The Company's classes of receivables within the three portfolio segments are depicted in the table below (dollars in millions):
September 30,
2017 December 31,
2016
Loan receivables
Credit card loans⁽¹⁾
$ 63,475
$ 61,522
Other loans
Personal loans 7,397
6,481
Private student loans 6,998
6,393
Other 371
274
Total other loans 14,766
13,148
PCI loans⁽²⁾
2,202
2,584
Total loan receivables 80,443
77,254
Allowance for loan losses (2,531 ) (2,167 )
Net loan receivables $ 77,912
$ 75,087


~~(1)~~	~~Amounts include~~ ~~$21.5 billion~~ ~~and $20.8 billion underlying investors’ interest in trust debt at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively, and~~ ~~$8.3 billion~~ ~~and $10.8 billion in seller's interest at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.~~


~~(2)~~	~~Amounts include~~ ~~$0.8 billion~~ ~~and $1.4 billion of loans pledged as collateral against the notes issued from the Student Loan Corporation ("SLC") securitization trusts at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.~~

Credit Quality Indicators

~~The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in determining its allowance for loan losses.~~

Information related to the delinquent and non-accruing loans in the Company’s loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “— Purchased Credit-Impaired Loans” (dollars in millions):

30-89 Days
Delinquent

90 or
More Days
Delinquent

Total Past
Due

90 or
More Days
Delinquent
and
Accruing

Total
Non-accruing⁽¹⁾
At September 30, 2017
Credit card loans⁽²⁾
$ 713
$ 646
$ 1,359
$ 584
$ 204
Other loans

Personal loans⁽³⁾
68
26
94
25
11
Private student loans (excluding PCI)⁽⁴⁾
114
36
150
36
—
Other 1
1
2
—
10
Total other loans (excluding PCI) 183
63
246
61
21
Total loan receivables (excluding PCI) $ 896
$ 709
$ 1,605
$ 645
$ 225

At December 31, 2016
Credit card loans⁽²⁾
$ 655
$ 597
$ 1,252
$ 544
$ 189
Other loans

Personal loans⁽³⁾
55
19
74
18
8
Private student loans (excluding PCI)⁽⁴⁾
106
35
141
35
—
Other 1
1
2
—
19
Total other loans (excluding PCI) 162
55
217
53
27
Total loan receivables (excluding PCI) $ 817
$ 652
$ 1,469
$ 597
$ 216

~~(1)~~

The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was $9 million and $8 million for the three months ended September 30, 2017 and 2016, respectively, and $26 million and $23 million for the nine months ended September 30, 2017 and 2016, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent interest rates.


~~(2)~~	~~Credit card loans that are 90 or more days delinquent and accruing interest include~~ ~~$63 million~~ ~~and $58 million of loans accounted for as troubled debt restructurings at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively.~~


~~(3)~~	~~Personal loans that are 90 or more days delinquent and accruing interest include~~ ~~$4 million~~ ~~and $2 million of loans accounted for as troubled debt restructurings at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively.~~


~~(4)~~	~~Private student loans that are 90 or more days delinquent and accruing interest include~~ ~~$4 million~~ ~~and $3 million of loans accounted for as troubled debt restructurings at~~ ~~September 30, 2017~~ ~~and December 31, 2016.~~

Information related to the net charge-offs in the Company's loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading "— Purchased Credit-Impaired Loans" (dollars in millions):
For the Three Months Ended September 30,
2017 2016
Net
Charge-offs
Net
Charge-off
Rate⁽¹⁾
Net
Charge-offs
Net
Charge-off
Rate⁽¹⁾
Credit card loans $ 439
2.80 % $ 314
2.17 %
Other loans
Personal loans 58
3.19 % 41
2.63 %
Private student loans (excluding PCI) 30
1.52 % 15
1.02 %
Other —
— % —
— %
Total other loans 88
2.33 % 56
1.79 %
Net charge-offs (excluding PCI) $ 527
2.71 % $ 370
2.10 %
Net charge-offs (including PCI) $ 527
2.63 % $ 370
2.02 %

For the Nine Months Ended September 30,
2017 2016

Net
Charge-off
Dollars

Net
Charge-off
Rate⁽¹⁾

Net
Charge-off
Dollars

Net
Charge-off
Rate⁽¹⁾
Credit card loans $ 1,306
2.86 % $ 974
2.30 %
Other loans
Personal loans 163
3.18 % 108
2.49 %
Private student loans (excluding PCI) 64
1.17 % 44
0.99 %
Other 3
1.09 % —
— %
Total other loans 230
2.16 % 152
1.69 %
Net charge-offs (excluding PCI) $ 1,536
2.73 % $ 1,126
2.19 %
Net charge-offs (including PCI) $ 1,536
2.65 % $ 1,126
2.10 %


~~(1)~~	~~Net charge-off rate represents net charge-off dollars (annualized) divided by average loans for the reporting period.~~

As part of credit risk management activities, on an ongoing basis, the Company reviews information related to the performance of a ~~customer’s~~customer's account with the Company ~~as well as~~and information from credit bureaus, such as FICO or other credit scores, relating to the ~~customer’s~~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 ~~a significant portion of delinquent~~ accounts ~~have~~with FICO scores below ~~660.~~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
	September 30, 2022								December 31, 2021
	660 and Above				Less than 660 or No Score				660 and Above				Less than 660 or No Score
	$		%		$		%		$		%		$		%
Credit card loans(1)	$	68,999	83	%	$	14,631	17	%	$	62,262	84	%	$	12,107	16	%
Private student loans by origination year(2)(3)
2022	$	949	93	%	$	69	7	%
2021	1,699		96	%	79		4	%	$	1,251	94	%	$	73	6	%
2020	1,402		96	%	61		4	%	1,561		96	%	59		4	%
2019	1,254		95	%	62		5	%	1,439		96	%	61		4	%
2018	973		94	%	59		6	%	1,147		95	%	59		5	%
Prior	3,521		94	%	221		6	%	4,215		94	%	248		6	%
Total private student loans	$	9,798	95	%	$	551	5	%	$	9,613	95	%	$	500	5	%
Personal loans by origination year
2022	$	3,371	99	%	$	38	1	%
2021	2,238		97	%	80		3	%	$	3,326	99	%	$	37	1	%
2020	942		96	%	39		4	%	1,622		98	%	39		2	%
2019	550		93	%	43		7	%	1,052		94	%	62		6	%
2018	210		89	%	27		11	%	435		91	%	44		9	%
Prior	113		83	%	23		17	%	276		87	%	43		13	%
Total personal loans	$	7,424	97	%	$	250	3	%	$	6,711	97	%	$	225	3	%

(1)Amounts include $663 million and $813 million of revolving line-of-credit arrangements that were converted to term loans as a result of a troubled debt restructuring ("TDR") program as of September 30, 2022 and December 31, 2021, respectively.

(2)A majority of private student loan originations occur in the third quarter and disbursements can span multiple calendar years.

(3)FICO score represents the higher credit score of the cosigner or borrower.

Table of Contents

The following table provides the most recent FICO scores available for the Company’s customers as a percentage of each class of loan receivables:
Credit Risk Profile
by FICO Score

660 and
Above

Less than 660
or No Score
At September 30, 2017
Credit card loans 81 % 19 %
Personal loans 95 % 5 %
Private student loans (excluding PCI)⁽¹⁾
96 % 4 %

At December 31, 2016
Credit card loans 82 % 18 %
Personal loans 96 % 4 %
Private student loans (excluding PCI)⁽¹⁾
95 % 5 %

Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become 30 days past due.


~~(1)~~	~~PCI loans are discussed under the heading "— Purchased Credit-Impaired Loans."~~

The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent loans in the Company's loan portfolio is shown below for credit card, private student and personal loan receivables (dollars in millions):


	September 30, 2022						December 31, 2021
	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due
Credit card loans	$	991	$	770	$	1,761	$	670	$	562	$	1,232
Private student loans by origination year(1)
2022	$	—	$	—	$	—
2021	6		—		6		$	—	$	—	$	—
2020	14		2		16		4		1		5
2019	19		5		24		9		2		11
2018	20		7		27		14		4		18
Prior	99		29		128		94		29		123
Total private student loans	$	158	$	43	$	201	$	121	$	36	$	157
Personal loans by origination year
2022	$	5	$	1	$	6
2021	12		4		16		$	5	$	1	$	6
2020	7		3		10		7		2		9
2019	8		3		11		11		4		15
2018	4		2		6		6		3		9
Prior	3		1		4		6		3		9
Total personal loans	$	39	$	14	$	53	$	35	$	13	$	48

(1)Private student loans may include a deferment period, during which borrowers are not required to make payments while enrolled in school at least half time as determined by the school. During a deferment period, these loans do not advance into delinquency.

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Allowance for Credit Losses

The following tables provide changes in the Company's allowance for credit losses (dollars in millions):


	For the Three Months Ended September 30, 2022
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at June 30, 2022	$	5,307	$	832	$	572	$	46	$	6,757
Additions
Provision for credit losses(1)	649		20		69		5		743
Deductions
Charge-offs	(592)		(29)		(38)		—		(659)
Recoveries	197		6		17		—		220
Net charge-offs	(395)		(23)		(21)		—		(439)

Balance at September 30, 2022	$	5,561	$	829	$	620	$	51	$	7,061

	For the Three Months Ended September 30, 2021
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at June 30, 2021	$	5,409	$	828	$	745	$	44	$	7,026
Additions
Provision for credit losses(1)	178		46		(64)		—		160
Deductions
Charge-offs	(495)		(23)		(38)		—		(556)
Recoveries	206		6		19		—		231
Net charge-offs	(289)		(17)		(19)		—		(325)

Balance at September 30, 2021	$	5,298	$	857	$	662	$	44	$	6,861

	For the Nine Months Ended September 30, 2022
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at December 31, 2021	$	5,273	$	843	$	662	$	44	$	6,822
Additions
Provision for credit losses(1)	1,395		54		19		7		1,475
Deductions
Charge-offs	(1,720)		(86)		(115)		—		(1,921)
Recoveries	613		18		54		—		685
Net charge-offs	(1,107)		(68)		(61)		—		(1,236)

Balance at September 30, 2022	$	5,561	$	829	$	620	$	51	$	7,061

	For the Nine Months Ended September 30, 2021
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at December 31, 2020	6,491		840		857		38		8,226
Additions
Provision for credit losses(1)	(18)		61		(96)		6		(47)
Deductions
Charge-offs	(1,778)		(63)		(150)		—		(1,991)
Recoveries	603		19		51		—		673
Net charge-offs	(1,175)		(44)		(99)		—		(1,318)

Balance at September 30, 2021	$	5,298	$	857	$	662	$	44	$	6,861

(1)Excludes a $30 million and $25 million adjustment of the liability for expected credit losses on unfunded commitments for the three months ended September 30, 2022 and 2021, respectively, and $1 million and $2 million for the nine months ended September 30, 2022 and 2021, respectively, as the liability is recorded in accrued expenses and other liabilities in the Company's condensed consolidated statements of financial condition.

The allowance for credit losses was approximately $7.1 billion at September 30, 2022, which reflects a $304 millionbuildover June 30, 2022 and a $239 million build from December 31, 2021. Thebuildin the allowance for credit losses for the three and nine months ended September 30, 2022 was primarily driven by continued loan growth.

Table of Contents

The allowance estimation process begins with a loss forecast that uses certain macroeconomic variables and multiple macroeconomic scenarios among its inputs. In estimating the allowance at September 30, 2022, the Company used a macroeconomic forecast that projected (i) an unemployment rate of 4.2% at the end of 2022, peaking at 4.6% during 2023 and finishing the year at 4.5%; and (ii) 0.2% annualized decline in the real gross domestic product for 2022 and 1.8% annualized growth in the real gross domestic product for 2023.

In estimating expected credit losses, the Company considered the uncertainties associated with borrower behavior and payment trends, as well as higher consumer price inflation experienced during 2022 and the fiscal and monetary policy responses to that inflation. During 2022, the Federal Reserve raised its federal funds rate target range multiple times and signaled additional rate hikes throughout the remainder of the year. In recognition of the risks related to the macroeconomic environment, the estimation of the allowance for credit losses has required significant management judgment.

The forecast period the Company deemed to be reasonable and supportable was 18 months for all periods presented. The 18-month reasonable and supportable forecast period was deemed appropriate given the current economic conditions. For all periods presented, the Company determined that a reversion period of 12 months was appropriate for the same reason. The Company applied a weighted reversion method to provide a more reasonable transition to historical losses for all loan products for all periods presented.

The increase in net charge-offs for credit card, private student loans ~~additional~~and personal loans for the three months ended September 30, 2022, when compared to the same period in 2021, was primarily due to credit ~~risk management activities include monitoring~~normalization. The net charge-offs for credit card and personal loans decreased for the nine months ended September 30, 2022, when compared to the same period in 2021. Thedecrease in net charge-offs for credit card was primarily driven by lower average balances at charge off. The decrease in net charge-offs for personal loans was primarily driven by continued benefit from tighter credit underwriting standards implemented in 2020. The increase in net charge-offs for private student loans for the nine months ended September 30, 2022, when compared to the same period in 2021, was primarily driven by credit normalization and the diminishing benefit from pandemic programs.

Net charge-offs of principal are recorded against the allowance for credit losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Interest and fees accrued subsequently charged-off, net of recoveries (recorded as a reduction of interest income)	$	74	$	57	$	209	$	232
Fees accrued subsequently charged-off, net of recoveries (recorded as a reduction to other income)	$	24	$	15	$	68	$	59

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Delinquent and Non-Accruing Loans

The amortized cost basis (excluding accrued interest receivable presented in other assets) of delinquent and non-accruing loans in the Company's loan portfolio is shown below for each class of loan receivables (dollars in millions):


	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing(1)
At September 30, 2022
Credit card loans	$	991	$	770	$	1,761	$	741	$	188
Other loans
Private student loans	158		43		201		42		8
Personal loans	39		14		53		13		7
Other loans	9		10		19		1		21
Total other loans	206		67		273		56		36
Total loan receivables	$	1,197	$	837	$	2,034	$	797	$	224

At December 31, 2021
Credit card loans	$	670	$	562	$	1,232	$	527	$	194
Other loans
Private student loans	121		36		157		35		8
Personal loans	35		13		48		12		7
Other loans	7		7		14		1		16
Total other loans	163		56		219		48		31
Total loan receivables	$	833	$	618	$	1,451	$	575	$	225

(1)The Company estimates that the gross interest income that would have been recorded under the original terms of non-accruing credit card loans was $6 million for the three months ended September 30, 2022 and 2021, and $17 million and $21 million for the nine months ended September 30, 2022 and 2021, respectively. The Company does not separately track the amount of ~~loans in forbearance. Forbearance allows borrowers experiencing temporary financial difficulties~~gross interest income that would have been recorded under the original terms of loans. Instead, the Company estimated this amount based on customers' current balances and ~~willing to make payments, the~~most recent interest rates.

~~ability to temporarily suspend payments. Eligible borrowers have a lifetime cap on forbearance~~The payment status of ~~12 months. At September 30, 2017 and December 31, 2016, there were $27 million and $19 million, respectively, of private student~~modified loans, including ~~PCI,~~those identified as TDRs and those exempt from the TDR designation pursuant to the CARES Act, is reflected in ~~forbearance, representing 0.5% and 0.3%, respectively, of total student loans in repayment and forbearance.~~the Company’s delinquency reporting.

