Discover 2015 Annual Report Download - page 131
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-115-
with the securitized loans has been transferred to third parties under private credit insurance or indemnification
arrangements.
The carrying values of these restricted assets, which are presented on the Company’s consolidated statements of
financial condition as relating to securitization activities, are shown in the table below (dollars in millions):
December 31,
2015 2014
Restricted cash .............................................................................................................................................. $ 80 $ 86
Student loan receivables(1) .............................................................................................................................. 1,678 1,969
Allowance for loan losses allocated to securitized loan receivables(1) .............................................................. (28)(28)
Net student loan receivables ........................................................................................................................... 1,650 1,941
Carrying value of assets of consolidated variable interest entities .................................................................... $1,730 $2,027
(1) The Company maintains its allowance for loan losses on PCI loans sufficient to absorb probable decreases in cash flows that were previously expected. Therefore,
credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.
7. Premises and Equipment
A summary of premises and equipment, net is as follows (dollars in millions):
December 31,
2015 2014
Land ............................................................................................................................................................ $ 42 $ 43
Buildings and improvements ........................................................................................................................... 607 589
Capitalized equipment leases ......................................................................................................................... 2 2
Furniture, fixtures and equipment .................................................................................................................... 804 753
Software ...................................................................................................................................................... 477 422
Premises and equipment ............................................................................................................................ 1,932 1,809
Less: Accumulated depreciation ...................................................................................................................... (979) (905)
Less: Accumulated amortization of software ..................................................................................................... (260) (234)
Premises and equipment, net ...................................................................................................................... $ 693 $ 670
Depreciation expense, which includes amortization of assets recorded under capital leases, was $81 million, $78
million and $65 million for the years ended December 31, 2015, 2014 and 2013, respectively. Amortization expense
on capitalized software was $53 million, $48 million and $41 million for the years ended December 31, 2015, 2014
and 2013, respectively.
8. Goodwill and Intangible Assets
Goodwill
As of December 31, 2015 and 2014, the Company had goodwill of $255 million and $257 million, respectively,
related to PULSE, part of the Payment Services segment.
The Company conducted its annual goodwill impairment test as of October 1, 2015 and no impairment charges
were identified. The annual goodwill impairment test as of October 1, 2014 resulted in the recognition of non-cash
impairment charge of $27 million related to the Discover Home Loans business based on its carrying values exceeding
its fair values. The Company reduced its fair value estimate as a result of a 2014 fourth quarter reevaluation of the
forecasts due to continuing challenges faced in developing a scalable direct-to-consumer purchase mortgage origination
business. The impairment charge was recorded in the other expense line as a component of total other expense in the
accompanying consolidated and combined statements of income and within the Direct Banking segment.