities [Member]
|
|||||
Total investment securities | 2,371,805 | 1,575,403 | |||
U.S. Government Agency Securities [Member]
|
|||||
Total investment securities | 2,669,180 | 1,888,701 | |||
States and Political Subdivisions of States [Member]
|
|||||
Total investment securities | 39,670 | 51,774 | |||
Total Other Securities [Member]
|
|||||
Total investment securities | 871,513 | 1,559,517 | |||
Credit Card Asset-Backed Securities of Other Issuers [Member]
|
|||||
Total investment securities | 356,940 | 1,031,112 | |||
Corporate Debt Securities [Member]
|
|||||
Total investment securities | 501,705 | 507,896 | [1] | ||
Residential Mortgage-Backed Securities [Member]
|
|||||
Total investment securities | 7,344 | 9,800 | |||
Other Debt and Equity Securities [Member]
|
|||||
Total investment securities | $ 5,524 | $ 10,709 | |||
|
Deposits (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
|
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Deposits [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Bearing Deposit Accounts |
_______________________
|
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Deposit Maturities |
|
Borrowings (Summary of Long-Term Borrowings and Weighted Average Interest Rate) (Details) (USD $)
In Thousands, unless otherwise specified |
3 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 9 Months Ended | 3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 20, 2011
|
Aug. 31, 2011
|
Nov. 30, 2010
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Minimum [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]
Libor [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Minimum [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2011 To 2015 Member
Libor [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Maximum [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]
Libor [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Maximum [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2011 To 2015 Member
Libor [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
|
Nov. 30, 2010
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]
|
Nov. 30, 2010
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]
|
Nov. 30, 2010
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]
Prime Rate [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member]
|
Nov. 30, 2010
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $2,927 [Member]
Prime Rate [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member]
|
Nov. 30, 2010
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member]
|
Aug. 31, 2011
SLC Private Student Loan Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Premium of $6,894 [Member]
Libor [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
0.79% of Long Term Borrowings [Member]
|
Nov. 30, 2010
Discover Bank [Member]
Secured Debt [Member]
0.79% of Long Term Borrowings [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
0.79% of Long Term Borrowings [Member]
Commercial Paper Rate [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing December 2010 [Member]
|
Nov. 30, 2010
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing December 2010 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing December 2010 [Member]
Libor [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing August 2013 [Member]
|
Nov. 30, 2010
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing August 2013 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Secured Debt [Member]
Floating Rate Secured Borrowing Maturing August 2013 [Member]
Commercial Paper Rate [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Floating Rate Asset Backed Securities And Other Borrowings [Member]
Secured Debt [Member]
|
Nov. 30, 2010
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Floating Rate Asset Backed Securities And Other Borrowings [Member]
Secured Debt [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Floating Rate Asset Backed Securities And Other Borrowings [Member]
Secured Debt [Member]
Commercial Paper Rate [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
|
Nov. 30, 2010
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Fixed Rate Asset Backed Securities Including Discount of $1,339 [Member]
|
Nov. 30, 2010
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Fixed Rate Asset Backed Securities Including Discount of $1,339 [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2011 To 2015 Member
|
Nov. 30, 2010
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2011 To 2015 Member
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2012 [Member]
|
Nov. 30, 2010
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2012 [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset Backed Securities Due 2012 [Member]
Libor [Member]
|
Aug. 31, 2011
Discover Card Master Trust I and Discover Card Execution Note Trust [Member]
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $238,629 [Member]
|
Aug. 31, 2011
Secured Debt [Member]
Floating Rate Asset-Backed Securities Including Discount of $3,847 [Member]
|
Aug. 31, 2011
Secured Debt [Member]
Long-Term Borrowings-owed to Securitization Investors [Member]
|
Nov. 30, 2010
Secured Debt [Member]
Long-Term Borrowings-owed to Securitization Investors [Member]
|
Aug. 31, 2011
Parent Company [Member]
Corporate Debt Securities [Member]
Fixed Rate Senior Notes Due 2017 [Member]
|
Nov. 30, 2010
Parent Company [Member]
Corporate Debt Securities [Member]
Fixed Rate Senior Notes Due 2017 [Member]
|
Aug. 31, 2011
Parent Company [Member]
Corporate Debt Securities [Member]
Fixed Rate Senior Notes Due 2019 [Member]
|
Nov. 30, 2010
Parent Company [Member]
Corporate Debt Securities [Member]
Fixed Rate Senior Notes Due 2019 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Subordinated Debt [Member]
Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]
|
Nov. 30, 2010
Discover Bank [Member]
Subordinated Debt [Member]
Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Subordinated Debt [Member]
Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]
|
Nov. 30, 2010
Discover Bank [Member]
Subordinated Debt [Member]
Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]
|
Aug. 31, 2011
Capital Lease Obligations [Member]
|
Nov. 30, 2010
Capital Lease Obligations [Member]
|
Aug. 31, 2011
Parent Company [Member]
Fixed Rate Senior Notes Due 2017 [Member]
|
Nov. 30, 2010
Parent Company [Member]
Fixed Rate Senior Notes Due 2017 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Fixed Rate Senior Notes Due 2017 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Subordinated Bank Notes Due 2019 Including Discount of $1,483 [Member]
|
Aug. 31, 2011
Discover Bank [Member]
Subordinated Bank Notes Due 2020 Including Discount Of $2,988 [Member]
|
Sep. 20, 2011
Libor [Member]
|
||||||||||||||||||||
Debt Instrument [Line Items] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate | 0.45% | 4.25% | 4.00% | 3.71% | 0.00% | 0.79% | 0.00% | 0.70% | 0.72% | [1] | 0.66% | [1] | 0.89% | 0.98% | 5.65% | 5.47% | 0.77% | 0.75% | 0.59% | 0.63% | 6.45% | 6.45% | 10.25% | 10.25% | 8.70% | 8.70% | 7.00% | 7.00% | 0.00% | 6.26% | ||||||||||||||||||||||||||||||||||||||||||||||||||
Interest Rate Terms | 3-month LIBOR(1) + 7 to 45 basis points | [2] | Prime rate +100 basis points | Prime rate + 75 basis points | 1-month LIBOR(1) + 350 basis points | [2] | Commercial Paper rate + 50 basis points | 1-month LIBOR(1) + 45 basis points | [2] | Commercial Paper rate + 50 basis points | [1] | Commercial Paper rate + 70 basis points | Various fixed rates | 1-month LIBOR(1) + 3 to 130 basis points | [2] | 3-month LIBOR(1) + 34 basis points | [2] | Fixed | Fixed | Fixed | Fixed | Fixed | one-month LIBOR plus 21 basis points | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long term borrowing maturity period | three years | Various April 2018— July 2036(2) | [3] | July 2042(2) | [3] | July 2042(2) | [3] | December 2010 | December 2010 | August 2013(4) | [1] | April 2013 | Various June 2013— September 2017 | Various September 2011— September 2015 | December 2012 | June 2031(2) | [3] | June 2017 | July 2019 | November 2019 | April 2020 | June 2011 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long-term Debt and Capital Lease Obligations | $ 17,718,200 | $ 17,705,728 | $ 2,640,794 | $ 0 | $ 1,436,906 | $ 0 | $ 648,407 | $ 0 | $ 165,597 | $ 0 | $ 389,884 | $ 0 | $ 0 | $ 93,980 | $ 0 | $ 212,336 | $ 454,178 | [1] | $ 492,910 | [1] | $ 250,000 | $ 450,000 | $ 12,619,715 | $ 14,919,400 | $ 1,748,660 | $ 2,598,343 | $ 9,371,055 | $ 10,621,057 | $ 1,250,000 | $ 1,250,000 | $ 15,260,509 | $ 14,919,400 | $ 407,984 | $ 391,579 | $ 400,000 | $ 400,000 | $ 698,517 | $ 698,382 | $ 497,012 | $ 496,753 | $ 0 | $ 388 | ||||||||||||||||||||||||||||||||||||||
Fair value adjustment | 8,456 | [4] | (7,888) | [4] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Long term borrowing book value including discount of $492 | 399,528 | 399,467 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Discount | 3,847 | 1,339 | 238,629 | 472 | 1,483 | 2,988 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Premium | $ 2,927 | $ 6,894 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Instrument, Basis Spread on Variable Rate | 0.07% | 0.03% | 0.45% | 1.30% | 1.00% | 0.75% | 3.50% | 0.50% | 0.45% | 0.50% | 0.70% | 0.34% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Instrument, Maturity Date Range, Start | April 2018 | June 2013 | September 2011 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Debt Instrument, Maturity Date Range, End | July 2036 | September 2017 | September 2015 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
|
Subsequent Events (Details) (USD $)
In Millions, except Per Share data, unless otherwise specified |
3 Months Ended | 9 Months Ended | 3 Months Ended | 1 Months Ended | 3 Months Ended | |
---|---|---|---|---|---|---|
Sep. 20, 2011
|
Aug. 31, 2011
|
Sep. 20, 2011
Libor [Member]
Issuance of Debt [Member]
|
Sep. 20, 2011
Issuance of Debt [Member]
|
Sep. 30, 2011
Dividend Declared [Member]
|
Sep. 20, 2011
Libor [Member]
|
|
Subsequent Event [Line Items] | ||||||
Dividends payable, amount per share | $ 0.06 | |||||
Dividends payable, date declared, day, month and year | Sep. 14, 2011 | |||||
Dividends payable, date of record, day, month and year | Oct. 06, 2011 | |||||
Dividends payable, date to be paid, day, month and year | Oct. 20, 2011 | |||||
Public credit card asset-backed securities issued by Company | $ 800 | |||||
Rate of 1M LIBOR plus 21 | one-month LIBOR plus 21 basis points | |||||
Long term borrowing maturity period | three years | |||||
Debt Instrument, Basis Spread on Variable Rate | 0.20% |
Litigation (Details) (Pending or Threatened Litigation [Member], USD $)
|
Aug. 31, 2011
|
---|---|
Pending or Threatened Litigation [Member]
|
|
Aggregate range of reasonably possible losses, minimum | $ 0 |
Aggregate range of reasonably possible losses, maximum | $ 40,000,000 |
Deposits (Narrative) (Details) (USD $)
In Billions |
Aug. 31, 2011
|
Nov. 30, 2010
|
---|---|---|
Deposits [Abstract] | ||
Direct-to-consumer deposits | $ 24.5 | $ 20.6 |
Brokered deposits | $ 13.0 | $ 13.7 |
Commitments, Contingencies and Guarantees (Tables)
|
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Aug. 31, 2011
|
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Lease Commitments |
|
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Settlement Withholdings and Escrow Deposits |
|
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Counterparty Settlement Guarantees [Member]
|
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Maximum Potential Counterparty Exposures Related to Settlement Guarantees |
|
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Merchant Chargeback Guarantees [Member]
|
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Maximum Potential Counterparty Exposures Related to Settlement Guarantees |
________________
|