~~Allowance for Loan Losses~~

The following tables provide changes in the Company’s allowance for loan losses (dollars in millions):
For the Three Months Ended September 30, 2017
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,980
$ 235
$ 159
$ 10
$ 2,384
Additions
Provision for loan losses 550
91
34
(1 ) 674
Deductions
Charge-offs (555 ) (64 ) (32 ) —
(651 )
Recoveries 116
6
2
—
124
Net charge-offs (439 ) (58 ) (30 ) —
(527 )
Balance at end of period $ 2,091
$ 268
$ 163
$ 9
$ 2,531

For the Three Months Ended September 30, 2016
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,603
$ 176
$ 151
$ 19
$ 1,949
Additions
Provision for loan losses 372
51
21
1
445
Deductions
Charge-offs (425 ) (46 ) (17 ) —
(488 )
Recoveries 111
5
2
—
118
Net charge-offs (314 ) (41 ) (15 ) —
(370 )
Balance at end of period $ 1,661
$ 186
$ 157
$ 20
$ 2,024

For the Nine Months Ended September 30, 2017
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,790
$ 200
$ 158
$ 19
$ 2,167
Additions
Provision for loan losses 1,607
231
69
(7 ) 1,900
Deductions
Charge-offs (1,651 ) (182 ) (71 ) (3 ) (1,907 )
Recoveries 345
19
7
—
371
Net charge-offs (1,306 ) (163 ) (64 ) (3 ) (1,536 )
Balance at end of period $ 2,091
$ 268
$ 163
$ 9
$ 2,531

For the Nine Months Ended September 30, 2016
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,554
$ 155
$ 143
$ 17
$ 1,869
Additions
Provision for loan losses 1,081
139
58
3
1,281
Deductions
Charge-offs (1,312 ) (123 ) (51 ) —
(1,486 )
Recoveries 338
15
7
—
360
Net charge-offs (974 ) (108 ) (44 ) —
(1,126 )
Balance at end of period $ 1,661
$ 186
$ 157
$ 20
$ 2,024


~~(1)~~	~~Includes both PCI and non-PCI private student loans.~~

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income) $ 87
$ 65
$ 258
$ 201
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income) $ 20
$ 15
$ 65
$ 49

The following tables provide additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio by impairment methodology (dollars in millions):
Credit Card
Personal
Loans

Student
Loans⁽¹⁾

Other
Loans
Total
At September 30, 2017
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20 $ 1,889
$ 241
$ 112
$ 3
$ 2,245
Evaluated for impairment in accordance with
ASC 310-10-35⁽²⁾⁽³⁾
202
27
20
6
255
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 —
—
31
—
31
Total allowance for loan losses $ 2,091
$ 268
$ 163
$ 9
$ 2,531
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20 $ 62,295
$ 7,298
$ 6,872
$ 324
$ 76,789
Evaluated for impairment in accordance with
ASC 310-10-35⁽²⁾⁽³⁾
1,180
99
126
47
1,452
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 —
—
2,202
—
2,202
Total recorded investment $ 63,475
$ 7,397
$ 9,200
$ 371
$ 80,443

At December 31, 2016
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20 $ 1,623
$ 179
$ 105
$ 3
$ 1,910
Evaluated for impairment in accordance with
ASC 310-10-35⁽²⁾⁽³⁾
167
21
18
16
222
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 —
—
35
—
35
Total allowance for loan losses $ 1,790
$ 200
$ 158
$ 19
$ 2,167
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20 $ 60,437
$ 6,400
$ 6,307
$ 219
$ 73,363
Evaluated for impairment in accordance with
ASC 310-10-35⁽²⁾⁽³⁾
1,085
81
86
55
1,307
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30 —
—
2,584
—
2,584
Total recorded investment $ 61,522
$ 6,481
$ 8,977
$ 274
$ 77,254


~~(1)~~	~~Includes both PCI and non-PCI private student loans.~~

~~(2)~~

Loan receivables evaluated for impairment in accordance with Accounting Standards Codification ("ASC") 310-10-35 include credit card loans, personal loans and student loans collectively evaluated for impairment in accordance with ASC Subtopic 310-40, ~~Receivables,~~ ~~which consists of modified loans accounted for as troubled debt restructurings. Other loans are individually evaluated for impairment and generally do not represent troubled debt restructurings.~~

~~(3)~~

~~The unpaid principal balance of credit card loans was~~ ~~$1.0 billion~~ ~~and $0.9 billion at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. The unpaid principal balance of personal loans was~~ ~~$97 million~~ ~~and $79 million at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. The unpaid principal balance of student loans was~~ ~~$124 million~~ ~~and $84 million at~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively. All loans accounted for as troubled debt restructurings have a related allowance for loan losses.~~

Troubled Debt Restructurings

The Company has internal loan modification programs that provide relief to credit card, ~~personal loan~~private student and ~~student~~personal loan borrowers who ~~are~~may be experiencing financial hardship. The Company considers a modified loan in which a concession has been granted to the borrower to be a TDR based on the cumulative length of the concession period and credit quality of the borrower. The internal loan modification programs include both temporary and permanent programs, which vary by product. External loan modification programs are also available for credit card and personal loans. The Company evaluates new programs to determine which of them meet the definition of a TDR. Temporary and permanent modifications on credit card and personal loans, as well as temporary modifications on private student loans and certain grants of private student loan forbearance, generally result in the loans being ~~considered individually impaired.~~classified as TDRs. In addition, loans that defaulted from, or ~~graduated from~~successfully completed a loan modification ~~programs~~program or forbearance, ~~are considered~~continue to be ~~individually impaired.~~classified as TDRs, except as noted in the following paragraph. See the table below that presents the carrying value of loans that entered a TDR program and experienced a default during the period for more information.

For credit card customers, the Company offers both temporary and permanent hardship programs. The temporary hardship ~~program primarily consists~~programs consist of an interest rate reduction and, in some cases, a reduced minimum payment, ~~and an interest rate reduction,~~ both lasting for a period no longer than 12 months. Charging privileges on these accounts are generally suspended while in the program. However, if the customer meets certain criteria, charging privileges may be reinstated following completion of the program. Credit card accounts of borrowers who have previously participated in a temporary interest rate reduction program and that have both demonstrated financial stability and had their charging privileges reinstated at a market-based interest rate, are excluded from the balance of TDRs.

The permanent ~~workout~~modification program involves closing the account, changing the structure of the loan to a fixed payment loan with a maturity no longer than 6072 months and reducing the interest rate on the loan. The permanent

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modification program does not ~~normally~~typically provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. The Company also makes permanent loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans typically receive a reduced interest rate, ~~but continue to be subject to the original minimum~~generally reflect fixed payment terms and do not normally include waiver of unpaid principal, interest or fees. ~~Credit card~~These permanent loan modifications remain in the population of TDRs until they are paid off or charged off.

At September 30, 2022 and December 31, 2021, there were $5.5 billion and $5.8 billion, respectively, of private student loans ~~included~~ in repayment and $76 million and $64 million, respectively, in forbearance. To assist private student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, the Company may offer hardship forbearance, payment deferral, a temporary payment reduction, a temporary interest rate reduction or extended terms. A modified loan typically meets the definition of a TDR based on the cumulative length of the concession period and ~~permanent programs are accounted for as troubled debt restructurings.~~a determination of financial distress based on an evaluation of the borrower's credit quality using FICO scores.

For personal loan customers, ~~in certain situations~~ the Company offers various payment programs, including temporary and permanent ~~programs.~~programs, in certain situations. The temporary programs normally consist of ~~a reduction of~~reducing the minimum payment for ~~a period of~~ no longer than 12 months ~~with the option of a final balloon payment required at the end of the loan term or an extension of the maturity date with the total term not exceeding nine years. Further,~~and, in certain circumstances, the interest rate on the loan is reduced. The permanent ~~program involves changing the terms of~~programs involve extending the loan ~~in order to pay off the outstanding balance over a longer~~ term and, ~~also~~ in certain circumstances, reducing the interest rate on the loan. ~~Similar to~~The total term of the ~~temporary programs, the total term~~loan, including modification, may not exceed nine years. The Company also allows permanent loan modifications for customers who request financial assistance through external sources, similar to the credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are ~~accounted for~~classified as ~~troubled debt restructurings.~~

To assist student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, the Company may offer hardship forbearance or programs that include payment deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A modified loan typically meets the definition of a troubled debt restructuring based on the cumulative length of the concession period and an evaluation of the credit quality of the borrower, based on FICO scores. Prior to the third quarter of 2016, only a second forbearance when the borrower was 30 days or greater delinquent was considered a troubled debt restructuring. The balance of student loans being accounted for as troubled debt restructurings has increased since then, although it has not led to significant changes in the balance of the overall allowance for loan losses.TDRs.

The Company monitors borrower performance after using payment programs or ~~forbearance and the~~forbearance. The Company believes the programs ~~help to prevent defaults and~~ are useful in assisting customers experiencing financial ~~difficulties.~~difficulties and allowing them to make timely payments. In addition to helping customers with their credit needs, these programs are designed to maximize collections and ultimately the Company’s profitability. The Company plans to continue to use payment programs and forbearance to provide relief to customers experiencing temporary financial difficulties and ~~as a result,~~ expects to have additional loans classified as ~~troubled debt restructurings~~TDRs in the ~~future.~~future as a result.

Additional information about modified loans classified as troubled debt restructurings is shown below (dollars in millions):
Average recorded investment in loans
Interest income recognized during period loans were impaired⁽¹⁾

Gross interest income that would have been recorded with original terms⁽²⁾
For the Three Months Ended September 30, 2017
Credit card loans⁽³⁾
$ 1,165
$ 28
$ 22
Personal loans $ 96
$ 2
$ 1
Private student loans $ 120
$ 3
$ —

For the Three Months Ended September 30, 2016
Credit card loans⁽³⁾
$ 1,030
$ 23
$ 18
Personal loans $ 74
$ 2
$ 1
Private student loans $ 63
$ 1
$ —

For the Nine Months Ended September 30, 2017
Credit card loans⁽³⁾
$ 1,137
$ 78
$ 64
Personal loans $ 90
$ 7
$ 3
Private student loans $ 107
$ 6
$ —

For the Nine Months Ended September 30, 2016
Credit card loans⁽³⁾
$ 1,023
$ 65
$ 57
Personal loans $ 71
$ 6
$ 2
Private student loans $ 57
$ 3
$ —


~~(1)~~	The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.

~~(2)~~

The Company does not separately track the amount of additional gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.

~~(3)~~

Includes credit card loans that were modified in troubled debt restructurings, but are no longer enrolled in a troubled debt restructuring program due to noncompliance with the terms of the modification or successful completion of a program. The average balance of credit card loans that were no longer enrolled in a troubled debt restructuring program was $345 million and $282 million, respectively, for the three months ended September 30, 2017 and 2016, and $327 million and $277 million for the nine months ended September 30, 2017 and 2016.

~~In order to~~To evaluate the primary financial effects that resulted from credit card loans entering into a ~~loan modification~~TDR program during the three and nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company quantified the amount by which interest and fees were reduced during the periods. During the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company forgave approximately ~~$10~~$7 million ~~and $8 million, respectively,~~ of interest and fees ~~as a result of~~resulting from accounts entering into a credit card loan ~~modification~~TDR program. During the nine months ended September 30, ~~2017~~2022 and ~~2016,~~2021, the Company forgave approximately ~~$31~~$20 million and ~~$25~~$28 million, respectively, of interest and fees ~~as a result of~~resulting from accounts entering into a credit card loan ~~modification~~TDR program.

For all loan products, interest income on modified loans is recognized based on the modified contractual terms.

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The following table provides information on loans that entered a loan modification program during the period (dollars in millions):
For the Three Months Ended September 30,
2017 2016
Number of Accounts Balances Number of Accounts Balances
Accounts that entered a loan modification program during the period
Credit card loans 28,582
$ 164
25,727
$ 149
Personal loans 1,580
$ 20
1,221
$ 14
Private student loans 965
$ 17
1,057
$ 19

For the Nine Months Ended September 30,
2017 2016
Number of Accounts Balances Number of Accounts Balances
Accounts that entered a loan modification program during the period
Credit card loans 85,553
$ 502
67,791
$ 402
Personal loans 4,573
$ 56
3,309
$ 38
Private student loans 2,985
$ 52
1,798
$ 31

The following table provides information on loans that entered a TDR program during the period (dollars in millions):


	For the Three Months Ended September 30,
	2022			2021
	Number of Accounts	Balances		Number of Accounts	Balances
Accounts that entered a TDR program during the period
Credit card loans(1)	63,803	$	414	13,964	$	86
Private student loans	1,863	$	36	102	$	2
Personal loans	1,799	$	25	888	$	10

	For the Nine Months Ended September 30,
	2022			2021
	Number of Accounts	Balances		Number of Accounts	Balances
Accounts that entered a TDR program during the period
Credit card loans(1)	167,655	$	1,071	48,887	$	315
Private student loans	5,141	$	96	355	$	7
Personal loans	4,561	$	62	3,102	$	38

(1)Accounts that entered a credit card TDR program include $80 million and $72 million that were converted from revolving line-of-credit arrangements to term loans during the three months ended September 30, 2022 and 2021, respectively, and $225 million and $288 million for the nine months ended September 30, 2022 and 2021, respectively.

The number and balance of enrollments in credit card, private student loan and personal loan modification programs designated as TDRs increased during the three and nine months ended September 30, 2022, when compared to the same periods in 2021. The increase is primarily due to the expiration of the CARES Act exemption for new modifications effective January 1, 2022.

The following table presents the carrying value of loans that experienced a default during the period that had been modified in a TDR during the 15 months preceding the end of each period (dollars in millions):


	For the Three Months Ended September 30,
	2022			2021
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
TDRs that subsequently defaulted
Credit card loans(1)(2)	7,784	$	38	3,679	$	21
Private student loans(3)	391	$	7	83	$	2
Personal loans(2)	606	$	9	399	$	6

	For the Nine Months Ended September 30,
	2022			2021
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
TDRs that subsequently defaulted
Credit card loans(1)(2)	18,022	$	89	14,205	$	84
Private student loans(3)	658	$	12	214	$	5
Personal loans(2)	1,142	$	16	1,287	$	18

(1)For credit card loans that default from a temporary loan modification program, accounts revert back to the pre-modification terms and charging privileges remain suspended in most cases.

(2)For credit card loans and personal loans, a customer defaults from a loan modification program after either two consecutive missed payments or at charge-off, depending on the program. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.

(3)For student loans, a customer defaults from a loan modification after they are 60 or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.

The following table presents the carrying value of loans that experienced a payment default during the period that had been modified in a troubled debt restructuring during the 15 months preceding the end of each period (dollars in millions):
For the Three Months Ended September 30,
2017 2016
Number of Accounts Aggregated Outstanding Balances Upon Default Number of Accounts Aggregated Outstanding Balances Upon Default
Troubled debt restructurings that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾
8,955
$ 48
6,797
$ 36
Personal loans⁽²⁾
463
$ 6
277
$ 3
Private student loans⁽³⁾
298
$ 5
197
$ 3

For the Nine Months Ended September 30,
2017 2016
Number of Accounts Aggregated Outstanding Balances Upon Default Number of Accounts Aggregated Outstanding Balances Upon Default
Troubled debt restructurings that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾
25,170
$ 135
15,877
$ 84
Personal loans⁽²⁾
1,296
$ 16
711
$ 8
Private student loans⁽³⁾
667
$ 11
571
$ 9

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~~(1)~~	~~Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked in most cases.~~


~~(2)~~	For credit card loans and personal loans, a customer defaults from a modification program after two consecutive missed payments. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.


~~(3)~~	~~For student loans, defaults have been defined as loans that are~~ 60 ~~or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.~~

Of the account balances that defaulted as shown above for the three months ended September 30, ~~2017~~2022 and ~~2016,~~2021, approximately ~~37%~~60% and ~~39%~~62%, respectively, and for the nine months ended September 30, 2022 and 2021, approximately 62% and 66%, respectively, of the total balances were charged off at the end of the month in which they ~~defaulted. Of the account balances that~~ defaulted ~~as shown above for the nine months ended September 30, 2017 and 2016, approximately 37% of the total balances were charged off at the end of the month in which that defaulted.~~from a TDR program. For accounts that have defaulted from a ~~loan modification~~TDR program and have not been subsequently charged off, the balances are included in the allowance for ~~loan~~credit loss analysis discussed above under "—“— Allowance for Credit Losses.”

