Discover 2010 Annual Report Download - page 92

The following table summarizes deposits by contractual maturity as of November 30, 2010 (dollars in thousands):
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) ................................. $19,797,420 $ 1,366,419 $2,032,944 $3,813,641 $12,584,416
Certificates of deposit in amounts of $100,000 to less than $250,000(1) ........... 4,626,792 551,400 459,137 1,226,451 2,389,804
Certificates of deposit in amounts of $250,000(1) or greater ........................... 1,146,843 177,905 138,962 336,010 493,966
Savings deposits, including money market deposit accounts............................ 8,738,784 8,738,784 — — —
Total interest-bearing deposits ................................................................ $34,309,839 $10,834,508 $2,631,043 $5,376,102 $15,468,186
(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 (discussed below) 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. Both DCMT and DCENT are further enhanced by
Series 2009-SD through its provisions to reallocate principal cash flows, thereby enhancing the excess spread, discussed
below, of both trusts. We retain significant exposure to the performance of trust assets through holdings of subordinated
security classes of DCMT and DCENT.
The cash collateral accounts that provide credit enhancement to certain DCMT certificates were $459 million at
November 30, 2010 and were recorded in restricted cash – for securitization investors in our consolidated statement of
financial condition. These cash collateral accounts were partially funded through a loan facility entered into between a
consolidated special purpose subsidiary, DRFC Funding LLC, and third-party lenders. At November 30, 2010, $306
million of the DRFC Funding LLC facility was outstanding and was recorded in long-term borrowings in our consolidated
statement of financial condition. This loan facility was repaid on December 15, 2010.
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, as well as the amount of certain principal collections available
to be reallocated from Series 2009-SD exceeds the fees and expenses of the trust during such collection period, including
interest expense, servicing fees and charged-off receivables. In the event of an economic early amortization, which would
occur if the excess spread fell below 0% for a contractually specified period, generally a three-month rolling average, we
would be required to repay the affected outstanding securitized borrowings over a period of months using all 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 contingent liquidity or rely on alternative funding sources, which may or may not be available at the time. As of
November 30, 2010, the 3-month rolling average excess spread was 13.46%.
Another feature of our securitization structure, which is applicable only to the notes issued from DCENT, is a reserve
account funding requirement in which excess cash flows generated by the transferred loan receivables are held at the
trust. This funding requirement is triggered when DCENT’s three-month average excess spread rate decreases to below
4.50%, with increasing funding requirements as excess spread levels decline below preset levels to 0%. See Note 7:
-81-