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, 2023

☐    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 21, 2023, there were 249,947,996 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, 2023

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	48
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	72
Item 4.	Controls and Procedures	73
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	75
Item 1A.	Risk Factors	75
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	75
Item 3.	Defaults Upon Senior Securities	76
Item 4.	Mine Safety Disclosures	76
Item 5.	Other Information	76
Item 6.	Exhibits	76

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.

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, 2023		December 31, 2022
Assets
Cash and cash equivalents	$	8,605	$	8,856
Restricted cash	39		41
Investment securities (includes available-for-sale securities of $13,221 and $11,987 reported at fair value with associated amortized cost of $13,478 and $12,167 at June 30, 2023 and December 31, 2022, respectively)	13,466		12,208
Loan receivables
Loan receivables	117,906		112,120
Allowance for credit losses	(8,064)		(7,374)
Net loan receivables	109,842		104,746
Premises and equipment, net	1,053		1,003
Goodwill	255		255
Other assets	4,822		4,597
Total assets	$	138,082	$	131,706
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts	$	97,630	$	90,151
Non-interest bearing deposit accounts	1,357		1,485
Total deposits	98,987		91,636
Long-term borrowings	20,276		20,108
Accrued expenses and other liabilities	4,963		5,618
Total liabilities	124,226		117,362
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; 570,627,982 and 569,689,007 shares issued at June 30, 2023 and December 31, 2022, 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, 2023 and December 31, 2022, respectively	1,056		1,056
Additional paid-in capital	4,508		4,468
Retained earnings	29,761		28,207
Accumulated other comprehensive loss	(470)		(339)
Treasury stock, at cost; 320,683,942 and 302,305,216 shares at June 30, 2023 and December 31, 2022, respectively	(21,005)		(19,054)
Total stockholders' equity	13,856		14,344
Total liabilities and stockholders' equity	$	138,082	$	131,706

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, 2023		December 31, 2022
Assets
Restricted cash	$	39	$	41
Loan receivables	$	25,165	$	25,937
Allowance for credit losses allocated to securitized loan receivables	$	(1,109)	$	(1,152)
Other assets	$	3	$	3
Liabilities
Long-term borrowings	$	11,216	$	10,259
Accrued expenses and other liabilities	$	16	$	14

See Notes to the Condensed Consolidated Financial Statements.

1

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,
	2023		2022		2023		2022
Interest income
Credit card loans	$	3,466	$	2,424	$	6,787	$	4,692
Other loans	606		439		1,170		867
Investment securities	106		33		207		69
Other interest income	112		19		203		23
Total interest income	4,290		2,915		8,367		5,651
Interest expense
Deposits	905		174		1,661		313
Short-term borrowings	—		—		—		1
Long-term borrowings	208		131		397		248
Total interest expense	1,113		305		2,058		562
Net interest income	3,177		2,610		6,309		5,089
Provision for credit losses	1,305		549		2,407		703
Net interest income after provision for credit losses	1,872		2,061		3,902		4,386
Other income
Discount and interchange revenue, net	370		379		700		688
Protection products revenue	44		42		87		86
Loan fee income	186		142		352		282
Transaction processing revenue	72		61		139		118
Gains (losses) on equity investments	1		(42)		(17)		(204)
Other income	28		21		50		45
Total other income	701		603		1,311		1,015
Other expense
Employee compensation and benefits	588		515		1,213		1,015
Marketing and business development	268		254		509		446
Information processing and communications	150		121		289		246
Professional fees	216		189		448		366
Premises and equipment	20		24		42		48
Other expense	162		120		286		232
Total other expense	1,404		1,223		2,787		2,353
Income before income taxes	1,169		1,441		2,426		3,048
Income tax expense	268		338		557		712
Net income	$	901	$	1,103	$	1,869	$	2,336
Net income allocated to common stockholders	$	895	$	1,097	$	1,826	$	2,293
Basic earnings per common share	$	3.54	$	3.93	$	7.09	$	8.13
Diluted earnings per common share	$	3.54	$	3.93	$	7.09	$	8.12

See Notes to the Condensed Consolidated Financial Statements.

