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77
Liquidity and Capital Resources
Funding and Liquidity
We seek to maintain diversified funding sources and a strong liquidity profile in order to fund our business and repay or
refinance our maturing obligations. In addition, we seek to achieve an appropriate maturity profile and utilize a cost-effective
mix of funding sources. Our primary funding sources include deposits, sourced directly from consumers or through brokers,
term asset-backed securitizations, private asset-backed securitizations and long-term borrowings.
Funding Sources
Deposits. We offer 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”).
At November 30, 2011, we had $26.2 billion of direct-to-consumer deposits and $13.3 billion of brokered deposits.
Maturities of our certificates of deposit range from one month to ten years, with a weighted average maturity of 20 months at
November 30, 2011. The following table summarizes deposits by contractual maturity as of November 30, 2011 (dollars in
thousands):
Certificates of deposit in amounts less than
$100,000(1)
Certificates of deposit in amounts of $100,000 to
less than $250,000(1)
Certificates of deposit in amounts of $250,000(1)
or greater
Savings deposits, including money market
deposit accounts
Total interest-bearing deposits
Total
$ 20,114,121
5,290,405
1,189,779
12,869,582
$ 39,463,887
Three Months
or Less
$ 2,185,259
736,464
226,874
12,869,582
$ 16,018,179
Over Three
Months
Through Six
Months
$ 2,805,104
601,541
134,194
—
$ 3,540,839
Over Six
Months
Through
Twelve
Months
$ 4,079,327
1,360,325
290,787
—
$ 5,730,439
Over Twelve
Months
$ 11,044,431
2,592,075
537,924
—
$ 14,174,430
(1) $100,000 represents the basic insurance amount previously covered by the FDIC. Effective July 21, 2010, the basic insurance per depositor was
permanently increased to $250,000.
Credit Card Securitization Financing. We use the securitization of credit card receivables as an additional source of
funding. We access the asset-backed securitization market using the Discover Card Master Trust I (“DCMT”) and the Discover
Card Execution Note Trust (“DCENT”), through which we issue asset-backed securities both publicly and through private
transactions.
The DCMT structure utilizes Class A and Class B certificates held by third parties, with credit enhancement provided by
the subordinated Class B certificates, cash collateral accounts and subordinated Series 2009-CE. The DCENT structure utilizes
four classes of securities with declining levels of seniority (Class A, B, C and D), with credit enhancement provided by the
more subordinated classes of notes. We retain significant exposure to the performance of trust assets through holdings of the
seller's interest and subordinated security classes of DCMT and DCENT.
The securitization structures include certain features designed to protect investors. The primary feature relates to the
availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements, the
insufficiency of which triggers early repayment of the securities. We refer to this as “economic early amortization,” which is
based on excess spread levels. Excess spread is the amount by which income received by a trust during a collection period,
including interest collections, fees and interchange, exceeds the fees and expenses of the trust during such collection period,
including interest expense, servicing fees and charged-off receivables. Our excess spread previously included the amount of
certain principal collections available to be reallocated from Series 2009-SD, which enhanced securities of both DCMT and
DCENT. Series 2009-SD matured on January 17, 2012, and as prescribed in amendments to the governing documents which
became effective in January 2010, the size of the Class D (2009-1) note was increased. In the event of an economic early
amortization, which would occur if the excess spread fell below 0% on a three-month rolling average basis, we would be
required to repay the affected outstanding securitized borrowings using available collections received by the trust (the period of
ultimate repayment would be determined by the amount and timing of collections received). An early amortization event would
negatively impact our liquidity, and require us to utilize our available non-securitization related contingent liquidity or rely on
alternative funding sources, which may or may not be available at the time. As of November 30, 2011, the 3-month rolling
average excess spread was 17.43%, however, the maturity of Series 2009-SD on January 17, 2012 will have the effect of
somewhat reducing the trusts' excess spread in periods thereafter.
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