Discover Financial Services [DFS] Filings

10-Q 1 dfs-20240630.htm 10-Q dfs-20240630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-33378

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

36-2517428

(I.R.S. Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015

(Address of principal executive offices, including zip code)

(224) 405-0900

(Registrant's telephone number, including area code)


Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	DFS	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of July 26, 2024, there were 251,071,540 shares of the registrant's Common Stock, par value $0.01 per share, outstanding.

DISCOVER FINANCIAL SERVICES

Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2024

TABLE OF CONTENTS


Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	46
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	70
Item 4.	Controls and Procedures	71
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	73
Item 1A.	Risk Factors	73
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 3.	Defaults Upon Senior Securities	73
Item 4.	Mine Safety Disclosures	73
Item 5.	Other Information	73
Item 6.	Exhibits	74

Except as otherwise indicated or unless the context otherwise requires, "Discover Financial Services," "Discover," "DFS," "we," "us," "our," and "the Company" refer to Discover Financial Services and its subsidiaries. See Glossary of Acronyms, located after Part I — Item 4, for terms and abbreviations used throughout the quarterly report.

We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the operation of our business, including, but not limited to Discover®, PULSE®, Cashback Bonus®, Discover Cashback Checking®, Discover it®, Freeze it®, College Covered® and Diners Club International®. All other trademarks, trade names and service marks included in this quarterly report on Form 10-Q are the property of their respective owners.

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Financial Condition (unaudited)

(dollars in millions, except for share amounts)


	June 30, 2024		December 31, 2023

Assets
Cash and cash equivalents	$	10,865	$	11,685
Restricted cash	32		43

Investment securities (includes available-for-sale securities of $13,242 and $13,402 reported at fair value with associated amortized cost of $13,438 and $13,451 at June 30, 2024 and December 31, 2023, respectively)	13,508		13,655
Loan receivables
Loans held-for-sale	10,145		—
Loan portfolio	117,504		128,409
Total loan receivables	127,649		128,409
Allowance for credit losses	(8,481)		(9,283)
Net loan receivables	119,168		119,126
Premises and equipment, net	1,087		1,091
Goodwill	255		255

Other assets	5,952		5,667
Total assets	$	150,867	$	151,522
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts	$	106,871	$	107,493
Non-interest bearing deposit accounts	1,479		1,438
Total deposits	108,350		108,931
Short-term borrowings	—		750
Long-term borrowings	19,141		20,581
Accrued expenses and other liabilities	7,309		6,432
Total liabilities	134,800		136,694
Commitments, contingencies and guarantees (Notes 9, 12 and 13)
Stockholders' Equity
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 572,265,525 and 570,837,720 shares issued at June 30, 2024 and December 31, 2023, respectively	6		6
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at June 30, 2024 and December 31, 2023, respectively	1,056		1,056
Additional paid-in capital	4,603		4,553
Retained earnings	31,864		30,448
Accumulated other comprehensive loss	(398)		(225)
Treasury stock, at cost; 321,194,606 and 320,734,860 shares at June 30, 2024 and December 31, 2023, respectively	(21,064)		(21,010)
Total stockholders' equity	16,067		14,828
Total liabilities and stockholders' equity	$	150,867	$	151,522

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Financial Condition (unaudited)

(dollars in millions)

The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services' consolidated variable interest entities ("VIEs"), which are included in the condensed consolidated statements of financial condition above. The assets in the table below include those assets that can only be used to settle obligations of the consolidated VIEs. The liabilities in the table below include third-party liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in consolidation. The liabilities also exclude amounts for which creditors have recourse to the general credit of Discover Financial Services.