4. Credit Card and Private Student Loan ~~Losses."~~Securitization Activities

~~Purchased Credit-Impaired Loans~~

Purchased loans with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. The private student loans acquired in the SLC transaction, as well as the additional acquired private student loan portfolio comprise the Company’s only PCI loans at ~~September 30, 2017~~ ~~and December 31, 2016. Total PCI student loans had an outstanding balance of~~ ~~$2.3 billion~~ ~~and $2.7 billion, including accrued interest, and a related carrying amount of $2.2 billion and $2.6 billion as of~~ ~~September 30, 2017~~ ~~and December 31, 2016, respectively.~~

The following table provides changes in accretable yield for the acquired loans during each period (dollars in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Balance at beginning of period $ 725
$ 888
$ 796
$ 965
Accretion into interest income (40 ) (46 ) (121 ) (142 )
Other changes in expected cash flows 21
—
31
19
Balance at end of period $ 706
$ 842
$ 706
$ 842

Periodically, the Company updates the estimate of cash flows expected to be collected based on management's latest expectations of future credit losses, borrower prepayments and certain other assumptions that affect cash flows. No provision expense was recorded during the three and nine months ended September 30, 2017 and 2016. The allowance for PCI loan losses at September 30, 2017 and December 31, 2016 was $31 million and $35 million. For the three and nine months ended September 30, 2017, increase in accretable yield was primarily driven by increases in the rates on variable loans. For the three months ended September 30, 2016, there were no changes in cash flow assumptions while for the nine months ended September 30, 2016, the increase in the rates on variable loans during the first half of 2016 was primarily responsible for an increase in accretable yield. Changes to accretable yield are recognized prospectively as an adjustment to yield over the remaining life of the pools.

At September 30, 2017, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which include loans not yet in repayment) were 3.12% and 0.93%, respectively. At December 31, 2016, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which include loans not yet in repayment) were 2.88% and 0.87%, respectively. These rates include private student loans that are greater than 120 days delinquent that are covered by an indemnification agreement or insurance arrangements through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans was 0.90% and 0.45% for the three months ended September 30, 2017 and 2016, respectively, and 0.69% and 0.45% for the nine months ended September 30, 2017 and 2016, respectively.


4.	~~Credit Card and Student Loan Securitization Activities~~

The ~~Company’s~~Company's securitizations are accounted for as secured borrowings and the related trusts are treated as consolidated subsidiaries of the Company. For a description of the ~~Company’s~~Company's principles of consolidation with respect to VIEs, see Note 1: Background and Basis of Presentation ofto the ~~Company’s~~consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 31, ~~2016.~~2021.

Credit Card Securitization Activities

The Company accesses the term asset securitization market through the Discover Card Master Trust I ~~(“DCMT”~~("DCMT") and the Discover Card Execution Note Trust ~~(“DCENT”~~("DCENT"). Credit card loan receivables are transferred into DCMT and beneficial interests in DCMT are transferred into DCENT. ~~Interests in~~ DCENT ~~are issued~~issues debt securities to investors ~~in the form of debt securities and~~that are reported primarily in long-term borrowings.

The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with the most senior class generally receiving a triple-A rating. ~~In order to~~To issue senior, ~~higher rated~~higher-rated classes of notes, it is necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, ~~lower rated~~lower-rated or more highly subordinated classes of notes. ~~The subordinated classes are held by wholly-owned~~Wholly-owned subsidiaries of Discover ~~Bank.~~Bank hold the subordinated classes of notes. The Company is exposed to ~~credit-related~~credit risk ~~of loss~~ associated with trust ~~assets~~receivables as of the balance sheet date through the retention of these subordinated interests. The ~~estimated probable incurred~~current expected credit loss ("CECL") on trust receivables is included in the allowance for ~~loan~~credit losses estimate.

The ~~Company’s~~Company's retained interests in the trust's assets, ~~of the trusts,~~ consisting of investments in DCENT notes held by subsidiaries of Discover Bank, constitute intercompany positions ~~which~~that are eliminated in the preparation of the ~~Company’s~~Company's condensed consolidated statements of financial condition.

Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from them become restricted for use in meeting obligations to the ~~trusts’~~trust's creditors. Further, the transferred credit card loan receivables are owned by the trust and are not available to the Company's third-party ~~creditors of the Company.~~creditors. The trusts have ownership of cash balances, the amounts of which are reported in restricted ~~cash. With~~cash within the ~~exception~~Company's condensed consolidated statements of financial condition. Except for the ~~seller’s~~seller's interest in trust receivables, the ~~Company’s~~Company's interests in trust assets are generally subordinate to the interests of third-party investors in trust debt and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to ~~the investors in the trusts’ debt.~~those investors. Apart from the restricted assets related to securitization activities, the investors and the securitization trusts have no recourse to the ~~Company’s~~Company's other assets or the Company's general credit for a shortage in cash flows.

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The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statements of financial condition as relating to securitization activities, are shown in the table below (dollars in millions):
September 30,
2017 December 31,
2016
Restricted cash $ 1,224
$ 23

Investors’ interests held by third-party investors 16,400
15,625
Investors’ interests held by wholly-owned subsidiaries of Discover Bank 5,141
5,189
Seller’s interest 8,340
10,812
Loan receivables⁽¹⁾
29,881
31,626
Allowance for loan losses allocated to securitized loan receivables⁽¹⁾
(990 ) (928 )
Net loan receivables 28,891
30,698
Other 6
4
Carrying value of assets of consolidated variable interest entities $ 30,121
$ 30,725

The carrying values of these restricted assets, which are presented on the Company's condensed consolidated statements of financial condition as relating to securitization activities, are shown in the following table (dollars in millions):


	September 30, 2022		December 31, 2021
Restricted cash	$	1,858	$	2,574

Investors' interests held by third-party investors	11,025		9,425
Investors' interests held by wholly owned subsidiaries of Discover Bank	3,333		3,899
Seller's interest	10,345		11,918
Loan receivables(1)	24,703		25,242
Allowance for credit losses allocated to securitized loan receivables(1)	(1,153)		(1,371)
Net loan receivables	23,550		23,871
Other assets	5		3
Carrying value of assets of consolidated variable interest entities	$	25,413	$	26,448


~~(1)~~	The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

(1)The Company maintains its allowance for credit losses at an amount equal to lifetime expected credit losses associated with all loan receivables, which includes all loan receivables in the trusts. Therefore, the credit risk associated with the transferred receivables is fully reflected on the Company's statements of financial condition in accordance with GAAP.

The debt securities issued by the consolidated trusts are subject to credit, payment and interest rate risks on the transferred credit card loan receivables. To protect investors in the securities, there are certain features or triggering events that ~~could~~will cause an early amortization of the debt securities, including triggers related to the impact of the performance of the trust receivables on the availability and adequacy of cash flows to meet contractual requirements. As of September 30, ~~2017,~~2022, no economic or other early amortization events have occurred.

The Company continues to own and service the accounts that generate the loan receivables held by the trusts. Discover Bank receives servicing fees from the trusts based on a percentage of the monthly investor principal balance outstanding. Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income, net of related expenses.

Private Student Loan Securitization Activities

~~Student~~Private student loan trust receivables ~~underlying third-party investors’ interests~~ are ~~recorded~~reported in ~~PCI loans~~loan receivables and the related debt issued by the ~~trusts~~trust is reported in long-term borrowings. The trust assets ~~of the trusts~~ are restricted from being sold or pledged as collateral for other borrowings and the cash flows from these restricted assets may be used only to pay obligations of the trusts. ~~With~~Except for the ~~exception of the trusts’~~trust's restricted assets, the ~~trusts~~trust and investors have no recourse to the ~~Company’s~~Company's other assets or the Company's general credit for a shortage in cash flows.

During the third quarter, one of the three trusts was dissolved after the debt was fully paid. The remaining loan balance and related allowance for loan losses were transferred to Discover Bank with the dissolution of the trust. Principal payments on the long-term secured borrowings are made as cash is collected on the underlying loans that are ~~used as~~ collateral on the secured borrowings. The Company does not have access to cash collected by the securitization ~~trusts~~trust until cash is released in accordance with the trust indenture ~~agreements and, for certain securitizations, no cash will be released to the Company until all outstanding trust borrowings have been repaid.~~agreement. Similar to the credit card securitizations, the Company continues to own

and service the ~~accounts that generate the~~private student loan receivables held by the ~~trusts~~trust and receives servicing fees from the ~~trusts~~trust based on ~~either~~ a percentage of the principal balance ~~outstanding or a flat fee per borrower.~~outstanding. Although the servicing fee income offsets the fee expense related to the ~~trusts~~trust and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income, net of related expenses.

Under terms of ~~all~~ the trust ~~arrangements,~~arrangement, the Company has the option, but not the obligation, to provide financial support to the ~~trusts,~~trust, but has never provided such support. A substantial portion of the credit risk associated with the securitized loans has been transferred to a third ~~parties~~party under ~~private credit insurance or~~an indemnification ~~arrangements.~~arrangement.

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The carrying values of these restricted assets, which are presented on the Company’s condensed consolidated statements of financial condition as relating to securitization activities, are shown in the table below (dollars in millions):
September 30,
2017 December 31,
2016
Restricted cash $ 55
$ 72

Student loan receivables⁽¹⁾
808
1,390
Allowance for loan losses allocated to securitized loan receivables⁽¹⁾
—
(27 )
Net student loan receivables 808
1,363
Carrying value of assets of consolidated variable interest entities $ 863
$ 1,435

The carrying values of these restricted assets, which are presented on the Company's condensed consolidated statements of financial condition as relating to securitization activities, are shown in the following table (dollars in millions):


	September 30, 2022		December 31, 2021
Restricted cash	$	8	$	8
Private student loan receivables	182		207
Carrying value of assets of consolidated variable interest entities	$	190	$	215

~~(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. During the quarter, the outstanding borrowings from one of the student loan trusts were extinguished. The remaining loans in the trust and related allowance for loan losses were transferred to Discover Bank.


5.	~~Deposits~~

5. Deposits

The Company offers its deposit products to customers through two channels: (i) ~~through~~ direct marketing, internet origination and affinity relationships (“("direct-to-consumer ~~deposits”~~deposits"); and (ii) ~~indirectly through~~ contractual arrangements with securities brokerage firms (“("brokered ~~deposits”~~deposits"). Direct-to-consumer deposits include online savings accounts, certificates of deposit, money market accounts, ~~online~~IRA savings ~~and checking~~ accounts, ~~and~~ IRA certificates of deposit ~~while brokered~~and checking/debit accounts. Brokered deposits include certificates of deposit and sweep accounts.

The following table summarizes certificates of deposits maturing over the remainder of this year, over each of the next four years and thereafter (dollars in millions):


	At September 30, 2022
2022	$	4,136
2023	12,675
2024	4,820
2025	1,935
2026	1,223
Thereafter	2,204
Total	$	26,993

The following table provides a summary of interest-bearing deposit accounts (dollars in millions):
September 30,
2017 December 31,
2016
Certificates of deposit in amounts less than $100,000 $ 21,862
$ 20,225
Certificates of deposit in amounts $100,000 or greater⁽¹⁾
6,031
5,864
Savings deposits, including money market deposit accounts 27,690
25,372
Total interest-bearing deposits $ 55,583
$ 51,461


~~(1)~~	~~Includes $1.4 billion in certificates of deposit greater than $250,000, the Federal Deposit Insurance Corporation ("FDIC") insurance limit, as of September 30, 2017 and December 31, 2016.~~

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The following table summarizes certificates of deposit in amounts of $100,000 or greater by contractual maturity (dollars in millions):
Maturity Period September 30, 2017
Three months or less $ 867
Over three months through six months 885
Over six months through twelve months 1,529
Over twelve months 2,750
Total $ 6,031

6. Long-Term Borrowings

Long-term borrowings consist of borrowings having original maturities of one year or more. The following table provides a summary of the Company's long-term borrowings and weighted-average interest rates on outstanding balances (dollars in millions):


	September 30, 2022					December 31, 2021
	Maturity	Interest Rate	Weighted-Average Interest Rate	Outstanding Amount		Outstanding Amount
Securitized Debt
Fixed-rate asset-backed securities(1)	2022-2026	0.58% - 3.56%	2.41%	$	8,405	$	5,588
Floating-rate asset-backed securities(2)	2022-2024	3.15% - 3.42%	3.26%	2,599		3,347
Total Discover Card Master Trust I and Discover Card Execution Note Trust				11,004		8,935

Floating-rate asset-backed security(3)(4)	2031	7.25%	7.25%	88		104
Total private student loan securitization trust				88		104
Total long-term borrowings - owed to securitization investors				11,092		9,039

Discover Financial Services (Parent Company)
Fixed-rate senior notes	2022-2027	3.75% - 4.50%	4.06%	3,088		3,382
Fixed-rate retail notes	2022-2031	2.85% - 4.40%	3.75%	166		166

Discover Bank
Fixed-rate senior bank notes(1)	2023-2030	2.45% - 4.65%	3.63%	5,344		5,385
Fixed-rate subordinated bank notes(1)	2028	4.68%	4.68%	487		505
Total long-term borrowings				$	20,177	$	18,477

(1)The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in the London Interbank Offered Rate ("LIBOR") or Overnight Index Swap ("OIS") rates. The use of these interest rate swaps impacts the carrying value of the debt. See Note 15: Derivatives and Hedging Activities.

The following table summarizes certificates of deposit maturing over the remainder of this year, over each of the next four years, and thereafter (dollars in millions):
Year September 30, 2017
2017 $ 2,934
2018 10,847
2019 4,524
2020 3,113
2021 2,178
Thereafter 4,297
Total $ 27,893

(2)DCENT floating-rate asset-backed securities include issuances with the following interest rate terms: 1-month LIBOR + 33 to 60 basis points as of September 30, 2022.


6.	~~Long-Term Borrowings~~

(3)The private student loan securitization trust floating-rate asset-backed security includes an issuance with the following interest rate term: Prime rate + 100 basis points as of September 30, 2022.

Long-term borrowings consist of borrowings having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted-average interest rates on outstanding balances (dollars in millions):
September 30, 2017 December 31, 2016
Maturity Interest
Rate Weighted-Average Interest Rate Outstanding Amount Outstanding Amount
Securitized Debt
Fixed-rate asset-backed securities⁽¹⁾
2017-2024 1.39%-2.53% 1.79% $ 10,121
$ 9,868
Floating-rate asset-backed securities⁽²⁾⁽³⁾
2018-2024 1.46%-1.83% 1.67% 6,209
5,694
Total Discover Card Master Trust I and Discover Card Execution Note Trust 16,330
15,562

Floating-rate asset-backed securities^(4)(5)(6)(7)
2031-2036 1.49%-5.25% 3.00% 649
849
Total SLC Private Student Loan Trusts 649
849
Total long-term borrowings - owed to securitization investors 16,979
16,411

Discover Financial Services (Parent Company)
Fixed-rate senior notes⁽¹⁾
2019-2027 3.75%-10.25% 4.25% 2,703
2,090
Fixed-rate retail notes 2017-2031 2.85%-4.40% 3.71% 274
169

Discover Bank
Fixed-rate senior bank notes⁽¹⁾
2018-2026 2.00%-4.25% 3.21% 6,084
6,077
Fixed-rate subordinated bank notes 2019-2020 7.00%-8.70% 7.49% 697
696
Total long-term borrowings $ 26,737
$ 25,443


~~(1)~~	The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in London Interbank Offered Rate (“LIBOR”). Use of these interest rate swaps impacts carrying value of the debt.


~~(2)~~	~~Discover Card Execution Note Trust floating-rate asset-backed securities include issuances with the following interest rate terms: 1-month LIBOR + 23 to 60 basis points as of September 30, 2017.~~


~~(3)~~	The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from interest payments on a portion of these long-term borrowings. There is no impact on debt carrying value from use of these interest rate swaps. See Note 14: Derivatives and Hedging Activities for additional information.


~~(4)~~	SLC Private Student Loan Trusts floating-rate asset-backed securities include issuances with the following interest rate terms: 3-month LIBOR + 17 to 45 basis points and Prime rate + 100 basis points as of September 30, 2017.


~~(5)~~	The Company acquired an interest rate swap related to the securitized debt assumed in the SLC transaction which matured and is no longer outstanding as of September 30, 2017. The swap did not qualify for hedge accounting and had no impact on debt carrying value. See Note 14: Derivatives and Hedging Activities for additional information.


~~(6)~~	~~Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.~~


~~(7)~~	~~Includes $245 million of senior notes maturing in 2031 and $404 million of senior and subordinated notes maturing in 2036 as of September 30, 2017.~~

(4)Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying private student loans. The date shown represents the final maturity date.

The following table summarizes long-term borrowings maturing over the remainder of this year, over each of the next four years and thereafter (dollars in millions):


	September 30, 2022
2022	$	2,331
2023	3,283
2024	3,729
2025	5,167
2026	2,658
Thereafter	3,009
Total	$	20,177

As a member of the FHLB of Chicago, the Company has access to both short- and long-term advance structures with maturities ranging from overnight to 30 years. At September 30, 2022, the Company had total committed borrowing capacity of $2.1 billion based on the amount and type of assets pledged, none of which was drawn. At December 31, 2021, the Company had total committed borrowing capacity of $1.4 billion based on the amount and type of assets pledged, of which $1.3 billion of short-term advances were outstanding.

