Discover 2015 Annual Report Download - page 89

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in part by regulatory and compliance needs and the increase in professional fees was driven by anti-money laundering
and related compliance program expenses. Also contributing to the increase in total other expense is an increase in
other expense related to the closure of our mortgage origination business.
Total other expense increased $146 million for the year ended December 31, 2014 as compared to the year
ended December 31, 2013. The increase was primarily driven by higher employee compensation costs due to growth
in overall headcount along with higher professional fees due to consultant expenses related to technology and digital
investments. Higher marketing and business development expenses also contributed to the increase in other expense
mainly due to growth initiatives. The increase in total other expense was partially offset by a decrease in the other
expense line item, which primarily resulted from non-recurring expenses incurred in 2013 related to our purchase of the
Diners Club Italy Licensee and financial assistance to facilitate the purchase of the Slovenian licensee by a European
bank. The decrease in other expense line item was partially offset by the impairment of goodwill related to the Discover
Home Loans business along with fair value adjustment resulting from recording Diners Club Italy as held for sale.
Income Tax Expense
The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate:
For the Years Ended December 31,
2015 2014 2013
U.S. federal statutory income tax rate ..................................................................................... 35.0% 35.0%35.0%
U.S. state, local and other income taxes, net of U.S. federal income tax benefits ........................ 2.5 2.8 2.2
Other .................................................................................................................................. (1.1) (0.7) 0.2
Effective income tax rate ................................................................................................... 36.4% 37.1%37.4%
Income tax expense decreased $56 million, or 4.1%, reflecting a decrease in pretax income, and a decline in the
effective tax rate 0.7% for the year ended December 31, 2015 as compared to the year ended December 31, 2014.
These changes are due to favorable adjustments to unrecognized tax benefits from resolving certain tax matters, and a
one-time adjustment in 2014 to deferred taxes on limited partnership investments with no similar adjustment in the
current year.
Income tax expense decreased $103 million, or 7.0%, for the year ended December 31, 2014 as compared to
the year ended December 31, 2013, reflecting a decrease in pretax income. The effective tax rate decreased 0.3% for
the year ended December 31, 2014 from 37.4% for the year ended December 31, 2013 due to favorable adjustments
to unrecognized tax benefits and recognition of tax benefits attributable to prior year tax adjustments.
Liquidity and Capital Resources
Funding and Liquidity
We seek to maintain stable diversified funding sources and a strong liquidity profile in order to fund our business
and repay or refinance our maturing obligations under both normal operating conditions and period of economic or
financial stress. In addition, we seek to maintain an appropriate liability maturity profile and utilize a diversified and
cost-effective mix of funding sources. Our primary funding sources include deposits, sourced directly from consumers or
through brokers, public and private term asset-backed securitizations and short-term and long-term borrowings.
Funding Sources
Deposits
We offer deposit products 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”). Direct-to-consumer deposits include certificates of deposit, money
market accounts, online savings and checking accounts and IRA certificates of deposit, while brokered deposits include
certificates of deposit and sweep accounts. At December 31, 2015, we had $30.9 billion of direct-to-consumer
deposits and $16.7 billion of brokered and other deposits.