	June 30, 2024		December 31, 2023
Assets
Restricted cash	$	32	$	43
Loans held-for-sale	$	141	$	—
Loan portfolio	$	29,009	$	30,590
Allowance for credit losses allocated to securitized loan receivables	$	(1,344)	$	(1,347)
Other assets	$	4	$	3
Liabilities
Short- and long-term borrowings	$	9,608	$	11,743
Accrued expenses and other liabilities	$	14	$	19

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Income (unaudited)

(dollars in millions, except for share amounts)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
Interest income
Credit card loans	$	3,959	$	3,466	$	7,897	$	6,787
Other loans, including loans held-for-sale	729		606		1,441		1,170
Investment securities	125		106		249		207
Other interest income	158		112		332		203
Total interest income	4,971		4,290		9,919		8,367
Interest expense
Deposits	1,199		905		2,409		1,661
Short-term borrowings	—		—		6		—
Long-term borrowings	248		208		493		397
Total interest expense	1,447		1,113		2,908		2,058
Net interest income	3,524		3,177		7,011		6,309
Provision for credit losses	739		1,305		2,236		2,407
Net interest income after provision for credit losses	2,785		1,872		4,775		3,902
Other income
Discount and interchange revenue, net	437		370		808		700
Protection products revenue	42		44		84		87
Loan fee income	205		186		405		352
Transaction processing revenue	91		72		178		139
Gains (losses) on equity investments	—		1		—		(17)
Other income	239		28		262		50
Total other income	1,014		701		1,737		1,311
Other expense
Employee compensation and benefits	658		588		1,329		1,213
Marketing and business development	258		268		508		509
Information processing and communications	167		150		330		289
Professional fees	296		216		588		448
Premises and equipment	23		20		43		42
Other expense	327		162		1,240		286
Total other expense	1,729		1,404		4,038		2,787
Income before income taxes	2,070		1,169		2,474		2,426
Income tax expense	540		268		636		557
Net income	$	1,530	$	901	$	1,838	$	1,869
Net income allocated to common stockholders	$	1,521	$	895	$	1,795	$	1,826
Basic earnings per common share	$	6.06	$	3.54	$	7.17	$	7.09
Diluted earnings per common share	$	6.06	$	3.54	$	7.16	$	7.09

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(dollars in millions)


	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2024		2023		2024		2023
Net income	$	1,530	$	901	$	1,838	$	1,869
Other comprehensive loss, net of tax
Unrealized losses on available-for-sale investment securities, net of tax	(14)		(151)		(111)		(59)
Unrealized gains (losses) on cash flow hedges, net of tax	9		(84)		(62)		(72)

Other comprehensive loss	(5)		(235)		(173)		(131)
Comprehensive income	$	1,525	$	666	$	1,665	$	1,738

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Changes in Stockholders' Equity (unaudited)

(dollars in millions, shares in thousands)


							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount
For the Three Months Ended June 30, 2023
Balance at March 31, 2023	11	$	1,056	570,460	$	6	$	4,493	$	29,037	$	(235)	$	(20,297)	$	14,060

Net income	—	—		—	—		—		901		—		—		901
Other comprehensive loss	—	—		—	—		—		—		(235)		—		(235)
Purchases of treasury stock	—	—		—	—		—		—		—		(708)		(708)
Common stock issued under employee benefit plans	—	—		29	—		3		—		—		—		3
Common stock issued and stock-based compensation expense	—	—		139	—		12		—		—		—		12

Dividends — common stock ($0.70 per share)	—	—		—	—		—		(177)		—		—		(177)


Balance at June 30, 2023	11	$	1,056	570,628	$	6	$	4,508	$	29,761	$	(470)	$	(21,005)	$	13,856

For the Three Months Ended June 30, 2024
Balance at March 31, 2024	11	$	1,056	571,595	$	6	$	4,578	$	30,511	$	(393)	$	(21,038)	$	14,720

Net income	—	—		—	—		—		1,530		—		—		1,530
Other comprehensive loss	—	—		—	—		—		—		(5)		—		(5)
Purchases of treasury stock	—	—		—	—		—		—		—		(26)		(26)
Common stock issued under employee benefit plans	—	—		31	—		4		—		—		—		4
Common stock issued and stock-based compensation expense	—	—		639	—		21		—		—		—		21

Dividends — common stock ($0.70 per share)	—	—		—	—		—		(177)		—		—		(177)


Balance at June 30, 2024	11	$	1,056	572,265	$	6	$	4,603	$	31,864	$	(398)	$	(21,064)	$	16,067

See Notes to the Condensed Consolidated Financial Statements.

