Discover 2015 Annual Report Download - page 91

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Corporate and Bank Debt
The following table provides a summary of Discover Financial Services (Parent Company) and Discover Bank
outstanding fixed-rate debt (dollars in millions):
Principal
Amount
Outstanding
At December 31, 2015
Discover Financial Services (Parent Company) fixed-rate senior notes, maturing 2017-2025 ..................................................... $ 2,300
Discover Financial Services (Parent Company) fixed-rate retail notes maturing 2022-2025 ....................................................... $ 40
Discover Bank fixed-rate senior bank notes, maturing 2018-2026 .......................................................................................... $ 5,150
Discover Bank fixed-rate subordinated bank notes, maturing 2019-2020 ................................................................................ $ 700
Certain Discover Financial Services senior notes require us to offer to repurchase the notes at a price equal to
101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change of control
involving us and a corresponding ratings downgrade to below investment grade.
Short-Term Borrowings
We formerly utilized a warehouse line of credit as a form of short-term funding for newly originated consumer
residential mortgage loans in our Discover Home Loans business. However, on June 16, 2015, Discover Financial
Services announced that it would close this business. Consistent with that announcement, we ceased originating new
mortgages and paid off the warehouse line of credit with the proceeds from the mortgage loan sales during the third
quarter.
As part of our regular funding strategy, we may from time to time borrow short-term funds in the Federal Funds
market or the repurchase (“repo”) market through repurchase agreements. Federal Funds are short-term, unsecured
loans between banks or other financial entities with a Federal Reserve account. Funds borrowed in the repo market are
short-term, collateralized loans usually secured with highly-rated investment securities such as U.S. Treasury bills or
notes, or federal agency mortgage bonds or debentures. At December 31, 2015, there were no outstanding balances
under the Federal Funds market or repurchase agreements.
Additional Funding Sources
Private Asset-Backed Securitizations
We have access to committed undrawn capacity through privately placed asset-backed securitizations. At
December 31, 2015, we had total committed capacity of $6.8 billion, none of which was drawn. While we may utilize
funding from these private securitizations from time to time for normal business operations, their committed nature also
makes them a reliable contingency funding source. Therefore, we reserve some undrawn capacity for potential
contingency funding needs, based upon our liquidity stress testing results. On October 15, 2015, we terminated $1.0
billion of these secured credit facilities after determining through our liquidity stress testing process that we maintained
appropriate levels of such facilities following the termination. We also seek to ensure the stability and reliability of these
securitizations by staggering their maturity dates and renewing them approximately one year prior to their scheduled
maturity dates.
Federal Reserve
Discover Bank has access to the Federal Reserve Bank of Philadelphia’s discount window. As of December 31,
2015, Discover Bank had $23.9 billion of available capacity through the discount window based on the amount and
type of assets pledged. We have no borrowings outstanding under the discount window and reserve this capacity as a
source of contingency funding.
Funding Uses
Our primary uses of funds include the extensions of loans and credit, primarily through Discover Bank, the
purchase of investment securities for our liquidity portfolio, working capital and debt and capital service. We assess
funding uses and liquidity needs under both the normal course of business and hypothetical adverse environments,
considering primary uses of funding, such as on-balance sheet loans, and contingency uses of funding, such as the need