The following table summarizes long-term borrowings maturing over the remainder of this year, over each of the next four years, and thereafter (dollars in millions):
Year September 30, 2017
2017 $ 1,201
2018 5,271
2019 5,994
2020 4,729
2021 1,040
Thereafter 8,502
Total $ 26,737

~~The~~Additionally, the Company has access to committed ~~undrawn~~borrowing capacity through private securitizations to support the funding of its credit card loan receivables. As of September 30, ~~2017~~,2022, the total commitment of secured credit facilities

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through private providers was $3.5 billion, none of which was drawn. As of December 31, 2021, the total commitment of secured credit facilities through private providers was ~~$6.0~~$4.0 billion,~~, none~~ $500 million of which was ~~drawn~~outstanding as ~~of September 30, 2017.~~a short-term draw. Access to the unused portions of the secured credit facilities is subject to the terms of the agreements with each of the ~~providers which~~providers. The secured credit facilities have various expirations in ~~calendar years 2018 through 2020.~~2024. Borrowings outstanding under each facility bear interest at a margin above LIBOR, Term Secured Overnight Financing Rate ("SOFR") or the asset-backed commercial paper costs of each ~~individual conduit~~ provider. The terms of each agreement provide for a commitment fee to be paid on the unused capacity and include various affirmative and negative covenants, including performance metrics and legal requirements similar to those required to issue any term securitization transaction.


7.	~~Accumulated Other Comprehensive Income~~

7. Preferred Stock

The table below presents a summary of the Company's non-cumulative perpetual preferred stock that is outstanding at September 30, 2022 (dollars in millions, except per depositary share amounts):


Series	Description	Initial Issuance Date	Liquidation Preference and Redemption Price per Depositary Share(1)		Per Annum Dividend Rate in effect at September 30, 2022		Total Depositary Shares Authorized, Issued and Outstanding		Carrying Value
							September 30, 2022	December 31, 2021	September 30, 2022		December 31, 2021
C(2)(3)(4)	Fixed-to-Floating Rate	10/31/2017	$	1,000	5.500	%	570,000	570,000	$	563	$	563
D(2)(5)(6)	Fixed-Rate Reset	6/22/2020	$	1,000	6.125	%	500,000	500,000	493		493
Total Preferred Stock							1,070,000	1,070,000	$	1,056	$	1,056

(1)Redeemable at the redemption price plus declared and unpaid dividends.

(2)Issued as depositary shares, each representing 1/100th interest in a share of the corresponding series of preferred stock. Each preferred share has a par value of $0.01.

(3)Redeemable at the Company’s option, subject to regulatory approval, either (i) in whole or in part on any dividend payment date on or after October 30, 2027, or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event (as defined in the certificate of designations for the Series C preferred stock).

(4)Any dividends declared are payable semi-annually in arrears at a rate of 5.50% per annum until October 30, 2027. Thereafter, dividends declared will be payable quarterly in arrears at a floating rate equal to 3-month LIBOR plus a spread of 3.076% per annum.

(5)Redeemable at the Company’s option, subject to regulatory approval, either (i) in whole or in part during the three-month period prior to, and including, each reset date (as defined in the certificate of designations for the Series D preferred stock) or (ii) in whole but not in part, at any time within 90 days following a regulatory capital treatment event (as defined in the certificate of designations for the Series D Preferred Stock).

(6)Any dividends declared are payable semi-annually in arrears at a rate of 6.125% per annum until September 23, 2025, after which the dividend rate will reset every five years to a fixed annual rate equal to the 5-year Treasury plus a spread of 5.783%.

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Changes in each component of accumulated other comprehensive income (loss) ("AOCI") were as follows (dollars in millions):

Unrealized (Loss) Gain on Available-for-Sale Investment Securities,
Net of Tax

Loss on Cash Flow Hedges,
Net of Tax

Loss on Pension Plan,
Net of Tax
AOCI
For the Three Months Ended September 30, 2017
Balance at June 30, 2017 $ (2 ) $ (3 ) $ (145 ) $ (150 )
Net change 1
1
—
2
Balance at September 30, 2017 $ (1 )
$ (2 )
$ (145 )
$ (148 )

For the Three Months Ended September 30, 2016
Balance at June 30, 2016 $ 18
$ (52 ) $ (140 ) $ (174 )
Net change (4 ) 13
—
9
Balance at September 30, 2016 $ 14
$ (39 ) $ (140 ) $ (165 )

For the Nine Months Ended September 30, 2017
Balance at December 31, 2016 $ (3 ) $ (13 ) $ (145 ) $ (161 )
Net change 2
11
—
13
Balance at September 30, 2017 $ (1 ) $ (2 ) $ (145 ) $ (148 )

For the Nine Months Ended September 30, 2016
Balance at December 31, 2015 $ —
$ (20 ) $ (140 ) $ (160 )
Net change 14
(19 ) —
(5 )
Balance at September 30, 2016 $ 14
$ (39 ) $ (140 ) $ (165 )

8. Accumulated Other Comprehensive Income

Changes in each component of accumulated other comprehensive income ("AOCI") were as follows (dollars in millions):


	Unrealized (Losses) Gains on Available-for-Sale Investment Securities, Net of Tax		Losses on Cash Flow Hedges, Net of Tax		Losses on Pension Plan, Net of Tax		AOCI
For the Three Months Ended September 30, 2022
Balance at June 30, 2022	$	(48)	$	(4)	$	(199)	$	(251)
Net change	(100)		(2)		—		(102)
Balance at September 30, 2022	$	(148)	$	(6)	$	(199)	$	(353)

For the Three Months Ended September 30, 2021
Balance at June 30, 2021	$	198	$	(10)	$	(227)	$	(39)
Net change	(29)		—		—		(29)
Balance at September 30, 2021	$	169	$	(10)	$	(227)	$	(68)

For the Nine Months Ended September 30, 2022
Balance at December 31, 2021	$	114	$	(9)	$	(199)	$	(94)
Net change	(262)		3		—		(259)
Balance at September 30, 2022	$	(148)	$	(6)	$	(199)	$	(353)

For the Nine Months Ended September 30, 2021
Balance at December 31, 2020	$	284	$	(12)	$	(227)	$	45
Net change	(115)		2		—		(113)
Balance at September 30, 2021	$	169	$	(10)	$	(227)	$	(68)

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The table below presents each component of other comprehensive income (loss) ("OCI") before reclassifications and amounts reclassified from AOCI for each component of OCI before- and after-tax (dollars in millions):
Before Tax Tax (Expense) Benefit Net of Tax
For the Three Months Ended September 30, 2017
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period $ 1
$ —
$ 1
Net change $ 1
$ —
$ 1
Cash Flow Hedges
Net unrealized loss arising during the period $ (1 ) $ 1
$ —
Amounts reclassified from AOCI 3
(2 ) 1
Net change $ 2
$ (1 ) $ 1

For the Three Months Ended September 30, 2016
Available-for-Sale Investment Securities
Net unrealized holding loss arising during the period $ (6 ) $ 2
$ (4 )
Net change $ (6 ) $ 2
$ (4 )
Cash Flow Hedges
Net unrealized gain arising during the period $ 12
$ (5 ) $ 7
Amounts reclassified from AOCI 9
(3 ) 6
Net change $ 21
$ (8 ) $ 13

For the Nine Months Ended September 30, 2017
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period $ 3
$ (1 ) $ 2
Net change $ 3
$ (1 ) $ 2
Cash Flow Hedges
Net unrealized gain arising during the period $ 8
$ (3 ) $ 5
Amounts reclassified from AOCI 11
(5 ) 6
Net change $ 19
$ (8 ) $ 11

For the Nine Months Ended September 30, 2016
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period $ 23
$ (9 ) $ 14
Net change $ 23
$ (9 ) $ 14
Cash Flow Hedges
Net unrealized loss arising during the period $ (58 ) $ 22
$ (36 )
Amounts reclassified from AOCI 27
(10 ) 17
Net change $ (31 ) $ 12
$ (19 )

The following table presents each component of other comprehensive income ("OCI") before reclassifications and amounts reclassified from AOCI for each component of OCI before- and after-tax (dollars in millions):


	Before Tax		Tax Benefit (Expense)		Net of Tax
For the Three Months Ended September 30, 2022
Available-for-Sale Investment Securities
Net unrealized holding losses arising during the period	$	(133)	$	33	$	(100)

Net change	$	(133)	$	33	$	(100)
Cash Flow Hedges
Net unrealized losses arising during the period	$	(4)	$	1	$	(3)
Amounts reclassified from AOCI	2		(1)		1
Net change	$	(2)	$	—	$	(2)




For the Three Months Ended September 30, 2021
Available-for-Sale Investment Securities
Net unrealized holding losses arising during the period	$	(38)	$	9	$	(29)

Net change	$	(38)	$	9	$	(29)
Cash Flow Hedges
Net unrealized gains arising during the period	$	—	$	1	$	1
Amounts reclassified from AOCI	$	—	$	(1)	$	(1)
Net change	$	—	$	—	$	—




For the Nine Months Ended September 30, 2022
Available-for-Sale Investment Securities
Net unrealized holding losses arising during the period	$	(346)	$	84	$	(262)

Net change	$	(346)	$	84	$	(262)
Cash Flow Hedges
Net unrealized losses arising during the period	$	(2)	$	—	$	(2)
Amounts reclassified from AOCI	4		1		5
Net change	$	2	$	1	$	3




For the Nine Months Ended September 30, 2021
Available-for-Sale Investment Securities
Net unrealized holding losses arising during the period	$	(152)	$	37	$	(115)

Net change	$	(152)	$	37	$	(115)
Cash Flow Hedges
Net unrealized gains arising during the period	$	—	$	1	$	1
Amounts reclassified from AOCI	$	2	$	(1)	$	1
Net change	$	2	$	—	$	2


8.	~~Income Taxes~~

The following table presents the calculation of the Company's effective income tax rate (dollars in millions, except effective income tax rate):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Income before income tax expense $ 903
$ 961
$ 2,638
$ 2,773
Income tax expense $ 301
$ 322
$ 926
$ 943
Effective income tax rate 33.3 % 33.5 % 35.1 % 34.0 %

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9. Income Taxes

The following table presents the calculation of the Company's effective income tax rate (dollars in millions):


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Income before income taxes	$	1,318		$	1,402		$	4,388		$	5,703
Income tax expense	$	312		$	311		$	1,029		$	1,321
Effective income tax rate	23.6		%	22.2		%	23.4		%	23.2		%

Income tax expense was flat for the three months ended September 30, 2022, as compared to the same period in 2021. Income tax expense decreased ~~$21~~$292 million ~~and $17 million~~for the nine months ended September 30, 2022, as compared to the same period in 2021, primarily due to a decrease in pretax income. The effective tax rate increased for the three and nine months ended September 30, ~~2017, respectively,~~2022, as compared to the same periods in ~~2016. The effective tax rate for the three months ended September 30, 2017 of 33.3% decreased from 33.5% for the same period in 2016~~2021, primarily due to ~~resolution of certain tax matters. The effective tax rate for the nine months ended September 30, 2017 of 35.1% increased from 34.0% for the same period in 2016 primarily due to the~~a settlement with tax authorities in the ~~United States Congress Joint Committee on Taxation ("USCJCT") that occurred in 2016.~~prior periods.

The Company is subject to examination by the Internal Revenue Service ("IRS") and tax authorities in various state, local and foreign tax jurisdictions. The IRS is examining the Company's 2018 federal income tax filing. The Company regularly assesses the likelihood of additional assessments or settlements in each of the taxing jurisdictions resulting from these and subsequent years' examinations. The IRS Administrative Office of Appeals concluded its review of the 2008-2010 federal audit and forwarded the Special Report to the USCJCT for approval. The final determination is not expected to significantly impact the Company’s financial statements. The IRS is currently examining the years 2011-2015.jurisdictions. At this time, the potential change in unrecognized tax benefits is ~~not~~ expected to be ~~significant~~immaterial over the next 12 months. The Company believes that its reserves are sufficient to cover any tax, penalties and interest that would result from such examinations.


9.	~~Earnings Per Share~~

The following table presents the calculation of basic and diluted earnings per share ("EPS") (in millions, except per share amounts):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Numerator
Net income $ 602
$ 639
$ 1,712
$ 1,830
Preferred stock dividends (9 ) (9 ) (28 ) (28 )
Net income available to common stockholders 593
630
1,684
1,802
Income allocated to participating securities (4 ) (5 ) (12 ) (13 )
Net income allocated to common stockholders $ 589
$ 625
$ 1,672
$ 1,789
Denominator
Weighted-average shares of common stock outstanding 371
402
379
410
Effect of dilutive common stock equivalents —
—
—
—
Weighted-average shares of common stock outstanding and common stock equivalents 371
402
379
410

Basic earnings per common share $ 1.59
$ 1.56
$ 4.42
$ 4.37
Diluted earnings per common share $ 1.59
$ 1.56
$ 4.42
$ 4.36

10. Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share ("EPS") (dollars and shares in millions, except per share amounts):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Numerator
Net income	$	1,006	$	1,091	$	3,359	$	4,382
Preferred stock dividends	(31)		(30)		(62)		(69)
Net income available to common stockholders	975		1,061		3,297		4,313
Income allocated to participating securities	(8)		(6)		(20)		(24)
Net income allocated to common stockholders	$	967	$	1,055	$	3,277	$	4,289
Denominator
Weighted-average shares of common stock outstanding	273		298		279		303
Effect of dilutive common stock equivalents	1		—		—		—
Weighted-average shares of common stock outstanding and common stock equivalents	274		298		279		303

Basic earnings per common share	$	3.54	$	3.54	$	11.74	$	14.17
Diluted earnings per common share	$	3.54	$	3.54	$	11.73	$	14.16

Anti-dilutive securities were not material and had no impact on the computation of diluted EPS for the three ~~and~~or nine months ended September 30, ~~2017~~2022 and ~~2016.~~2021.


~~10.~~	~~Capital Adequacy~~

~~The Company~~

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11. Capital Adequacy

DFS is subject to the capital adequacy guidelines of the Federal ~~Reserve, and~~Reserve. Discover Bank, the ~~Company’s main~~Company's banking subsidiary, is subject to various regulatory capital requirements as administered by the ~~FDIC.~~Federal Deposit Insurance Corporation ("FDIC"). Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit the Company's business activities and have a direct material effect on the financial ~~position~~condition and operating results of ~~the Company~~DFS and Discover Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, ~~the Company~~DFS and Discover Bank must meet specific risk-based capital ~~guidelines~~requirements and leverage ratios that involve quantitative measures of assets, liabilities and certain off-balance sheet items, as calculated under regulatory guidelines. Capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors.

~~In 2013,~~DFS and Discover Bank are subject to regulatory and capital rules issued by the Federal Reserve ~~the Office of the Comptroller of the Currency,~~ and ~~the~~ FDIC, ~~issued final capital rules~~respectively, under the Basel ~~Committee’s~~Committee's December 2010 framework ~~(referred to as “Basel III”) establishing a new comprehensive capital framework for U.S. banking organizations. The final capital rules~~ ("Basel III rules") substantially revise Basel I rules regarding the risk-based capital requirements applicable to bank holding companies and depository institutions, including the Company. The Basel III rules became effective for the Company on January 1, 2015. This timing is based on the Company being classified as a "Standardized Approach" entity.

~~Among other things,~~. Under the Basel III rules, ~~(i) introduced~~DFS and Discover Bank are classified as "standardized approach" entities. Standardized approach entities are defined as U.S. banking organizations with consolidated total assets over $50 billion but not exceeding $250 billion and consolidated total on-balance sheet foreign exposure less than $10 billion.

On March 27, 2020, federal bank regulatory agencies announced an interim and now final rule that allows banks that have implemented the CECL accounting model to delay the estimated impact of CECL on regulatory capital for two years, followed by a ~~new~~three-year transition period. For purposes of calculating regulatory capital, ~~measure called~~the Company has elected to defer recognition of the estimated impact of CECL on regulatory capital for two years in accordance with the final rule; after that period of deferral, which ended December 31, 2021, the estimated impact of CECL on regulatory capital will be phased in over three years beginning in 2022. Accordingly, the Company's Common Equity Tier 1 ~~(“CET1”~~("CET1"), (ii) specify that Tier 1 capital consists of CET1 and additional Tier 1 capital instruments meeting specified requirements, (iii) apply most deductions/adjustments to regulatory capital measures to CET1 and not to the other components of capital, thus potentially requiring higher levels of CET1 in order to meet minimum ratios and (iv) expand the scope of the deductions/adjustments from capital as compared to existing regulations.