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							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount
For the Six Months Ended June 30, 2023
Balance at December 31, 2022	11	$	1,056	569,689	$	6	$	4,468	$	28,207	$	(339)	$	(19,054)	$	14,344
Cumulative effect of ASU No. 2022-02 adoption	—	—		—	—		—		52		—		—		52
Net income	—	—		—	—		—		1,869		—		—		1,869
Other comprehensive loss	—	—		—	—		—		—		(131)		—		(131)
Purchases of treasury stock	—	—		—	—		—		—		—		(1,951)		(1,951)
Common stock issued under employee benefit plans	—	—		58	—		6		—		—		—		6
Common stock issued and stock-based compensation expense	—	—		881	—		34		—		—		—		34

Dividends — common stock ($1.30 per share)	—	—		—	—		—		(336)		—		—		(336)
Dividends — Series C preferred stock ($2,750 per share)	—	—		—	—		—		(16)		—		—		(16)
Dividends — Series D preferred stock ($3,062.50 per share)	—	—		—	—		—		(15)		—		—		(15)
Balance at June 30, 2023	11	$	1,056	570,628	$	6	$	4,508	$	29,761	$	(470)	$	(21,005)	$	13,856

For the Six Months Ended June 30, 2024
Balance at December 31, 2023	11	$	1,056	570,838	$	6	$	4,553	$	30,448	$	(225)	$	(21,010)	$	14,828
Cumulative effect of ASU No. 2023-02 adoption	—	—		—	—		—		(37)		—		—		(37)
Net income	—	—		—	—		—		1,838		—		—		1,838
Other comprehensive loss	—	—		—	—		—		—		(173)		—		(173)
Purchases of treasury stock	—	—		—	—		—		—		—		(54)		(54)
Common stock issued under employee benefit plans	—	—		56	—		7		—		—		—		7
Common stock issued and stock-based compensation expense	—	—		1,371	—		43		—		—		—		43

Dividends — common stock ($1.40 per share)	—	—		—	—		—		(354)		—		—		(354)
Dividends — Series C preferred stock ($2,750 per share)	—	—		—	—		—		(16)		—		—		(16)
Dividends — Series D preferred stock ($3,062.50 per share)	—	—		—	—		—		(15)		—		—		(15)
Balance at June 30, 2024	11	$	1,056	572,265	$	6	$	4,603	$	31,864	$	(398)	$	(21,064)	$	16,067

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Cash Flows (unaudited)

(dollars in millions)


	For the Six Months Ended June 30,
	2024		2023
Cash flows provided by operating activities
Net income	$	1,838	$	1,869
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	2,236		2,407
Deferred income taxes	(57)		(269)
Depreciation and amortization	178		248
Amortization of deferred revenues	(226)		(215)
Net losses on investments and other assets	31		37
Other, net	29		51
Changes in assets and liabilities:
Increase in other assets	(323)		(18)
Increase (decrease) in accrued expenses and other liabilities	715		(812)
Net cash provided by operating activities	4,421		3,298

Cash flows provided by (used for) investing activities


Maturities of available-for-sale investment securities	1,046		905
Purchases of available-for-sale investment securities	(962)		(2,163)
Maturities of held-to-maturity investment securities	8		8
Purchases of held-to-maturity investment securities	(22)		(33)
Net change in principal on loans originated for investment	(2,105)		(7,362)
Proceeds from the sale of other real estate owned	1		—

Proceeds from the sale of other investments	1		4
Purchases of other investments	(22)		(34)
Proceeds from sale of premises and equipment	59		—
Purchases of premises and equipment	(136)		(158)
Net cash used for investing activities	(2,132)		(8,833)

Cash flows provided by (used for) financing activities
Net change in short-term borrowings	(750)		—
Net change in deposits	(602)		7,327
Proceeds from issuance of securitized debt	—		2,237
Maturities and repayment of securitized debt	(1,333)		(1,185)

