Discover 2009 Annual Report Download - page 148

The following table provides the estimated fair values of financial instruments (dollars in thousands):
November 30, 2009 November 30, 2008
Carrying
Value
Estimated
Fair Value
Carrying
Value
Estimated
Fair Value
Financial Assets
Cash and cash equivalents............................................................................................. $13,020,719 $13,020,719 $10,171,143 $10,171,143
Restricted cash ............................................................................................................. $ 643,311 $ 643,311 $ — $ —
Other short-term investments .......................................................................................... $ 1,350,000 $ 1,350,000 $ — $ —
Investment securities:
Available-for-sale...................................................................................................... $ 2,645,481 $ 2,645,481 $ 1,127,119 $ 1,127,119
Held-to-maturity........................................................................................................ $ 2,389,816 $ 1,953,990 $ 100,825 $ 84,167
Net loan receivables ..................................................................................................... $21,867,185 $21,984,317 $23,842,026 $24,058,173
Amounts due from asset securitization ............................................................................. $ 1,692,051 $ 1,692,051 $ 2,233,600 $ 2,233,600
Derivative financial instruments....................................................................................... $ 1,369 $ 1,369 $ 4,102 $ 4,102
Financial Liabilities
Deposits...................................................................................................................... $32,093,012 $33,139,823 $28,530,521 $28,715,427
Short-term borrowings .................................................................................................. $ — $ — $ 500,000 $ 500,000
Long-term borrowings ................................................................................................... $ 2,428,101 $ 2,524,320 $ 1,735,383 $ 1,638,067
Derivative financial instruments....................................................................................... $ — $ — $ 1,895 $ 1,895
Cash and cash equivalents. The carrying value of cash and cash equivalents approximates fair value due to the low
level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given
their short maturities.
Restricted cash. The carrying value of restricted cash approximates fair value due to the low level of risk these assets
present to the Company.
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 are recorded at their fair
values. These financial assets consist primarily of certain certificated subordinated interests issued by DCENT that have
been acquired by a wholly-owned subsidiary of the Company, credit card asset-backed securities issued by other
institutions and mortgage-backed commercial paper notes of one issuer. Fair values of certificated retained interests and
credit card asset-backed securities of other issuers are estimated utilizing discounted cash flow analyses, where estimated
contractual principal and interest cash flows are discounted at current market rates for the same or comparable
transactions, if available. If there is little or no market activity, discount rates are derived from indicative pricing observed
in the most recent active market for such instruments, adjusted for changes reflective of incremental credit risk, liquidity
risk, or both. The commercial paper notes classified as available for sale are currently in default. Because they are no
longer traded, fair value of the notes is determined utilizing a valuation analysis reflecting an estimate of the market value
of the assets held by the issuer, Golden Key U.S. LLC.
Held-to-maturity investment securities. The estimated fair values for the majority of held-to-maturity investment securities
are derived utilizing a discounted cash flow analysis, where estimated contractual principal and interest cash flows are
discounted at market rates for comparable transactions, if available. If there is little or no market activity on which to
conclude an appropriate discount rate for similarly rated instruments, the discount rate is interpolated from recent pricing
observed on similar asset classes, adjusted for incremental credit risk, liquidity risk, or both, to reflect, for example, the
risk related to the lower rating on the instrument being valued than that which was observed. For certain other
held-to-maturity investment securities, the estimated fair values are based on quoted market prices for the same or
comparable securities. As a substantial portion of these investment securities are zero coupon certificated retained
interests in DCENT and DCMT, the aggregate carrying value, or amortized cost, exceeds fair value. For more information
on these investment securities, see Note 4: Investment Securities.
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