2

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,
	2023		2022		2023		2022
Net income	$	901	$	1,103	$	1,869	$	2,336
Other comprehensive loss, net of tax
Unrealized losses on available-for-sale investment securities, net of tax	(151)		(41)		(59)		(162)
Unrealized (losses) gains on cash flow hedges, net of tax	(84)		3		(72)		5
Other comprehensive loss	(235)		(38)		(131)		(157)
Comprehensive income	$	666	$	1,065	$	1,738	$	2,179

See Notes to the Condensed Consolidated Financial Statements.

3

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, 2022
Balance at March 31, 2022	11	$	1,056	569,504	$	6	$	4,390	$	25,596	$	(213)	$	(17,639)	$	13,196
Net income	—	—		—	—		—		1,103		—		—		1,103
Other comprehensive loss	—	—		—	—		—		—		(38)		—		(38)
Purchases of treasury stock	—	—		—	—		—		—		—		(601)		(601)
Common stock issued under employee benefit plans	—	—		27	—		3		—		—		—		3
Common stock issued and stock-based compensation expense	—	—		33	—		24		—		—		—		24
Dividends — common stock ($0.60 per share)	—	—		—	—		—		(168)		—		—		(168)
Balance at June 30, 2022	11	$	1,056	569,564	$	6	$	4,417	$	26,531	$	(251)	$	(18,240)	$	13,519
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

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, 2022
Balance at December 31, 2021	11	$	1,056	568,831	$	6	$	4,369	$	24,538	$	(94)	$	(16,695)	$	13,180
Net income	—	—		—	—		—		2,336		—		—		2,336
Other comprehensive loss	—	—		—	—		—		—		(157)		—		(157)
Purchases of treasury stock	—	—		—	—		—		—		—		(1,545)		(1,545)
Common stock issued under employee benefit plans	—	—		49	—		5		—		—		—		5
Common stock issued and stock-based compensation expense	—	—		684	—		43		—		—		—		43
Dividends — common stock ($1.10 per share)	—	—		—	—		—		(312)		—		—		(312)
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, 2022	11	$	1,056	569,564	$	6	$	4,417	$	26,531	$	(251)	$	(18,240)	$	13,519
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

See Notes to the Condensed Consolidated Financial Statements.

5

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Cash Flows (unaudited)

(dollars in millions)

	For the Six Months Ended June 30,
	2023		2022
Cash flows provided by operating activities
Net income	$	1,869	$	2,336
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	2,407		703
Deferred income taxes	(269)		(145)
Depreciation and amortization	248		279
Amortization of deferred revenues	(215)		(162)
Net losses on investments and other assets	37		226
Other, net	51		48
Changes in assets and liabilities:
Increase in other assets	(18)		(262)
(Decrease) increase in accrued expenses and other liabilities	(812)		323
Net cash provided by operating activities	3,298		3,346
Cash flows provided by (used for) investing activities
Maturities of available-for-sale investment securities	905		1,160
Purchases of available-for-sale investment securities	(2,163)		—
Maturities of held-to-maturity investment securities	8		22
Purchases of held-to-maturity investment securities	(33)		(27)
Net change in principal on loans originated for investment	(7,362)		(6,290)
Proceeds from the sale of other investments	4		216
Purchases of other investments	(34)		(115)
Purchases of premises and equipment	(158)		(99)
Net cash used for investing activities	(8,833)		(5,133)
Cash flows provided by (used for) financing activities
Net change in short-term borrowings	—		50
Net change in deposits	7,327		4,007
Proceeds from issuance of securitized debt	2,237		2,635
Maturities and repayment of securitized debt	(1,185)		(2,561)
Maturities and repayments of other long-term borrowings	(803)		(322)
Proceeds from issuance of common stock	6		5
Purchases of treasury stock	(1,933)		(1,545)
Dividends paid on common and preferred stock	(367)		(343)
Net cash provided by financing activities	5,282		1,926
Net (decrease) increase in cash, cash equivalents and restricted cash	(253)		139
Cash, cash equivalents and restricted cash, at the beginning of the period	8,897		11,332
Cash, cash equivalents and restricted cash, at the end of the period	$	8,644	$	11,471
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	8,605	$	11,439
Restricted cash	39		32
Cash, cash equivalents and restricted cash, at the end of the period	$	8,644	$	11,471

See Notes to the Condensed Consolidated Financial Statements.