Maturities and repayments of other long-term borrowings	(1)		(803)
Proceeds from issuance of common stock	7		6
Purchases of treasury stock	(54)		(1,933)

Dividends paid on common and preferred stock	(387)		(367)
Net cash (used for) provided by financing activities	(3,120)		5,282
Net decrease in cash, cash equivalents and restricted cash	(831)		(253)
Cash, cash equivalents and restricted cash, at the beginning of the period	11,728		8,897
Cash, cash equivalents and restricted cash, at the end of the period	$	10,897	$	8,644

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	10,865	$	8,605
Restricted cash	32		39
Cash, cash equivalents and restricted cash, at the end of the period	$	10,897	$	8,644

Supplemental disclosures of non-cash information:
Net transfers from loans held-for-investment to loans held-for-sale	$	10,145	$	—

See Notes to the Condensed Consolidated Financial Statements.

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Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Background and Basis of Presentation

Description of Business

Discover Financial Services ("DFS" or the "Company") is a digital banking and payment services company. The Company is a bank holding company under the Bank Holding Company Act of 1956 and a financial holding company under the Gramm-Leach-Bliley Act. Therefore, the Company is subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company provides digital banking products and services and payment services through its subsidiaries. The Company offers its customers credit card loans, personal loans, home loans and deposit products. The Company also operates the Discover Network, the PULSE network ("PULSE") and Diners Club International ("Diners Club"), collectively known as the Discover Global Network. The Discover Network processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to automated teller machines ("ATMs") domestically and internationally, as well as merchant acceptance throughout the United States of America ("U.S.") for debit card transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue Diners Club branded credit and charge cards and/or provide card acceptance services.

The Company manages its business activities in two segments, Digital Banking and Payment Services, based on the products and services provided. See Note 16: Segment Disclosures for a detailed description of each segment's operations and the allocation conventions used in business segment reporting.

Pending Sale of The Private Student Loan Portfolio

In November 2023, the Company announced its Board of Directors had authorized management to explore the sale of its private student loan portfolio. The Company stopped accepting new applications for private student loans February 1, 2024, and as of June 30, 2024, the Company's private student loan portfolio was classified as loans held-for-sale. On July 17, 2024, Discover Bank entered into a purchase agreement to sell its private student loan portfolio and transfer servicing of the portfolio to a third-party servicer upon the sale. As of June 30, 2024, the principal balance of the private student loan portfolio, excluding interest to be capitalized, was approximately $10.1 billion. The purchase price payable to Discover Bank in the transaction is at a premium to the principal and interest to be capitalized balances of the private student loan portfolio and, based on certain assumptions, proceeds are estimated to be up to approximately $10.8 billion over the course of 2024. The transaction is expected to be completed in multiple closings by the end of 2024, subject to the satisfaction or waiver of customary closing conditions. For more information, see Discover's Current Report on Form 8-K filed with the Securities and Exchange Commission (the "SEC") on July 17, 2024.

Pending Merger with Capital One Financial Corporation

On February 19, 2024, Discover and Capital One Financial Corporation ("Capital One") jointly announced that they entered into an agreement and plan of merger (the "Merger Agreement"), under which the companies will combine in an all-stock merger, which valued Discover at $35.3 billion based on the price of Capital One common stock on the last trading day before the public announcement of the merger. Under the terms of the Merger Agreement, holders of Discover common stock will receive 1.0192 shares of Capital One common stock for each share of Discover common stock they own. Capital One shareholders will own approximately 60% of the combined company and Discover shareholders will own approximately 40% of the combined company. The Merger Agreement contains customary representations and warranties, covenants and closing conditions. The Board of Directors of the combined company will have fifteen directors, consisting of twelve Capital One Board members and three Discover Board members to be named at a later date. For more information, see Discover’s Current Report on Form 8-K filed with the SEC on February 22, 2024.