~~The Basel III minimum~~ capital ratios in 2020, 2021 and 2022 are ~~as follows:~~

~~8.0% Total~~higher than they otherwise would have been. The Company's CET1 capital ~~(i.e., Tier 1 plus Tier 2)~~ratios will continue to ~~risk-weighted assets;~~

~~6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets;~~

~~4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as~~be favorably impacted by this election over the ~~“leverage ratio”); and~~

~~4.5% CET1 to risk-weighted assets.~~phase-in period.

As of September 30, ~~2017, the Company~~2022 and December 31, 2021, DFS and Discover Bank met all Basel III minimum capital ratio requirements to which they were subject. ~~The Company~~DFS and Discover Bank also met the requirements to be considered "well-capitalized" under Regulation Y and prompt corrective action ~~regulations, respectively, and there~~rules, respectively. There have been no conditions or events that management believes have changed ~~the Company's~~DFS' or Discover Bank's category. To be categorized as ~~“well-capitalized,” the Company~~"well-capitalized", DFS and Discover Bank must maintain minimum capital ratios ~~as set forth~~outlined in the table below.

Table of ~~operations.~~Contents

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are as follows (dollars in millions):

Quoted Price in Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)
Total
Balance at September 30, 2017
Assets
U.S. Treasury securities $ 673
$ —
$ —
$ 673
Residential mortgage-backed securities - Agency —
776
—
776
Available-for-sale investment securities $ 673
$ 776
$ —
$ 1,449

Derivative financial instruments⁽¹⁾
$ —
$ 3
$ —
$ 3

Liabilities
Derivative financial instruments⁽¹⁾
$ —
$ 10
$ —
$ 10

Balance at December 31, 2016
Assets
U.S. Treasury securities $ 674
$ —
$ —
$ 674
Residential mortgage-backed securities - Agency —
931
—
931
Available-for-sale investment securities $ 674
$ 931
$ —
$ 1,605

Derivative financial instruments $ —
$ 7
$ —
$ 7

Liabilities
Derivative financial instruments $ —
$ 94
$ —
$ 94


~~(1)~~	Effective in the first quarter of 2017, certain cash collateral amounts (variation margin) associated with derivative positions that are cleared through an exchange are reflected as offsets to the associated derivative asset and derivative liability balances, generally reducing the fair values to approximately zero. See Note 14: Derivatives and Hedging Activities for additional information.

~~There were no transfers between Levels 1~~Assets and ~~2 within the~~liabilities measured at fair value ~~hierarchy for~~on a recurring basis are as follows (dollars in millions):


	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balance at September 30, 2022
Assets
Fair value - OCI
U.S. Treasury and U.S. GSE securities	$	6,084	$	8	$	—	$	6,092
Residential mortgage-backed securities - Agency	—		589		—		589
Available-for-sale investment securities	$	6,084	$	597	$	—	$	6,681

Derivative financial instruments - cash flow hedges(1)	$	—	$	2	$	—	$	2

Fair value - Net income
Marketable equity securities	$	58	$	—	$	—	$	58



Liabilities
Fair value - OCI
Derivative financial instruments - cash flow hedges(1)	$	—	$	4	$	—	$	4





Balance at December 31, 2021
Assets
Fair value - OCI
U.S. Treasury and U.S. GSE securities	$	6,505	$	9	$	—	$	6,514
Residential mortgage-backed securities - Agency	—		186		—		186
Available-for-sale investment securities	$	6,505	$	195	$	—	$	6,700



Fair value - Net income


Marketable equity securities	$	461	$	—	$	—	$	461

(1)Derivative instrument carrying values in an asset or liability position are presented as part of other assets or accrued expenses and other liabilities, respectively, in the ~~three or nine months ended September 30, 2017 and 2016.~~Company's condensed consolidated statements of financial condition.

Available-for-Sale Investment Securities

Investment securities classified as available-for-sale consist of U.S. Treasury and U.S. GSE securities and ~~residential mortgage-backed securities.~~RMBS. The fair value estimates of investment securities classified as Level 1, consisting of U.S. Treasury securities, are determined based on quoted market prices for the same securities. The ~~Company classifies residential mortgage-backed securities as Level 2, the~~ fair value estimates of ~~which~~U.S. GSE securities and RMBS are ~~based on~~classified as Level 2 and are valued by maximizing the ~~best information available. This data may consist~~use of ~~observed market~~relevant observable inputs, including quoted prices ~~broker quotes or discounted cash flow models that incorporate assumptions such as~~for similar securities, benchmark ~~yields, issuer spreads, prepayment speeds, credit ratings~~yield curves and ~~losses, the priority of which may vary based on availability of information.~~market-corroborated inputs.

The Company validates the fair value estimates provided by ~~the~~ pricing services primarily by ~~comparison~~comparing to valuations obtained through other pricing sources. The Company evaluates pricing variances ~~amongst~~among different pricing sources to ensure that the valuations utilized are reasonable. The Company also corroborates the reasonableness of the fair value estimates with analysis of trends of significant inputs, such as market interest rate curves. The Company further performs due diligence in understanding the procedures and techniques performed by the pricing services to derive fair value estimates.

At September 30, ~~2017~~,2022, amounts reported in ~~residential mortgage-backed securities~~RMBS reflect ~~government-rated~~U.S. government agency and U.S. GSE obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac ~~and Ginnie Mae~~ with aan aggregate par value of ~~$758~~$617 million,, a weighted-average coupon of ~~2.81%~~4.04% and a weighted-average remaining maturity of ~~three years~~.four years.

Table of Contents

Marketable Equity Securities

The Company holds non-controlling equity positions in payment service entities that have actively traded stock and therefore have readily determinable fair values. The Company classifies these equity securities as Level 1, the fair value estimates of which are determined based on quoted share prices for the same securities.

Derivative Financial Instruments

The Company's derivative financial instruments consist of interest rate swaps and foreign exchange forward contracts. These instruments are classified as Level 2 as their fair values are estimated using proprietary pricing models, containing certain assumptions based on readily observable market-based inputs, including interest rate curves, option volatility and foreign currency forward and spot rates. In determining fair values, the pricing models use widely accepted valuation techniques, including discounted cash flow analysis on the expected cash flows of each derivative. This analysis reflects the contractual terms of the derivatives, including the period to maturity and the observable market-based inputs. The fair values of the interest rate swaps are determined using the market standard methodology of netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or receipts). The variable cash payments are based on an expectation of future interest rates derived from the observable market interest rate curves. The Company considers collateral and master netting agreements that mitigate credit exposure to counterparties in determining the counterparty credit risk valuation adjustment. The fair values of the currency instruments are valued by comparing the contracted forward exchange rate pertaining to the specific contract maturities to the current market exchange rate.

The Company validates the fair value estimates of interest rate swaps primarily through comparison to the fair value estimates computed by the counterparties to each of the derivative transactions. The Company evaluates pricing variances ~~amongst~~among different pricing sources to ensure that the valuations utilized are reasonable. The Company also corroborates the reasonableness of the fair value estimates with analysis of trends of significant inputs, such as market interest rate curves. The Company performs due diligence in understanding the impact toof any changes to the valuation techniques performed by proprietary pricing models ~~prior to~~before implementation, working closely with the third-party valuation service and ~~reviews~~reviewing the service's control objectives ~~of the service~~ at least annually. The Company corroborates the fair value of foreign exchange forward contracts through independent calculation of the fair value estimates.

As of October 16, 2020, the Company revised its valuation methodology to reflect changes made by central clearinghouses that changed the discounting methodology and interest calculation of cash variation margin from Federal Funds OIS to the SOFR OIS for U.S. Dollar cleared interest rate swaps. The Company's valuation methodology will result in valuations for cleared interest rate swaps that better reflect cleared swap prices obtainable in the markets in which the Company transacts. Pursuant to ASC Topic 848, the Company has elected and applied certain optional expedients and exceptions that provide contract modification and hedge accounting relief to eligible interest rate swaps affected by the change in the discounting methodology. The changes in valuation methodology are applied prospectively as a change in accounting estimate and are immaterial to the Company’s financial statements.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company also has assets that, under certain conditions, are subject to measurement at fair value on a non-recurring basis. These assets include those associated with acquired businesses, including ~~goodwill and other intangible assets.~~goodwill. For these assets, measurement at fair value in periods subsequent to the initial recognition of the assets may be applicable whenever one is ~~applicable if one or more of the~~tested for impairment. No impairments were recognized related to these assets ~~is determined to be impaired. During~~during the three and nine months ended September 30, ~~2017 and 2016, the~~2022. The Company ~~had no material~~recognized $92 million of impairments related to these ~~assets.~~assets during the nine months ended September 30, 2021.

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Financial Instruments Measured at Other Than Fair Value

The following tables disclose the estimated fair value of the Company's financial assets and financial liabilities that are not required to be carried at fair value (dollars in millions):

Quoted Prices in Active Markets
for Identical
Assets
(Level 1)

Significant
Other
Observable
Inputs (Level 2)

Significant
Unobservable
Inputs (Level 3)
Total
Carrying
Value
Balance at September 30, 2017
Assets
States and political subdivisions of states $ —
$ 1
$ —
$ 1
$ 1
Residential mortgage-backed securities - Agency —
179
—
179
177
Held-to-maturity investment securities $ —
$ 180
$ —
$ 180
$ 178

Cash and cash equivalents $ 13,249
$ —
$ —
$ 13,249
$ 13,249
Restricted cash $ 1,279
$ —
$ —
$ 1,279
$ 1,279
Net loan receivables $ —
$ —
$ 81,706
$ 81,706
$ 77,912
Accrued interest receivables $ —
$ 797
$ —
$ 797
$ 797

Liabilities
Deposits $ —
$ 56,307
$ —
$ 56,307
$ 56,135
Long-term borrowings - owed to securitization investors $ —
$ 16,399
$ 683
$ 17,082
$ 16,979
Other long-term borrowings $ —
$ 10,336
$ —
$ 10,336
$ 9,758
Accrued interest payables $ —
$ 188
$ —
$ 188
$ 188

Balance at December 31, 2016
Assets
States and political subdivisions of states $ —
$ 2
$ —
$ 2
$ 2
Residential mortgage-backed securities - Agency —
150
—
150
150
Held-to-maturity investment securities $ —
$ 152
$ —
$ 152
$ 152

Cash and cash equivalents $ 11,914
$ —
$ —
$ 11,914
$ 11,914
Restricted cash $ 95
$ —
$ —
$ 95
$ 95
Net loan receivables $ —
$ —
$ 78,252
$ 78,252
$ 75,087
Accrued interest receivables $ —
$ 724
$ —
$ 724
$ 724

Liabilities
Deposits $ —
$ 52,183
$ —
$ 52,183
$ 51,992
Long-term borrowings - owed to securitization investors $ —
$ 15,617
$ 900
$ 16,517
$ 16,411
Other long-term borrowings $ —
$ 9,470
$ —
$ 9,470
$ 9,032
Accrued interest payables $ —
$ 168
$ —
$ 168
$ 168

The following tables disclose the estimated fair ~~values~~value of ~~these~~the Company's financial assets and financial liabilities ~~which~~that are not required to be carried at fair value on(dollars in millions):


Balance at September 30, 2022	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Carrying Value
Assets
Amortized cost
Residential mortgage-backed securities - Agency	$	—	$	191	$	—	$	191	$	216
Held-to-maturity investment securities	$	—	$	191	$	—	$	191	$	216

Net loan receivables	$	—	$	—	$	104,096	$	104,096	$	97,847

Carrying value approximates fair value(1)
Cash and cash equivalents	$	10,004	$	—	$	—	$	10,004	$	10,004
Restricted cash	$	1,866	$	—	$	—	$	1,866	$	1,866

Accrued interest receivables(2)	$	—	$	1,103	$	—	$	1,103	$	1,103

Liabilities
Amortized cost
Time deposits(3)	$	—	$	26,699	$	—	$	26,699	$	26,993


Long-term borrowings - owed to securitization investors	$	—	$	10,660	$	88	$	10,748	$	11,092
Other long-term borrowings	—		8,588		—		8,588		9,085
Long-term borrowings	$	—	$	19,248	$	88	$	19,336	$	20,177

Carrying value approximates fair value(1)
Accrued interest payables(2)	$	—	$	160	$	—	$	160	$	160


Balance at December 31, 2021
Assets
Amortized cost
Residential mortgage-backed securities - Agency	$	—	$	206	$	—	$	206	$	204
Held-to-maturity investment securities	$	—	$	206	$	—	$	206	$	204

Net loan receivables	$	—	$	—	$	94,176	$	94,176	$	86,862

Carrying value approximates fair value(1)
Cash and cash equivalents	$	8,750	$	—	$	—	$	8,750	$	8,750
Restricted cash	$	2,582	$	—	$	—	$	2,582	$	2,582

Accrued interest receivables(2)	$	—	$	948	$	—	$	948	$	948

Liabilities
Amortized cost
Time deposits(3)	$	—	$	21,490	$	—	$	21,490	$	21,125
Short-term borrowings	$	—	$	1,750	$	—	$	1,750	$	1,750

Long-term borrowings - owed to securitization investors	$	—	$	8,953	$	104	$	9,057	$	9,039
Other long-term borrowings	—		10,013		—		10,013		9,438
Long-term borrowings	$	—	$	18,966	$	104	$	19,070	$	18,477

Carrying value approximates fair value(1)
Accrued interest payables(2)	$	—	$	184	$	—	$	184	$	184

(1)The carrying values of these assets and liabilities approximate fair value due to their short-term nature.

(2)Accrued interest receivable and payable carrying values are presented as part of other assets or accrued expenses and other liabilities, respectively, in the Company's condensed consolidated statements of financial ~~condition, were determined by applying the fair value provisions discussed herein. The use~~condition.

(3)Excludes deposits without contractually defined maturities for all periods presented.

Table of different assumptions or estimation techniques may have a material effect on these estimated fair value amounts. The following describes the valuation techniques of these financial instruments measured at other than fair value.Contents

~~Cash~~15. Derivatives and ~~Cash Equivalents~~Hedging Activities

The carrying value of cash and cash equivalents approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities.

~~Restricted Cash~~

The carrying value of restricted cash approximates fair value due to the low level of risk these assets present to the Company as well as the relatively liquid nature of these assets, particularly given their short maturities.

~~Held-to-Maturity Investment Securities~~

Held-to-maturity investment securities consist of residential mortgage-backed securities issued by agencies and municipal bonds. The fair value of residential mortgage-backed securities included in the held-to-maturity portfolio is estimated similarly to residential mortgage-backed securities carried at fair value on a recurring basis discussed herein. Municipal bonds are valued based on quoted market prices for the same or similar securities.

~~Net Loan Receivables~~

The Company's loan receivables are comprised of credit card and installment loans, including the PCI student loans. Fair value estimates are derived utilizing discounted cash flow analyses, the calculations of which are performed on groupings of loan receivables that are similar in terms of loan type and characteristics. Inputs to the cash flow analysis of each grouping consider recent prepayment trends and seasonality factors, if appropriate, as well as interest accrual estimates based on recent yields. The expected future cash flows, derived through the cash flow analysis, of each grouping are discounted at rates at which similar loans within each grouping could be originated under current market conditions. Significant inputs to the fair value measurement of the loan portfolio are unobservable and, as such, are classified as Level 3.

~~Accrued Interest Receivables~~

The carrying value of accrued interest receivables, which is included in other assets on the condensed consolidated statements of financial condition, approximates fair value as it is due in less than one year.

~~Deposits~~

The carrying values of money market deposits, savings deposits and demand deposits approximate fair value due to the potentially liquid nature of these deposits. For time deposits for which readily available market rates do not exist, fair values are estimated by discounting expected future cash flows using market rates currently offered for deposits with similar remaining maturities.