6

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, private student 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 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.

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 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 2022 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2022.

Immaterial Restatement of Prior Period Financial Statements

Beginning around mid-2007, the Company incorrectly classified certain credit card accounts into its highest merchant and merchant acquirer pricing tier. The Company determined the revenue impact of the incorrect card product classification was immaterial to the consolidated financial statements for all impacted prior periods. For comparative purposes, the Company has made these corrections to the consolidated financial statements for the prior periods presented in this Form 10-Q. Additionally, prior period amounts in the applicable notes to the consolidated financial statements have been corrected. The impacts of the misclassification and subsequent corrections are contained entirely within the Digital Banking segment. See Note 18: Immaterial Restatement of Prior Period Financial Statements for additional information and quantification of the prior period restatement impacts.

Recently Issued Accounting Pronouncement (Not Yet Adopted)

In March 2023, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2023-02, Investments—Equity Method and Joint Ventures (Topic 323): Accounting for Investments in Tax Credit Structures Using the Proportional Amortization Method. The ASU expands the use of the proportional amortization method of accounting for tax credit investments. Currently, the method is limited to Low Income Housing Tax Credit investments. Under the amended guidance, use of proportional amortization will be available to any qualifying tax credit investments, including but not limited to investments in New Markets Tax Credit and Renewable Energy Tax Credit programs. The

7

amendments in the ASU are to be applied on a retrospective or modified retrospective basis. The ASU is effective for the Company on January 1, 2024. Management does not expect the amendments to have a material impact on the Company’s consolidated financial statements.

2.    Investments

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

	June 30, 2023		December 31, 2022
U.S. Treasury(1) and U.S. GSE(2) securities	$	12,714	$	11,423
Residential mortgage-backed securities - Agency(3)	752		785
Total investment securities	$	13,466	$	12,208

(1)Includes $292 million and $97 million of U.S. Treasury securities pledged as swap collateral as of June 30, 2023 and December 31, 2022, respectively.

(2)Consists of a security issued by the Federal Home Loan Bank.

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

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, 2023
Available-for-Sale Investment Securities(1)
U.S. Treasury and U.S. GSE securities	$	12,947	$	5	$	(238)	$	12,714
Residential mortgage-backed securities - Agency	531		—		(24)		507
Total available-for-sale investment securities	$	13,478	$	5	$	(262)	$	13,221
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	245	$	—	$	(21)	$	224
Total held-to-maturity investment securities	$	245	$	—	$	(21)	$	224
At December 31, 2022
Available-for-Sale Investment Securities(1)
U.S. Treasury and U.S. GSE securities	$	11,580	$	21	$	(178)	$	11,423
Residential mortgage-backed securities - Agency	587		—		(23)		564
Total available-for-sale investment securities	$	12,167	$	21	$	(201)	$	11,987
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	221	$	—	$	(22)	$	199
Total held-to-maturity investment securities	$	221	$	—	$	(22)	$	199

(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 invests in U.S. Treasury obligations and securities issued by government agencies and government-sponsored enterprises of the U.S. ("U.S. GSEs"), 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.

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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, 2023
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	183	$	8,357	$	(133)	$	3,288	$	(105)
Residential mortgage-backed securities - Agency	32	$	415	$	(19)	$	92	$	(5)
At December 31, 2022
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	123	$	9,060	$	(175)	$	106	$	(3)
Residential mortgage-backed securities - Agency	34	$	559	$	(22)	$	5	$	(1)

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, 2023 and 2022. 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, 2023 and 2022.