Completion of the proposed merger remains subject to approval by the Federal Reserve Board and the Office of the Comptroller of the Currency and other customary closing conditions, including the approval of both companies’ shareholders.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP

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for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments necessary for the fair presentation of results for the interim period. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. These interim condensed consolidated financial statements should be read in conjunction with the Company's 2023 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2023.

Recently Issued Accounting Pronouncements (Not Yet Adopted)

In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. This ASU enhances the transparency of income tax information through improvements to income tax disclosures primarily related to the rate reconciliation and income taxes paid. Entities are required to disaggregate the rate reconciliation (including percentages and reported amounts) by certain specified categories with additional disaggregation by nature and/or jurisdiction for items over a designated threshold. Income taxes paid (net of refunds received) must be disaggregated by federal, state and foreign taxes and separately by individual jurisdiction in which that amount for a particular jurisdiction is equal to or greater than five percent of total income taxes paid (net of refunds received). This annual disclosure guidance is effective for the Company for the year ending December 31, 2025 and can be adopted on either a prospective or retrospective basis. The Company expects to adopt this standard on a prospective basis. While the ASU implements further income tax disclosure requirements, it does not change how an entity determines its income tax obligation, and it will have no impact on the Company’s consolidated financial condition, results of operations or cash flows.

In November 2023, the FASB issued ASU No. 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The ASU requires disclosure of additional segment level information, particularly regarding significant segment expenses. Entities must disclose significant expense categories and amounts that are regularly provided to the chief operating decision maker ("CODM") and included in the reported segment measure of profit or loss. Other segment items must also be reported, which are those items that make up the difference between segment revenues less significant segment expenses and reported segment profit or loss. Additionally, entities must disclose the identity of the CODM and how they use the reported measures of segment profit or loss for decision making and assessing segment performance. The guidance is effective for the Company for the year ending December 31, 2024, and interim periods thereafter and requires retrospective application. While the ASU implements further segment disclosure requirements, it does not change how an entity identifies its operating or reportable segments, and it will have no impact on the Company’s consolidated financial condition, results of operations or cash flows.

2. Investments

The Company's investment securities consist of the following (dollars in millions):


	June 30, 2024		December 31, 2023




U.S. Treasury(1) and U.S. GSE(2) securities	$	12,827	$	12,937
Residential mortgage-backed securities - Agency(3)	681		718
Total investment securities	$	13,508	$	13,655

(1)Includes $442 million and $320 million of U.S. Treasury securities pledged as swap collateral as of June 30, 2024 and December 31, 2023, respectively.

(2)Consists of securities issued by the Federal Home Loan Bank ("FHLB").

(3)Primarily consists of securities issued by Fannie Mae, Freddie Mac, or Ginnie Mae.

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The amortized cost, gross unrealized gains and losses and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in millions):


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At June 30, 2024
Available-for-Sale Investment Securities(1)
U.S. Treasury and U.S. GSE securities	$	13,004	$	6	$	(183)	$	12,827
Residential mortgage-backed securities - Agency	434		—		(19)		415
Total available-for-sale investment securities	$	13,438	$	6	$	(202)	$	13,242
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	266	$	—	$	(24)	$	242
Total held-to-maturity investment securities	$	266	$	—	$	(24)	$	242

At December 31, 2023
Available-for-Sale Investment Securities(1)
U.S. Treasury and U.S. GSE securities	$	12,971	$	52	$	(86)	$	12,937
Residential mortgage-backed securities - Agency	480		—		(15)		465
Total available-for-sale investment securities	$	13,451	$	52	$	(101)	$	13,402
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	253	$	—	$	(19)	$	234
Total held-to-maturity investment securities	$	253	$	—	$	(19)	$	234

(1)Available-for-sale investment securities are reported at fair value.

(2)Held-to-maturity investment securities are reported at amortized cost.

(3)Amounts represent residential mortgage-backed securities ("RMBS") that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives.