~~Long-Term Borrowings - Owed to Securitization Investors~~

Fair values of long-term borrowings owed to credit card securitization investors are determined utilizing quoted market prices of the same transactions and, as such, are classified as Level 2. Fair values of long-term borrowings owed to student loan securitization investors are calculated by discounting cash flows using estimated assumptions including, among other things, maturity and market discount rates. A portion of the difference between the carrying value and the fair value of the long-term borrowings owed to student loan securitization investors relates to purchase accounting adjustments recorded in connection with the December 2010 purchase of SLC. Significant inputs to these fair value measurements are unobservable and, as such, are classified as Level 3.

~~Other Long-Term Borrowings~~

Fair values of other long-term borrowings, consisting of subordinated and senior debt, are determined utilizing current observable market prices for those transactions and, as such, are classified as Level 2. A portion of the difference between the carrying value and the fair value of other long-term borrowings relates to the cash premiums paid in connection with the 2012 fiscal year debt exchanges.

~~Accrued Interest Payables~~

The carrying value of accrued interest payables, which is included in accrued expenses and other liabilities on the condensed consolidated statements of financial condition, approximates fair value as it is payable in less than one year.


~~14.~~	~~Derivatives and Hedging Activities~~

The Company uses derivatives to manage its exposure to various financial risks. The Company does not enter into derivatives for trading or speculative purposes. Certain derivatives used to manage the ~~Company’s~~Company's exposure to ~~interest rate movements and other identified risks~~foreign currency are not designated as hedges and do not qualify for hedge accounting.

Derivatives may give rise to counterparty credit risk, which generally is ~~addressed~~mitigated through collateral arrangements as described under the sub-heading "— Collateral Requirements and Credit-Risk Related Contingency Features." The Company enters into derivative transactions with established dealers that meet minimum credit criteria established by the Company. All counterparties must be pre-approved ~~prior to~~before engaging in any transaction with the Company. ~~Counterparties are monitored on a regular basis by the~~The Company regularly monitors counterparties to ensure compliance with the ~~Company’s~~Company's risk policies and limits. In determining the counterparty credit risk valuation adjustment for the fair values of derivatives, if any, the Company considers collateral and legally enforceable master netting agreements that mitigate credit exposure to related counterparties.

All derivatives are recorded in other assets at their gross positive fair values and in accrued expenses and other liabilities at their gross negative fair values. See Note ~~13:~~14: Fair Value Measurements ~~and Disclosures~~ for a description of the valuation methodologies ofused for derivatives. Cash collateral amounts associated with derivative positions that are cleared through an exchange are legally characterized as settlement of the derivative positions. Such collateral amounts are reflected as offsets to the associated derivatives balances recorded in other assets or in accrued expenses and other liabilities. Other cash collateral posted and held balances are recorded in other assets and deposits, respectively, in the condensed consolidated statements of financial condition. Collateral amounts recorded in the condensed consolidated statements of financial condition are based on the net collateral posted or held position for each applicable legal entity's master netting arrangement with each counterparty. Certain cash collateral amounts associated with derivative positions that are cleared through an exchange are legally characterized as settlement of the derivative positions. Such collateral amounts are reflected as offsets to the associated derivatives balances recorded in other assets or in accrued expenses and other liabilities, instead of as collateral in other assets or deposits.

Derivatives Designated as Hedges

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows arising from changes in interest rates, or other types of forecasted transactions, are considered cash flow hedges. Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Cash Flow Hedges

The Company uses interest rate swaps to manage its exposure to variability in cash flows related to changes in interest rates ~~related to future cash flows resulting from~~on interest-earning assets and funding instruments. These interest ~~payments on credit card securitized debt and deposits. The Company's outstanding cash flow hedges are for an initial maximum period of~~ ~~seven years~~ ~~for securitized debt and deposits. The derivatives are designated as hedges of the risk of changes in cash flows on the Company's LIBOR or Federal Funds rate-based interest payments, and~~rate swaps qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging (“ ("ASC ~~815”~~815"). At September 30, 2022 and December 31, 2021, the Company's outstanding cash flow hedges related only to interest receipts from credit card receivables and had an initial maximum period of three years and two years, respectively.

The ~~effective portion of the~~ change in the fair value of derivatives designated as cash flow hedges is recorded in OCI and is subsequently reclassified into earnings in the period that the hedged forecasted cash flows affect earnings. ~~The ineffective portion of the change in fair value of the derivative, if any, is recognized directly in earnings.~~ Amounts reported in AOCI related to derivatives at September 30, ~~2017~~2022, will be reclassified to interest ~~expense~~income as interest ~~payments~~receipts are ~~made~~accrued on ~~certain of~~ the Company's ~~floating-rate securitized debt or deposits.~~then outstanding credit card receivables. During the next 12 months, the Company estimates it will reclassify $7$11 million of pretax ~~losses to interest expense~~earnings primarily related to its derivatives designated as cash flow hedges.

Fair Value Hedges

The Company is exposed to changes in the fair value ~~of certain~~ of its fixed-rate debt obligations due to changes in interest rates. ~~The~~At September 30, 2022 and December 31, 2021, the Company ~~uses~~used interest rate swaps to manage its exposure to changes in fair value of certain fixed-rate ~~senior notes,~~long-term borrowings, including securitized debt and bank notes, ~~and interest-bearing brokered deposits~~ attributable to changes in ~~LIBOR,~~the Federal Funds OIS rate, which is a benchmark interest rate asdefined by ASC 815. At December 31, 2021, the Company also used an interest rate swap to manage its exposure to changes in fair value of certain securitized debt attributable to changes in the 1-month LIBOR rate, which is a benchmark interest rate defined by ASC 815. These interest rate swaps qualify as fair value hedges in accordance with ASC 815. Changes in ~~both (i)~~ the fair values of both (i) the derivatives and (ii) the hedged ~~fixed-rate senior notes, securitized debt, bank notes and interest-bearing brokered deposits relating~~long-term borrowings attributable to the interest-rate risk being hedged are recorded in interest expense. The changes generally provide substantial offset to one another, with any difference ~~or ineffectiveness recorded~~recognized in interest expense. ~~Any basis differences between the fair value and the carrying amount~~

Table of ~~the hedged item at the inception of the hedging relationship are amortized to interest expense.~~Contents

Derivatives Not Designated as Hedges

Foreign Exchange Forward Contracts

The Company has foreign exchange forward contracts that are economic hedges and are not designated as accounting hedges. The Company enters into foreign exchange forward contracts to manage foreign currency risk. Changes in the fair value of these contracts are recorded in other income on the condensed consolidated statements of income.

Derivatives Cleared Through an Exchange

~~The legal characterization of cash~~Cash variation margin payments on derivatives cleared through ~~a certain~~an exchange are legally considered settlement payments and are accounted for with corresponding derivative positions as one unit of account and not presented separately as collateral. With settlement payments on derivative positions cleared through this exchange reflected as offsets to the associated derivative asset and liability balances, the fair values of derivative instruments and collateral balances shown are generally ~~reduced beginning~~reduced.

Derivatives Activity


	September 30, 2022							December 31, 2021
	Notional Amount		Number of Outstanding Derivative Contracts	Derivative Assets		Derivative Liabilities		Notional Amount		Derivative Assets(1)		Derivative Liabilities(1)
Derivatives designated as hedges
Interest rate swaps—cash flow hedge(2)	$	3,250	6	$	2	$	4	$	250	$	—	$	—
Interest rate swaps—fair value hedge	$	3,425	4	—		—		$	6,125	—		—
Derivatives not designated as hedges
Foreign exchange forward contracts(3)	$	24	7	—		—		$	36	—		—

Total gross derivative assets/liabilities(4)				2		4				—		—
Less: collateral held/posted(5)				—		—				—		—
Total net derivative assets/liabilities				$	2	$	4			$	—	$	—

(1)The gross and net derivative assets and liabilities were immaterial as of December 31, 2021.

(2)At September 30, 2022, the ~~change~~Company had ~~been effective~~two forward-starting interest rate swaps with a total notional amount of $1 billion with interest payments set to be exchanged starting in the ~~prior year, both~~fourth quarter of 2022. At December 31, 2021, the Company had no forward-starting interest rate swaps.

(3)The foreign exchange forward contracts have notional amounts of EUR 6 million, GBP 6 million, SGD 1 million, INR 788 million and AUD 2 million as of September 30, 2022, and notional amounts of EUR 6 million, GBP 6 million, SGD 1 million, INR 788 million and AUD 14 million as of December 31, 2021.

(4)In addition to the derivatives disclosed in the table, the Company enters into forward contracts to purchase when-issued mortgage-backed securities as part of its community reinvestment initiatives. At September 30, 2022 and December 31, 2021, the Company had one outstanding contract with a total notional amount of $10 million and $50 million, respectively, and immaterial fair values.

(5)Collateral amounts, which consist of cash and investment securities, are limited to the related derivative ~~assets/liabilities~~asset/liability balance and do not include excess collateral ~~posted~~received/pledged.

The following amounts were recorded on the ~~condensed consolidated~~ statements of financial condition related to cumulative basis adjustments for fair value hedges (dollars in millions):


	September 30, 2022				December 31, 2021
	Carrying Amount of Hedged Liabilities		Cumulative Amount of Fair Value Hedging Adjustment Decreasing the Carrying Amount of Hedged Liabilities(1)		Carrying Amount of Hedged Liabilities		Cumulative Amount of Fair Value Hedging Adjustment Increasing the Carrying Amount of Hedged Liabilities(1)
Long-term borrowings	$	3,385	$	(4)	$	6,158	$	83

(1)The balance includes $33 million and $48 million of cumulative hedging adjustments related to discontinued hedging relationships as of September 30, 2022 and December 31, ~~2016, would have been $79 million lower.~~

~~Derivatives Activity~~2021, respectively.

Table of Contents

The following table summarizes the fair value (including accrued interest) and outstanding notional amounts of derivative instruments and related collateral balances (dollars in millions):
September 30, 2017 December 31, 2016

Notional
Amount
Number of Outstanding Derivative Contracts Derivative Assets Derivative Liabilities
Notional
Amount
Derivative Assets Derivative Liabilities
Derivatives designated as hedges
Interest rate swaps—cash flow hedge⁽¹⁾
$ 3,800
7
$ 2
$ 7
$ 3,700
$ —
$ 22
Interest rate swaps—fair value hedge⁽¹⁾
$ 5,332
19
1
3
$ 6,208
7
72
Derivatives not designated as hedges
Foreign exchange forward contracts⁽²⁾
$ 13
6
—
—
$ 13
—
—
Interest rate swap $ —
—
—
—
$ 149
—
—
Total gross derivative assets/liabilities⁽³⁾
3
10
7
94
Less: Collateral held/posted⁽⁴⁾
(1 ) (10 ) (2 ) (94 )
Total net derivative assets/liabilities $ 2
$ —
$ 5
$ —

The following table summarizes the impact of the derivative instruments on income and indicates where within the condensed consolidated financial statements such impact is reported (dollars in millions):

~~(1)~~

Effective in the first quarter of 2017, certain cash collateral amounts (variation margin) associated with derivative positions that are cleared through an exchange are reflected as offsets to the associated derivative asset and derivative liability balances, generally reducing the fair values to approximately zero. The affected contracts remain term instruments and are reflected in notional amounts and number of outstanding derivative contracts.


~~(2)~~	~~The foreign exchange forward contracts have notional amounts of EUR~~ ~~7 million, GBP~~ ~~3 million~~ ~~and SGD~~ ~~1 million~~ ~~as of~~ ~~September 30, 2017~~ ~~and notional amounts of EUR 6 million, GBP 5 million and SGD 1 million as of December 31, 2016.~~

~~(3)~~

In addition to the derivatives disclosed in the table, the Company enters into forward contracts to purchase when-issued mortgage-backed securities as part of its community reinvestment initiatives. At September 30, 2017, the Company had one outstanding contract with a notional amount of $27 million and immaterial fair value. At December 31, 2016, the Company had one outstanding contract with a notional amount of $36 million and immaterial fair value.


~~(4)~~	Collateral amounts, which consist of both cash and investment securities, are limited to the related derivative asset/liability balance and do not include excess collateral received/pledged. Effective in the first quarter of 2017, collateral held/posted excludes amounts that are recorded as offsets to the associated derivative asset or derivative liability balances.


	Location and Amount of (Losses) Gains Recognized on the Condensed Consolidated Statements of Income
	Interest Expense
	Long-Term Borrowings		Interest Income (Credit Card)		Other Income
For the Three Months Ended September 30, 2022
Total amounts of income and expense line items presented in the condensed consolidated statements of income, where the effects of fair value or cash flow hedges are recorded	$	(168)	$	2,783	$	19

The effects of cash flow and fair value hedging
Losses on cash flow hedging relationship
Amounts reclassified from OCI into earnings	$	(1)	$	(1)	$	—

Gains (losses) on fair value hedging relationships
Gains on hedged items	$	3	$	—	$	—
Losses on interest rate swaps	(11)		—		—
Total losses on fair value hedging relationships	$	(8)	$	—	$	—

The effects of derivatives not designated in hedging relationships
Gains on derivatives not designated as hedges	$	—	$	—	$	1

For the Three Months Ended September 30, 2021
Total amounts of income and expense line items presented in the condensed consolidated statements of income, where the effects of fair value or cash flow hedges are recorded	$	(113)	$	2,193	$	18





Gains (losses) on fair value hedging relationships
Gains on hedged items	$	45	$	—	$	—
Losses on interest rate swaps	(9)		—		—
Total gains on fair value hedging relationships	$	36	$	—	$	—

Table of Contents

The following tables summarize the impact of the derivative instruments on income and OCI and indicates where within the condensed consolidated financial statements such impact is reported (dollars in millions):
Amount of Gain (Loss) Recognized in OCI
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Location 2017 2016 2017 2016
Derivatives designated as hedges
Interest rate swaps - cash flow/net investment hedges
Total gain (loss) recognized in OCI after amounts reclassified into earnings, pre-tax OCI $ 2
$ 22
$ 21
$ (31 )
Total gain (loss) recognized in OCI $ 2
$ 22
$ 21
$ (31 )

Amount of (Loss) Gain Recognized in Income
For the Three Months Ended September 30, For the Nine Months Ended September 30,
Location 2017 2016 2017 2016
Derivatives designated as hedges
Interest rate swaps - cash flow hedges
Amount reclassified from OCI into income Interest Expense $ (3 ) $ (9 ) $ (11 ) $ (27 )
Total amount reclassified from OCI into income on cash flow hedges (3 )
(9 )
(11 )
(27 )

Interest rate swaps - fair value hedges
Gain (loss) on interest rate swaps 2
(19 ) (1 ) 25
(Loss) Gain on hedged items (2 ) 18
2
(26 )
Net ineffectiveness gain (loss) Interest Expense —
(1 ) 1
(1 )

(Increase) decrease to interest expense related to net settlements on interest rate swaps Interest Expense (1 ) 9
7
26
Total (loss) gain on fair value hedges (1 ) 8
8
25
Total loss on derivatives designated as hedges recognized in income $ (4 )
$ (1 )
$ (3 )
$ (2 )

Derivatives not designated as hedges
Total (loss) gain on derivatives not designated as hedges recognized in income Other Income $ (1 ) $ —
$ (2 ) $ —


	Location and Amount of (Losses) Gains Recognized on the Condensed Consolidated Statements of Income
	Interest Expense		Interest Income (Credit Card)
	Long-Term Borrowings				Other Income
For the Nine Months Ended September 30, 2022
Total amounts of income and expense line items presented in the condensed consolidated statements of income, where the effects of fair value or cash flow hedges are recorded	$	(416)	$	7,475	$	64

The effects of cash flow and fair value hedging
Losses on cash flow hedging relationships
Amounts reclassified from OCI into earnings	$	(3)	$	(1)	$	—

Gains on fair value hedging relationships
Gains on hedged items	$	72	$	—	$	—
Losses on interest rate swaps	(61)		—		—
Total gains on fair value hedging relationships	$	11	$	—	$	—

The effects of derivatives not designated in hedging relationships
Gains on derivatives not designated as hedges	$	—	$	—	$	2

For the Nine Months Ended September 30, 2021
Total amounts of income and expense line items presented in the condensed consolidated statements of income, where the effects of fair value or cash flow hedges are recorded	$	(356)	$	6,452	$	47

The effects of cash flow and fair value hedging
Losses on cash flow hedging relationships
Amounts reclassified from OCI into earnings	$	(2)	$	—	$	—

Gains on fair value hedging relationships
Gains on hedged items	$	167	$	—	$	—
Losses on interest rate swaps	(38)		—		—
Total gains on fair value hedging relationships	$	129	$	—	$	—

For the impact of the derivative instruments on OCI, see Note 8: Accumulated Other Comprehensive Income.

