Discover 2014 Annual Report Download - page 93

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sources, including our liquidity portfolio, private securitizations with unused capacity and Federal Reserve discount
window capacity, which we could utilize to satisfy liquidity needs during such stress events. We expect to be able to
satisfy all maturing obligations and fund business operations during the next 12 months by utilizing the funding sources
that are currently available to us.
At December 31, 2014, our liquidity portfolio was comprised of cash and cash equivalents and high quality,
liquid and unencumbered investment securities. Cash and cash equivalents were primarily in the form of deposits with
the Federal Reserve. Investment securities primarily included debt obligations of the U.S. Treasury and U.S. government
agencies and residential mortgage-backed securities issued by U.S. government agencies. These investments are
considered highly liquid, and we have the ability to raise cash by utilizing repurchase agreements, pledging certain of
these investments to access the secured funding markets or selling them. The level and mix of our liquidity portfolio may
fluctuate based upon the level of expected maturities of our funding sources as well as operational requirements and
market conditions.
At December 31, 2014, our liquidity portfolio and undrawn credit facilities were $34.3 billion, which was $1.7
billion higher than the balance at December 31, 2013. During the calendar year ended December 31, 2014, the
average balance of our liquidity portfolio was $11.9 billion.
December 31,
2014 2013
(dollars in millions)
Liquidity portfolio
Cash and cash equivalents(1) ....................................................................................................................... $6,921 $6,193
Investment securities(2) ................................................................................................................................ 3,831 4,922
Total liquidity portfolio ........................................................................................................................... 10,752 11,115
Undrawn credit facilities(3)
Private asset-backed securitizations ............................................................................................................. 7,500 7,000
Federal Reserve discount window(4) ............................................................................................................. 16,024 14,500
Total undrawn credit facilities ................................................................................................................. 23,524 21,500
Total liquidity portfolio and undrawn credit facilities .............................................................................. $ 34,276 $ 32,615
(1) Cash-in-process is excluded from cash and cash equivalents for liquidity purposes.
(2) Excludes $16 million of U.S. Treasury securities that have been pledged as swap collateral in lieu of cash as of December 31, 2014 and $9 million of U.S. Treasury
securities that have been pledged as swap collateral in lieu of cash as of December 31, 2013.
(3) See " — Additional Funding Sources" for additional information.
(4) Excludes $5 million of investments accounted for in the liquidity portfolio that were pledged to the Federal Reserve as of December 31, 2013.
Bank Holding Company Liquidity
The primary uses of funds at the bank holding company level include debt and capital service (interest and
dividend payments and return of principal) and capital management activity, which may include the periodic
repurchase of shares of our common stock. Our primary sources of funds at the bank holding company level include the
proceeds from the public issuance of unsecured debt and preferred stock, as well as dividends from our subsidiaries,
particularly Discover Bank. Under periods of stress or at the discretion of our regulators, the bank holding company
could lose access to one or both of those funding sources. In addition, federal statute and regulatory standards require
that bank holding companies retain sufficient liquidity in order to serve as a source of financial strength for their banks
and their banks' subsidiaries during periods of liquidity stress.
We utilize a measure called Number of Months of Pre-Funding to determine the length of time Discover Financial
Services can meet upcoming funding obligations including common and preferred dividend payments and debt service
obligations using existing cash resources. At December 31, 2014, Discover Financial Services has sufficient cash
resources to fund the dividend and debt service payments for at least the next 18 months, which exceeds current ALCO
and board limits.
We structure our debt maturity schedule to minimize the amount of debt maturing at the bank holding company
level within a short period of time. As of December 31, 2014, there is no upcoming debt maturity in 2015 or 2016 at
the bank holding company level. Our ALCO and board of directors regularly review our compliance with our liquidity