The Company primarily invests in U.S. Treasury obligations and securities issued by a U.S. government agency ("Agency") or government-sponsored enterprise ("U.S. GSE"), which have long histories with no credit losses and are explicitly or implicitly guaranteed by the U.S. federal government. Therefore, management has concluded that there is no expectation of non-payment on its investment securities and does not record an allowance for credit losses on these investments. In addition, the Company does not have the intent to sell any available-for-sale securities in an unrealized loss position and does not believe it is more likely than not that it will be required to sell any such security before recovery of its amortized cost basis.

The following table provides information about available-for-sale investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position (dollars in millions):


	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At June 30, 2024
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	199	$	5,458	$	(58)	$	6,483	$	(125)
Residential mortgage-backed securities - Agency	30	$	—	$	—	$	415	$	(19)

At December 31, 2023
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	105	$	3,513	$	(13)	$	3,978	$	(73)
Residential mortgage-backed securities - Agency	31	$	—	$	—	$	465	$	(15)

There were no proceeds from sales or recognized gains or losses on available-for-sale securities during the three and six months ended June 30, 2024 and 2023. See Note 8: Accumulated Other Comprehensive Income for unrealized gains and losses on available-for-sale securities during the three and six months ended June 30, 2024 and 2023.

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Maturities of available-for-sale debt securities and held-to-maturity debt securities are provided in the following table (dollars in millions):


At June 30, 2024	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
Available-for-Sale Investment Securities — Amortized Cost
U.S. Treasury and U.S. GSE securities	$	1,752	$	10,968	$	284	$	—	$	13,004
Residential mortgage-backed securities - Agency(1)	—		58		22		354		434
Total available-for-sale investment securities	$	1,752	$	11,026	$	306	$	354	$	13,438
Held-to-Maturity Investment Securities — Amortized Cost
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	266	$	266
Total held-to-maturity investment securities	$	—	$	—	$	—	$	266	$	266
Available-for-Sale Investment Securities — Fair Values
U.S. Treasury and U.S. GSE securities	$	1,728	$	10,814	$	285	$	—	$	12,827
Residential mortgage-backed securities - Agency(1)	—		56		22		337		415
Total available-for-sale investment securities	$	1,728	$	10,870	$	307	$	337	$	13,242
Held-to-Maturity Investment Securities — Fair Values
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	242	$	242
Total held-to-maturity investment securities	$	—	$	—	$	—	$	242	$	242

(1)Maturities of RMBS are reflective of the contractual maturities of the investment.

Other Investments

As a part of the Company’s community reinvestment initiatives, the Company has made equity investments in certain limited partnerships and limited liability companies that finance the construction and rehabilitation of affordable rental housing and stimulate economic development in low- to moderate-income communities. These investments are recorded within other assets on the Company’s condensed consolidated statements of financial condition. The Company has elected to account for its qualifying investments in Low Income Housing Tax Credit and New Markets Tax Credit programs under the proportional amortization method beginning January 1, 2024 on a modified retrospective basis. As of June 30, 2024, all of the Company's tax credit investments qualified for this election. Prior to 2024, these investments were accounted for using the equity method. Under the proportional amortization method, the cost of the investment is amortized in proportion to the income tax credits and other income tax benefits received, the net effect of which is recognized as a component of income tax expense on the condensed consolidated statements of income and within cash flows provided by operating activities on the condensed consolidated statements of cash flows. The Company earns a return primarily through tax credits allocated to the affordable housing projects and the community revitalization projects. The Company does not consolidate these investments as the Company does not have a controlling financial interest in the investee entities. The related commitments for future investments are recorded in accrued expenses and other liabilities within the consolidated statements of financial condition for delayed equity contributions that are unconditional and legally binding. Equity contributions that are contingent upon a future event are recognized when that contingent event becomes probable. As of June 30, 2024 and December 31, 2023, the Company had outstanding investments in these entities of $463 million and $514 million, respectively, and related liabilities for delayed equity contributions of $173 million and $187 million, respectively. During the three and six months ended June 30, 2024, the Company recognized $16 million and $31 million of amortization, respectively. During the three and six months ended June 30, 2024 the Company recognized $18 million and $36 million of income tax credits and other income tax benefits, respectively. Non-income tax benefits comprised only immaterial cash distributions from these investments during the three and six months ended June 30, 2024.