Collateral Requirements and Credit-Risk Related Contingency Features

The Company has master netting arrangements and minimum collateral posting thresholds with its counterparties for its fair value and cash flow hedge interest rate swaps and foreign exchange forward contracts. The Company has not sought a legal opinion in relation to the enforceability of its master netting arrangements and, as such, does not report any of these positions on a net basis.Collateral is required by either the Company or its subsidiaries or the counterparty depending on the net fair value position of ~~these~~the derivatives held with that counterparty. ~~The Company may also be required to post~~These collateral ~~with a counterparty for its fair value and cash flow hedge interest rate swaps depending on the credit rating it or Discover Bank receives from specified major credit rating agencies. Collateral~~ receivable or payable amounts are generally not offset against the fair value of these derivatives but are recorded separately in other assets or deposits. ~~However, effective in~~Most of the ~~first quarter of 2017, certain~~Company's cash collateral amounts ~~related~~relate to positions cleared through an exchange and are reflected as offsets to the associated derivatives balances recorded in other assets and accrued expenses and other liabilities.

At ~~September 30, 2017~~, Discover Bank’s credit rating met specified thresholds set by its counterparties. However, if its credit rating is reduced by one rating notch, Discover Bank would be required to post additional collateral. The amount of

~~additional collateral as of~~ ~~September 30, 2017~~ ~~would have been~~ ~~$34 million. DFS (Parent Company) had no outstanding derivatives as of September 30, 2017, therefore, no collateral was required.~~

The Company also has agreements with certain of its derivative counterparties that contain a provision ~~where~~under which the Company could be declared in default on any of its derivative obligations if the Company defaults on any of its indebtedness, including default where the lender has not accelerated repayment of the ~~indebtedness has not been accelerated by the lender, then the~~indebtedness.

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16. Segment Disclosures

The Company ~~could also be declared in default on~~manages its ~~derivative obligations.~~


~~15.~~	~~Segment Disclosures~~

~~The Company’s~~ business activities ~~are managed~~ in two segments: ~~Direct~~Digital Banking and Payment Services.

~~Direct~~•Digital Banking: The ~~Direct~~Digital Banking segment includes Discover-branded credit cards issued to individuals on the Discover Network and other consumer products and services, including private student loans, personal loans, home ~~equity~~ loans and other consumer lending and deposit products. The majority of ~~Direct~~Digital Banking revenues relate to interest income earned on the segment's loan products. Additionally, the ~~Company’s~~Company's credit card products generate substantially all revenues related to discount and interchange, protection products and loan fee income.

•Payment Services: The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the ~~Company’s~~Company's Network Partners business, which provides payment transaction processing and settlement services on the Discover Network. The majority of Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue from Diners Club.

The business segment reporting provided to and used by the ~~Company’s~~Company's chief operating ~~decision maker~~decision-maker is prepared using the following principles and allocation conventions:

•The Company aggregates operating segments when determining reportable segments.

•Corporate overhead is not allocated between segments; all corporate overhead is included in the ~~Direct~~Digital Banking segment.

•Through its operation of the Discover Network, the ~~Direct~~Digital Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the segments, ~~with the exception of~~except for an allocation of direct and incremental costs driven by the Company's Payment Services segment.

•The Company's assets ~~of the Company~~ are not allocated among the operating segments in the information reviewed by the ~~Company’s~~Company's chief operating ~~decision maker.~~decision-maker.

•The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.

•Income taxes are not specifically allocated between the operating segments in the information reviewed by the ~~Company’s~~Company's chief operating ~~decision maker.~~decision-maker.

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The following table presents segment data (dollars in millions):

Direct
Banking

Payment
Services
Total
For the Three Months Ended September 30, 2017
Interest income
Credit card loans $ 2,026
$ —
$ 2,026
Private student loans 132
—
132
PCI student loans 39
—
39
Personal loans 224
—
224
Other 55
—
55
Total interest income 2,476
—
2,476
Interest expense 426
—
426
Net interest income 2,050
—
2,050
Provision for loan losses 675
(1 ) 674
Other income 401
74
475
Other expense 909
39
948
Income before income tax expense $ 867
$ 36
$ 903

For the Three Months Ended September 30, 2016
Interest income
Credit card loans $ 1,812
$ —
$ 1,812
Private student loans 112
—
112
PCI student loans 46
—
46
Personal loans 185
—
185
Other 29
—
29
Total interest income 2,184
—
2,184
Interest expense 359
—
359
Net interest income 1,825
—
1,825
Provision for loan losses 445
—
445
Other income 408
68
476
Other expense 857
38
895
Income before income tax expense $ 931
$ 30
$ 961

The following table presents segment data (dollars in millions):


	Digital Banking		Payment Services		Total
For the Three Months Ended September 30, 2022
Interest income
Credit card loans	$	2,783	$	—	$	2,783
Private student loans	211		—		211
Personal loans	221		—		221
Other loans	44		—		44
Other interest income	98		—		98
Total interest income	3,357		—		3,357
Interest expense	514		—		514
Net interest income	2,843		—		2,843
Provision for credit losses	773		—		773
Other income	541		95		636
Other expense	1,346		42		1,388
Income before income taxes	$	1,265	$	53	$	1,318

For the Three Months Ended September 30, 2021
Interest income
Credit card loans	$	2,193	$	—	$	2,193
Private student loans	184		—		184
Personal loans	219		—		219
Other loans	30		—		30
Other interest income	48		—		48
Total interest income	2,674		—		2,674
Interest expense	269		—		269
Net interest income	2,405		—		2,405
Provision for credit losses	185		—		185
Other income (loss)	447		(75)		372
Other expense	1,151		39		1,190
Income (loss) before income taxes	$	1,516	$	(114)	$	1,402

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The following table presents segment data (dollars in millions):

	Direct Banking		Payment Services			Total			Digital Banking		Payment Services		Total
For the Nine Months Ended September 30, 2017
For the Nine Months Ended September 30, 2022								For the Nine Months Ended September 30, 2022
Interest income								Interest income
Credit card loans	$	5,818	$	—		$	5,818	Credit card loans	$	7,475	$	—	$	7,475
Private student loans	383		—			383		Private student loans	597		—		597
PCI student loans	121		—			121
Personal loans	629		—			629		Personal loans	633		—		633
Other	141		—			141
Other loans								Other loans	113		—		113
Other interest income								Other interest income	190		—		190
Total interest income	7,092		—			7,092		Total interest income	9,008		—		9,008
Interest expense	1,212		—			1,212		Interest expense	1,076		—		1,076
Net interest income	5,880		—			5,880		Net interest income	7,932		—		7,932
Provision for loan losses	1,908		(8		)	1,900
Provision for credit losses								Provision for credit losses	1,476		—		1,476
Other income								Other income	1,584		89		1,673
Other expense								Other expense	3,624		117		3,741
Income (loss) before income tax expense								Income (loss) before income tax expense	$	4,416	$	(28)	$	4,388

For the Nine Months Ended September 30, 2021								For the Nine Months Ended September 30, 2021
Interest income								Interest income
Credit card loans								Credit card loans	$	6,452	$	—	$	6,452
Private student loans								Private student loans	554		—		554
Personal loans								Personal loans	662		—		662
Other loans								Other loans	85		—		85
Other interest income								Other interest income	156		—		156
Total interest income								Total interest income	7,909		—		7,909
Interest expense								Interest expense	875		—		875
Net interest income								Net interest income	7,034		—		7,034
Provision for credit losses								Provision for credit losses	(45)		—		(45)
Other income	1,184		219			1,403		Other income	1,284		833		2,117
Other expense	2,634		111			2,745		Other expense	3,290		203		3,493
Income before income tax expense	$	2,522	$	116		$	2,638	Income before income tax expense	$	5,073	$	630	$	5,703

For the Nine Months Ended September 30, 2016
Interest income
Credit card loans	$	5,279	$	—		$	5,279
Private student loans	329		—			329
PCI student loans	142		—			142
Personal loans	523		—			523
Other	85		—			85
Total interest income	6,358		—			6,358
Interest expense	1,032		—			1,032
Net interest income	5,326		—			5,326
Provision for loan losses	1,279		2			1,281
Other income	1,210		205			1,415
Other expense	2,576		111			2,687
Income before income tax expense	$	2,681	$	92		$	2,773


~~16.~~	~~Subsequent Events~~

~~Preferred Stock~~

~~On October 31, 2017, the Company issued 570,000 depositary shares, each representing a 1/100th interest in a share~~

Table of ~~Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C. The net proceeds~~Contents

17. Revenue from Contracts with Customers

ASC Topic 606, Revenue from Contracts with Customers ("ASC 606"), generally applies to the ~~Company was approximately $563 million. On November 1, 2017,~~sales of any good or service for which no other specific accounting guidance is provided. ASC 606 defines a principles-based model under which revenue from a contract is allocated to the ~~Company gave notice~~distinct performance obligations within the contract and recognized in income as each performance obligation is satisfied. The Company's revenue that is subject to ~~redeem all 575,000~~this model includes discount and interchange, protection products fees, transaction processing revenue and certain amounts classified as other income.

The following table presents revenue from contracts with customers disaggregated by business segment and reconciles revenue from contracts with customers to total other income (dollars in millions):


	Digital Banking		Payment Services		Total
For the Three Months Ended September 30, 2022
Other income subject to ASC 606
Discount and interchange revenue, net(1)	$	327	$	19	$	346
Protection products revenue	42		—		42
Transaction processing revenue	—		65		65
Other income	3		16		19
Total other income subject to ASC 606(2)	372		100		472
Other income not subject to ASC 606
Loan fee income	168		—		168
Unrealized gains (losses) on equity investments	—		(37)		(37)
Realized gains on equity investments	1		32		33
Total other income (loss) not subject to ASC 606	169		(5)		164
Total other income (loss) by operating segment	$	541	$	95	$	636

For the Three Months Ended September 30, 2021
Other income subject to ASC 606
Discount and interchange revenue, net(1)	$	280	$	19	$	299
Protection products revenue	43		—		43
Transaction processing revenue	—		58		58
Other income	3		15		18
Total other income subject to ASC 606(2)	326		92		418
Other income not subject to ASC 606
Loan fee income	121		—		121
Unrealized gains (losses) on equity investments	—		(167)		(167)

Total other income not subject to ASC 606	121		(167)		(46)
Total other income (loss) by operating segment	$	447	$	(75)	$	372

Table of ~~its issued~~Contents


	Digital Banking		Payment Services		Total
For the Nine Months Ended September 30, 2022
Other income subject to ASC 606
Discount and interchange revenue, net(1)	$	995	$	61	$	1,056
Protection products revenue	128		—		128
Transaction processing revenue	—		183		183
Other income	9		55		64
Total other income subject to ASC 606(2)	1,132		299		1,431
Other income not subject to ASC 606
Loan fee income	450		—		450
Unrealized gains (losses) on equity investments	—		(394)		(394)
Realized gains on equity investments	2		184		186
Total other income (loss) not subject to ASC 606	452		(210)		242
Total other income by operating segment	$	1,584	$	89	$	1,673

For the Nine Months Ended September 30, 2021
Other income subject to ASC 606
Discount and interchange revenue, net(1)	$	826	$	53	$	879
Protection products revenue	129		—		129
Transaction processing revenue	—		167		167
Other (loss) income	(4)		51		47
Total other income subject to ASC 606(2)	951		271		1,222
Other income not subject to ASC 606
Loan fee income	333		—		333
Unrealized gains on equity investments	—		562		562

Total other income not subject to ASC 606	333		562		895
Total other income by operating segment	$	1,284	$	833	$	2,117

(1)Net of rewards, including Cashback Bonus rewards, of $811 million and ~~outstanding shares~~$689 million for the three months ended September 30, 2022 and 2021, respectively, and $2.2 billion and $1.8 billion for the nine months ended September 30, 2022 and 2021, respectively.

(2)Excludes deposit product fees that are reported within net interest income, which were immaterial for the three and nine months ended September 30, 2022 and 2021.

For a detailed description of ~~Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B (the "Series B preferred stock") and all corresponding depositary shares.~~ the Company's significant revenue recognition accounting policies, see Note 2: Summary of Significant Accounting Policies to the consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2021.

18. Subsequent Events

The Company ~~estimates~~has evaluated events and transactions that ~~the redemption of Series B preferred stock will reduce net income allocated~~have occurred subsequent to ~~common stockholders by approximately $15 million~~September 30, 2022, and determined that there were no subsequent events that would require recognition or disclosure in the ~~fourth quarter as a result~~condensed consolidated financial statements.

Table of ~~the recognition~~Contents

Item 2. Management's Discussion and Analysis of ~~deferred issuance costs on Series B preferred stock.~~Financial Condition and Results of Operations


~~Item 2.~~	~~Management’s Discussion and Analysis of Financial Condition and Results of Operations~~

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and related notes included elsewhere in this quarterly report. This quarterly report contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as ~~“believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,”~~"believe," "expect," "anticipate," "intend," "plan," "aim," "will," "may," "should," "could," "would," "likely," "forecast," and similar expressions. Such statements are based ~~upon~~on the current beliefs and expectations of our management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. These forward-looking statements speak only as of the date of this quarterly report and there is no undertaking to update or revise them as more information becomes available.

The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: the effect of the coronavirus disease 2019 ("COVID-19") pandemic and measures taken to mitigate the pandemic, including their impact on our credit quality and business operations as well as their impact on general economic and financial markets, changes in economic variables, such as the availability of consumer credit, the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumer confidence and consumer debt and investor sentiment; the impact of current, pending and future legislation, regulation, supervisory guidance and regulatory and legal actions, including, but not limited to, those related to financial regulatory reform, consumer financial services practices, anti-corruption and funding, capital and liquidity; the actions and initiatives of current and potential competitors; our ability to manage our expenses; our ability to successfully achieve card acceptance across our networks and maintain relationships with network participants; our ability to sustain and grow our private student loan, personal loan and home ~~equity~~ loan products; ~~losses as a result of mortgage loan repurchase and indemnification obligations to secondary market purchasers;~~ difficulty obtaining regulatory approval for, financing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies; our ability to manage our credit risk, market risk, liquidity risk, operational risk, legal and compliance risk and strategic risk; the availability and cost of funding and capital; access to deposit, securitization, equity, debt and credit markets; the impact of rating agency actions; the level and volatility of equity prices, commodity prices and interest rates, currency values, investments, other market fluctuations and other market indices; losses in our investment portfolio; limits on our ability to pay dividends and repurchase our common stock; limits on our ability to receive payments from our subsidiaries; fraudulent activities or material security breaches of key systems; our ability to remain organizationally effective; our ability to increase or sustain Discover card usage or attract new customers; our ability to maintain relationships with merchants; the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events; our ability to introduce new products and services; our ability to manage our relationships with third-party vendors; our ability to maintain current technology and integrate new and acquired systems; our ability to collect amounts for disputed transactions from merchants and merchant acquirers; our ability to attract and retain employees; our ability to protect our reputation and our intellectual property; and new lawsuits, investigations or similar matters or unanticipated developments related to current matters. We routinely evaluate and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which may involve payment in cash or our debt or equity securities.

Additional factors that could cause our results to differ materially from those described below can be found in this section inof this quarterly report and in ~~“Risk~~"Risk Factors,~~” “Business—Competition,” “Business—Supervision~~" "Business," and ~~Regulation” and “Management’s~~"Management's Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations" in our annual report on Form 10-K for the year ended December 31, ~~2016,~~2021, which is filed with the ~~SEC~~Securities and Exchange Commission ("SEC") and available at the ~~SEC’s~~SEC's internet site ~~(http:~~(https://www.sec.gov).

Introduction and Overview

Discover Financial Services ("DFS") is a ~~direct~~digital banking and payment services company. We provide ~~direct~~digital banking products and services and payment services through our subsidiaries. We offer our customers credit card loans, private student loans, personal loans, home ~~equity~~ loans and deposit products. We also operate the Discover Network, the PULSE network ~~(“PULSE”~~("PULSE") and Diners Club International (“("Diners ~~Club”~~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 point-of-sale terminals at retail locations~~and 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.