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, 2023	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	$	1,875	$	10,737	$	335	$	—	$	12,947
Residential mortgage-backed securities - Agency(1)	2		78		41		410		531
Total available-for-sale investment securities	$	1,877	$	10,815	$	376	$	410	$	13,478
Held-to-Maturity Investment Securities — Amortized Cost
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	245	$	245
Total held-to-maturity investment securities	$	—	$	—	$	—	$	245	$	245
Available-for-Sale Investment Securities — Fair Values
U.S. Treasury and U.S. GSE securities	$	1,844	$	10,539	$	331	$	—	$	12,714
Residential mortgage-backed securities - Agency(1)	2		74		39		392		507
Total available-for-sale investment securities	$	1,846	$	10,613	$	370	$	392	$	13,221
Held-to-Maturity Investment Securities — Fair Values
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	224	$	224
Total held-to-maturity investment securities	$	—	$	—	$	—	$	224	$	224

(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 accounted for using the equity method of accounting and are recorded within other assets. The related commitment for future investments is recorded in accrued expenses and other liabilities within the condensed consolidated statements of financial condition. The portion of each investment's operating results allocable to the Company reduces the carrying value of the investments and is recorded in other expense within the condensed consolidated statements of income. The Company further reduces the carrying value of the investments by recognizing any amounts that are in excess of future net tax benefits in other expense. 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. As of June 30, 2023 and December 31, 2022, the Company had outstanding

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investments in these entities of $411 million and $416 million, respectively, and related contingent liabilities for unconditional and legally binding delayed equity contributions of $103 million and $111 million, respectively. Of the above outstanding equity investments, the Company had $377 million and $375 million of investments related to affordable housing projects as of June 30, 2023 and December 31, 2022, respectively, which had $96 million and $100 million of related contingent liabilities for unconditional and legally binding delayed equity contributions, respectively.

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 these investments are not subject to equity method accounting because the Company does not have significant influence over the investee. The common or preferred equity securities that the Company holds typically do not have readily determinable fair values. As a result, the majority of these investments are carried at cost minus impairment, if any. As of June 30, 2023 and December 31, 2022, the carrying value of these investments, which are recorded within other assets on the Company's condensed consolidated statements of financial condition, was $34 million and $39 million, respectively.

The Company also holds non-controlling equity positions in payment services entities that have publicly traded stock and therefore have readily determinable fair values. As a result, these investments are carried at fair value based on the quoted share prices. As of June 30, 2023 and December 31, 2022, the carrying value of these investments, which are recorded within other assets on the Company's condensed consolidated statements of financial condition, was $33 million and $41 million, respectively. During the three and six months ended June 30, 2023, the Company recognized an immaterial net gain and an immaterial net loss, respectively, on the condensed consolidated statements of income related to these investments. The Company recognized net losses of $42 million and $207 million during the three and six months ended June 30, 2022, respectively.

3.    Loan Receivables

The Company has 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, 2023		December 31, 2022
Credit card loans(1)(2)	$	93,955	$	90,113
Other loans(3)
Private student loans(4)	10,241		10,308
Personal loans	9,106		7,998
Other loans	4,604		3,701
Total other loans	23,951		22,007
Total loan receivables	117,906		112,120
Allowance for credit losses	(8,064)		(7,374)
Net loan receivables	$	109,842	$	104,746

(1)Amounts include carrying values of $14.3 billion and $13.5 billion underlying investors' interest in trust debt at June 30, 2023 and December 31, 2022, respectively, and $10.7 billion and $12.2 billion in seller's interest at June 30, 2023 and December 31, 2022, respectively. See Note 4: Credit Card and Private Student Loan Securitization Activities for additional information.

(2)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 $622 million and $611 million at June 30, 2023 and December 31, 2022, respectively.

(3)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 $515 million, $56 million and $15 million, respectively, at June 30, 2023 and $468 million, $49 million and $11 million, respectively, at December 31, 2022.

(4)At June 30, 2023 and December 31, 2022, there were $6.0 billion of private student loans in repayment.

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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 credit card, private student and personal loans. These indicators are important to understand the overall credit performance of the Company's customers and their ability to repay.

FICO scores are generally obtained at the origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer behavior. Historically, the Company has noted that accounts with FICO scores below 660 have larger delinquencies and credit losses than those with higher credit scores.

The following table provides the distribution of the amortized cost basis (excluding accrued interest receivable presented in other assets) by the most recent FICO scores available for the Company's customers for credit card, private student and personal loan receivables (dollars in millions):

	Credit Risk Profile by FICO Score
	June 30, 2023						December 31, 2022
	660 and Above				Less than 660 or No Score		660 and Above		Less than 660 or No Score
	$		%		$	%	$	%	$	%
Credit card loans	$	76,591	82	%	$