The Company holds non-controlling equity positions in several payment services entities and third-party venture capital funds, which invest in such entities. Most of the direct investments in such entities are not subject to equity method accounting because the Company does not have significant influence over the investee. The Company's investments in third-party venture capital funds represent limited partnership interests and are accounted for under the equity method. The common or preferred equity securities that the Company holds typically do not have readily determinable fair values. As a result, these investments are carried at cost minus impairment, if any. As of June 30, 2024 and December 31, 2023, the carrying value of these investments, which are recorded within other assets on the Company's condensed consolidated statements of financial condition, was $38 million and $35 million, respectively.

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3. Loan Receivables

The Company's loans held-for-investment comprise two loan portfolio segments: credit card loans and other loans.

The Company's classes of receivables within the two portfolio segments are depicted in the following table (dollars in millions):


	June 30, 2024		December 31, 2023
Loans held-for-sale(1)(2)	$	10,145	$	—
Loan portfolio
Credit card loans(3)(4)	100,066		102,259
Other loans(1)
Private student loans(2)	—		10,352
Personal loans	10,321		9,852
Other loans	7,117		5,946
Total other loans	17,438		26,150
Total loan portfolio	117,504		128,409
Total loan receivables	127,649		128,409
Allowance for credit losses	(8,481)		(9,283)
Net loan receivables	$	119,168	$	119,126

(1)Accrued interest receivable on private student, personal and other loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $563 million, $71 million and $26 million, respectively, at June 30, 2024 and $522 million, $69 million and $21 million, respectively, at December 31, 2023.

(2)At June 30, 2024, the private student loan portfolio was classified as held-for-sale and there were $6.3 billion of private student loans in repayment. At December 31, 2023, the private student loan portfolio was classified as held-for-investment and there were $6.3 billion of private student loans in repayment.

(3)Amounts include carrying values of $12.2 billion and $14.8 billion underlying investors' interest in trust debt at June 30, 2024 and December 31, 2023, respectively, and $16.8 billion and $15.6 billion in seller's interest at June 30, 2024 and December 31, 2023, respectively. See Note 4: Credit Card and Private Student Loan Securitization Activities for additional information.

(4)Unbilled accrued interest receivable on credit card loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $724 million and $753 million at June 30, 2024 and December 31, 2023, respectively.

Loans Held-for-Sale

When a decision to sell loans is made, the loans are reclassified as held-for-sale. As previously disclosed, in November 2023, the Company's Board of Directors authorized management to explore options for selling the private student loan portfolio. Based on the results of management's exploration of the marketplace, in the second quarter of 2024, the Board authorized management to pursue entry into a sale transaction. As of June 30, 2024, the Company's private student loans portfolio was transferred to the held-for-sale classification and comprised the entirety of the Company’s loans held-for-sale balance. The Company includes its loans held-for-sale in loan receivables and carries these assets at the lower of amortized cost or fair value. The estimated fair value of loans held-for-sale is based on the pricing terms defined in the purchase agreement that was executed on July 17, 2024. An allowance for credit losses is not maintained for loans held-for-sale. Interest income on loans held-for-sale continues to accrue and is recognized in income based on the contractual rate of interest. As with the Company’s loans held-for-investment, accrued interest on loans held-for-sale is recorded in other assets in the Company’s condensed consolidated statements of financial condition. Accrued interest on private student loans as of June 30, 2024, was incorporated into the lower of amortized cost or fair value measurement of those loans.

Credit Quality Indicators

As part of credit risk management activities, on an ongoing basis, the Company reviews information related to the performance of a customer's account with the Company and information from credit bureaus, such as FICO or other credit scores, relating to the customer's broader credit performance. The Company actively monitors key credit quality indicators, including FICO scores and delinquency status, for its loan receivables. These indicators are important to understand the overall credit performance of the Company's customers and their ability to repay.