Discover 2010 Annual Report Download - page 122

Geographical Distribution of Loans
The Company originates credit card and other consumer loans throughout the United States. The geographic
distribution of the Company’s loan receivables was as follows (dollars in thousands):
November 30, 2010 November 30, 2009
$%$%
California ........................................................................................................................................ $ 4,473,200 9.2% $ 2,394,844 10.1%
Texas .............................................................................................................................................. 3,848,684 7.9 1,757,449 7.4
New York ........................................................................................................................................ 3,259,953 6.7 1,560,028 6.6
Florida ............................................................................................................................................ 2,902,083 5.9 1,485,592 6.3
Illinois ............................................................................................................................................. 2,747,706 5.6 1,248,441 5.3
Pennsylvania .................................................................................................................................... 2,540,852 5.2 1,188,116 5.0
Ohio ............................................................................................................................................... 2,147,238 4.4 987,649 4.2
New Jersey ...................................................................................................................................... 1,823,938 3.7 860,802 3.6
Michigan ......................................................................................................................................... 1,555,896 3.2 768,993 3.3
Georgia .......................................................................................................................................... 1,466,863 3.0 725,391 3.1
Other states...................................................................................................................................... 22,070,000 45.2 10,647,779 45.1
Total loan portfolio......................................................................................................................... $48,836,413 100.0% $23,625,084 100.0%
7. Credit Card Securitization Activities
The Company accesses the term asset securitization market through DCMT and DCENT, which are trusts into which
credit card loan receivables are transferred (or, in the case of DCENT, into which beneficial interests in DCMT are
transferred) and from which beneficial interests are issued to investors.
The DCMT debt structure consists of Class A, triple-A rated certificates and Class B, single-A rated certificates held by
third parties. Credit enhancement is provided by the subordinated Class B certificates, cash collateral accounts, and more
subordinated Series 2009-CE certificates that are held by a wholly-owned subsidiary of Discover Bank. The DCENT debt
structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with the most senior class
generally receiving a triple-A rating. In this structure, in order to issue senior, higher rated classes of notes, it is necessary
to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower rated or more
highly subordinated classes of notes. The majority of these more highly subordinated classes of notes are held by
subsidiaries of Discover Bank. In addition, there is another series of certificates (Series 2009-SD) issued by DCMT which
provides increased excess spread levels to all other outstanding securities of the trusts. The Series 2009-SD certificates are
held by a wholly-owned subsidiary of Discover Bank. In January 2010, the Company increased the size of the Class D
(2009-1) note and Series 2009-CE certificate to further support the more senior securities of the trusts. The Company was
not contractually required to provide this incremental level of credit enhancement but was permitted to do so pursuant to
the trusts’ governing documents.
Beginning on December 1, 2009, the Company’s securitizations are accounted for as secured borrowings and the
trusts are treated as consolidated subsidiaries of the Company under ASC 810 and ASC 860. Accordingly, beginning on
this date, all of the assets and liabilities of the trusts are included directly on the Company’s consolidated statement of
financial condition. Trust receivables underlying third-party investors’ interests are recorded in credit card loan
receivables – restricted for securitization investors, and the related debt issued by the trusts is reported in long-term
borrowings – owed to securitization investors. Additionally, beginning on December 1, 2009, certain other of the
Company’s retained interests in the assets of the trusts, principally consisting of investments in DCMT certificates and
DCENT notes held by subsidiaries of Discover Bank, now constitute intercompany positions, which are eliminated in the
preparation of the Company’s consolidated statement of financial condition. Trust receivables underlying the Company’s
various retained interests, including the seller’s interest in trust receivables, are recorded in credit card loan receivables –
restricted for securitization investors.
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 – for securitization investors. Investment of trust
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