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Our primary revenues consist of interest income earned on loan receivables and fees earned from customers, financial institutions, merchants and issuers. The primary expenses required to operate our business include funding costs (interest

expense), ~~loan~~credit loss provisions, customer rewards and expenses incurred to grow, manage and service our loan receivables and networks. Our business activities are funded primarily through consumer deposits, securitization of loan receivables and the issuance of unsecured debt.

COVID-19 Pandemic

For a discussion on how the risks related to the COVID-19 pandemic may affect our businesses, results of operations and financial condition, see "Risk Factors" in our annual report on Form 10-K for the year ended December 31, 2021.

Quarter Highlights

~~Net income~~The highlights below compare results as of and for the three months ended September 30, ~~2017 was $602 million compared to $639 million~~2022, against results for the same period in ~~2016.~~the prior year.

•Net income was $1.0 billion, or $3.54 per diluted share, compared to net income of $1.1 billion, or $3.54 per diluted share, in the prior year.

•Total loans grew ~~$6.9~~$15.4 billion, or 9%17%, ~~from September 30, 2016~~ to ~~$80.4~~$104.9 billion.

•Credit card loans grew ~~$5.5~~$13.3 billion, or 9%19%, to ~~$63.5 billion, and Discover card sales volume increased 5% from September 30, 2016.~~$83.6 billion.

~~Net~~•The net charge-off rate ~~excluding PCI~~for credit card loans increased 6127 basis points ~~from the prior year~~ to ~~2.71%~~1.92% and the ~~credit card~~ delinquency rate for credit card loans over 30 days past due increased 2763 basis points ~~from the prior year~~ to ~~2.14%~~2.11%.

•Direct-to-consumer deposits grew ~~$3.4~~$4.2 billion, or ~~10%~~7%, ~~from the prior year~~ to ~~$38.7~~$66.2 billion.

•Payment Services transaction ~~dollar~~ volume for the segment was ~~$51.6~~$84.1 billion, up ~~16% from the prior year.~~

10%.

Outlook

~~We plan~~The outlook below provides our current expectations for our financial results based on ~~continuing to provide strong capital returns to shareholders through executing on~~market conditions, the regulatory and legal environment and our ~~2017 capital plan. We will continue to make material investments in marketing and remain focused on utilizing our rewards program to drive receivables growth.~~ business strategies.

•We expect ~~this~~elevated loan growth ~~to result in higher~~based on the current expectations of sales trends and recent account growth.

•Based on the current interest ~~income levels. Our total charge-off~~ rate environment, net interest margin is expected to ~~be higher~~increase in comparison to 2021.

•We expect the total net charge-off rate to remain relatively flat, in comparison to the prior year, resulting from lower than expected losses year-to-date.

•We expect elevated employee compensation and ~~we expect~~benefits expense from higher headcount, but remain committed to ~~add to the loan loss reserve to provide for the seasoning of recent loan growth~~managing expenses and increasing consumer leverage as a result of supply driven credit normalization. The announced redemption of our preferred stock (see Note 16: Subsequent Events to our condensed consolidated financial statements) will ~~result in a reduction to earnings per share in the fourth quarter.~~

We continue to ~~leverage our network to support our card-issuing business. In our payments segment, we continue to pursue new ways to grow volume and we expect competition to remain intense.~~make investments for profitable long term growth.

Regulatory Environment and Developments

~~In recent years, federal banking regulators have implemented~~Banking

Capital Standards and ~~continue~~Stress Testing

As a bank holding company, DFS is subject to ~~propose~~mandatory supervisory stress tests every other year and finalize new regulations and supervisory guidance, including under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Regulators have also increased their examination and enforcement action activities. The Dodd-Frank Act creates a framework for regulation of large systemically significant financial firms, including Discover, through a variety of measures, including increasedis required to submit annual capital and liquidity requirements and limits on leverage and enhanced supervisory authority. The Dodd-Frank Act contains comprehensive provisions governing the practices and oversight of financial institutions as well as other participants in the financial markets. We expect regulatorsplans to continue taking formal enforcement actions against financial institutions in addition to addressing concerns through non-public supervisory actions or findings. While the new Congress and Administration have expressed support for Dodd-Frank modifications that could reduce regulatory burdens through a variety of channels including executive action, rulemaking and legislation, prospects for the enactment of significant changes are uncertain.

The impact of the evolving regulatory environment on our business and operations depends upon a number of factors, including supervisory priorities and actions, our actions, those of our competitors and other marketplace participants, and the behavior of consumers. Regulatory developments, enforcement actions, findings and ratings could affect supervisory priorities, actions, and rule-making, as well as negatively impact our business strategies, require us to limit or change our business practices, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for services, limit our ability to pursue certain business opportunities and obtain related required regulatory approvals, or change how we compensate certain of our employees. For example, in 2016, federal banking regulators issued a proposed rulemaking on incentive compensation which is prescriptive in nature and would require an extensive restructuring of incentive compensation practices for certain employees, including our executives. Any changes to our business or compensation structure arising out of this rule could impact our ability to attract, hire or retain certain personnel. The timing and substance of the final rule are unknown. In September 2017, the Board of Governors of the Federal Reserve ~~System (the "Federal Reserve"~~based on forward-looking internal analysis of income and capital levels under expected and stressful conditions.DFS is also subject to capital buffer requirements, including the Stress Capital Buffer ("SCB") ~~issued two proposals, one~~, which requires maintenance of regulatory capital levels above a threshold established based on the results of supervisory stress tests after accounting for planned dividend payments.

In January 2021, the Federal Reserve finalized regulatory amendments that ~~would establish~~made targeted changes to the capital planning, regulatory reporting and SCB requirements for firms subject to Category IV standards, including DFS, to be consistent with the Federal Reserve’s regulatory tailoring framework. The final rules generally align to instructions the Federal Reserve previously provided to Category IV firms regarding their respective capital plan submissions. The amended rules also provide Category IV firms with the option to submit to supervisory ~~expectations for the~~

~~board of directors of bank holding companies and another that establishes a new rating system~~stress tests during off years if they wish for the ~~evaluation~~Federal Reserve to reset the stress test portion of ~~large financial institutions. Comments on each~~their SCB requirement. In connection with the final rulemaking, the Federal

Table of ~~these proposals are due on November 30, 2017. The~~Contents

Reserve revised the scope of application of its existing regulatory guidance for capital planning to align with the tailoring framework. However, the timing and substance of any ~~final rules~~additional changes to existing guidance or new guidance are unknown. For more information on recent matters affecting Discover, see Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements. Regulatory developments, enforcement actions, findings and ratings could also have an impact on our strategies,uncertain.

In June 2021, the ~~value of our assets, or otherwise adversely affect our businesses.~~

~~As a result of~~Federal Reserve publicly announced the growing cybersecurity threat and the number of incidents involving unauthorized access to consumer information, including the September 2017 disclosure of a large data breach at a national credit reporting agency, banking regulators and policymakers at the federal and state levels are increasingly focused on measures to enhance data security and incident response capabilities. The Federal Financial Institutions Examination Council has revised examiner guidance for evaluating the adequacy of a financial institution's information security program and associated risk management practices. In addition, in October 2016, federal banking regulators issued an advanced notice of proposed rulemaking that provides for enhanced cyber risk management standards to increase the operational resilience of large financial services firms and reduce the systemic impact of a cybersecurity event. The timing and final form of any final rule is uncertain at this time. Legislation at various levels of government has also been proposed to address security breach notification and data security standards. While it is too early to know their impact, these developments could ultimately result in the imposition of requirements on Discover and other card issuers or networks that could increase costs or adversely affect the competitiveness of our credit card or debit card products. In addition, the size and scope of the 2017 national credit reporting agency breach may result in the financial services industry shifting to new means identifying and authenticating consumers.

Compliance expenditures have increased significantly for Discover and other financial services firms, and we expect them to continue to increase as regulators remain focused on controls and operational processes. We may face additional compliance and regulatory risk to the extent that we enter into new business arrangements with third-party service providers, alternative payment providers or other industry participants. The additional expense, time and resources needed to comply with ongoing regulatory requirements may adversely impact our business and results of ~~operations.~~

~~Consumer Financial Services~~

The Consumer Financial Protection Bureau (the "CFPB") regulates consumer financial products and services, as well as certain financial services providers, including Discover. The CFPB has rulemaking and interpretive authority under the Dodd-Frank Act and other federal consumer financial services laws, as well as broad supervisory, examination and enforcement authority over designated financial services providers. The CFPB’s regulatory authority includes the exercise of rulemaking, supervision and enforcement powers with respect to “unfair, deceptive or abusive acts or practices” and consumer access to fair, transparent and competitive financial products and services. The CFPB's policy priorities for 2017, as in recent years, include a focus on several financial products of the type we offer (e.g. credit cards and student loans).

The CFPB recently issued a final rule that will significantly limit the use of pre-dispute arbitration agreements and class action waivers. For more information, see Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements.

In addition, the CFPB publishes regular Complaint Reports and Supervisory Highlights about specific products, services and practices. The CFPB also maintains an online consumer complaint portal that shows the nature of each consumer's complaint and the financial services provider's responses, such as whether the requested relief was provided. The complaint portal allows consumers' narratives of their complaints to be included, although the Bureau does not verify the accuracy of the narratives. On July 29, 2016 the CFPB proposed to replace the dispute function on the portal, whereby the customer can dispute a company’s response to the complaint, with a survey that will allow the customer to provide feedback on the financial services provider's handling of the complaint. The CFPB seeks to implement this survey in 2017. In addition to conducting regular examinations of regulated financial services providers the CFPB regularly collects account-level information about certain financial products (e.g. credit cards) from Discover and other large financial services providers. The CFPB's analysis of complaint and account-level data, together with its supervisory ~~examinations, can inform future decisions about its regulatory and examination priorities and influence consumers' decisions about doing business with financial services providers.~~

~~Credit Cards~~

Pursuant to the CARD Act, the CFPB is conducting its bi-annual review of the consumer credit card market. The review may result in additional guidance for credit card issuers, regulatory changes or legislative recommendations to Congress. The cost and availability of credit, credit disclosures and consumer experience with debt collectors continue to be

an area of focus of the CFPB. The CFPB may propose debt collection regulations that apply to our lending business in 2017. The CFPB is developing a comprehensive debt collection rule that is expected to address practices of both third party debt collectors, which are currently regulated under the Fair Debt Collection Practices Act, and creditors like Discover.

~~Private Student Loans~~

There continues to be legislative and regulatory focus on the private student loan market, including by the CFPB, the Federal Deposit Insurance Corporation (the "FDIC") and some state legislatures and state attorneys general. This regulatory focus has resulted in an increase in supervisory examinations of Discover related to private student loans. On July 22, 2015, the CFPB and Discover entered into a consent order pertaining to certain student loan servicing practices of Discover Bank, The Student Loan Corporation and Discover Products, Inc. See Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements for more information.

Recent areas of regulatory attention include servicing, payments and collection practices, originations at for-profit schools, and other matters. Student loan servicing laws have been enacted in California and the District of Columbia, and similar bills are pending elsewhere that would impose new licensing, servicing, reporting and regulatory oversight requirements on non-bank student loan servicers. The enactment of new legislation or the adoption of new regulations or guidance may increase the complexity and expense of servicing student loans. Legislators and regulators may take additional actions that impact the student loan market in the future, which could cause us to change our private student loan products or servicing practices in ways that we may not currently anticipate.

~~Mortgage Lending~~

The mortgage industry continues to be an area of supervisory focus and the CFPB has stated that it will concentrate its examinations on a variety of mortgage-related topics including steering consumers to less favorable products, discrimination, abusive or unfair lending practices, predatory lending, origination disclosures, minimum mortgage underwriting standards, mortgage loan origination compensation and servicing practices. The CFPB has recently published several final rules impacting the mortgage industry. For example, on August 4, 2016, the CFPB issued final rules that expand the obligations of servicers and resolve some ambiguities. These changes will generally take effect in 2017. On July 7, 2017, the CFPB finalized updates to its "Know Before You Owe" mortgage disclosure rule. We are working to implement the changes for our home equity loan business.

~~Payment Networks~~

The Dodd-Frank Act contains several provisions impacting the debit card market, including network participation requirements and interchange fee limitations. The changing debit card environment, including competitor actions related to merchant and acquirer pricing and transaction routing strategies, has adversely affected, and is expected to continue to adversely affect, our PULSE network's business practices, network transaction volume, revenue and prospects for future growth. We continue to closely monitor competitor pricing strategies in order to assess their impact on our business and on competition in the marketplace. The U.S. Department of Justice is examining some of these competitor pricing strategies. In addition, PULSE filed a lawsuit against Visa in late 2014 with respect to these competitive concerns, which will significantly impact expensesstress tests for the payment services segment. In addition, the Dodd-Frank Act's network participation requirements impact PULSE's ability to enter into exclusivity arrangements, which affects PULSE's current business practices and may materially adversely affect its network transaction volume and revenue.

European interchange fee regulation entered into force in June 2015. The regulation, among other things, caps interchange fees of "four-party" networks such as Visa and MasterCard. However, the regulation provides that “three-party” networks should be treated as “four-party” networks when they license third-party providers to issue cards and/or acquire merchants or when they issue cards with a co-brand partner or through an agent. This means the caps apply to elements of the financial arrangements agreed to between Diners Club and each of our stand-alone acquirers in Western Europe. The caps took effect in December 2015. The regulation excludes commercial card transactions from the scope of the caps. The regulation also contains a number of business rules, which we have, to the extent applicable, implemented in our Diners Club business.

There are additional initiatives in Europe that may have an impact on our Diners Club business, including revisions to the Payment Services Directive ("PSD2") and the new General Data Protection Regulation ("GDPR"). The PSD2 was published in the Official Journal of the EU in December 2015. Each European Union member state will transpose the PSD2 into its national law, and in January 2018 the PSD2 will enter into force. Among other terms, the PSD2 includes provisions

that once transposed into local law will regulate surcharging and network access requirements, which may result in differential surcharging of Diners Club cards and may impact Diners Club licensing arrangements in Europe. The European Parliament's Civil Liberties, Justice and Home Affairs Committee approved the final draft of the GDPR in December 2015. The final GDPR was published in the Official Journal of the European Union on May 4, 2016. Organizations have two years to prepare before the legislation comes into force on May 25, 2018. We are preparing for implementation of the GDPR.

~~The Chinese State Council previously announced that foreign payments companies would be able~~firms required to participate in the ~~Chinese domestic market~~2021 comprehensive capital analysis and ~~be eligible to apply for a license to operate a Bank Card Clearing Institution~~review ("~~BCCI"~~CCAR") ~~in China.~~process. In ~~June 2016 the People’s Bank of China ("PBOC"), in conjunction~~accordance with the ~~China Banking Regulatory Commission, promulgated~~capital plan rule amendments that were finalized in January 2021, DFS elected not to participate in the ~~Administrative Measures~~2021 supervisory stress tests. Nevertheless, DFS was required to submit a capital plan based on ~~BCCIs. On June 30, 2017,~~a forward-looking internal assessment of income and capital under baseline and stressful conditions. The Federal Reserve thereafter used our 2021 capital plan submission to assess its capital planning process and positions and, in August 2021, announced DFS' adjusted SCB requirement of 3.6% to reflect DFS' planned common stock dividends. This adjusted SCB is effective through October 1, 2022. Discover was a full participant in the ~~PBOC published~~2022 CCAR process and submitted the ~~implementation guidelines. We are analyzing any potential impact on our business and preparing for implementation.~~

2022 Capital ~~Liquidity and Funding~~

~~Capital~~

~~Discover Financial Services and Discover Bank are subject~~Plan to ~~regulatory capital requirements that became effective January 1, 2015 under final rules issued by~~ the Federal Reserve ~~and~~by the FDIC to implement the provisions under the Basel Committee’s December 2010 framework (referred to as “Basel III”). The final capital rules ("Basel III rules") require minimum risk-based capital and leverage ratios and define what constitutes capital for purposes of calculating those ratios. In addition, the Basel III rules establish a capital conservation buffer above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 ("CET1") capital and result in higher required minimum ratios by up to 2.5%. The new capital conservation buffer requirement became effective on January 1, 2016; however, the buffer threshold amounts are subject to a gradual phase-in period. In 2016, the highest capital conservation buffer threshold was 0.625%, which has risen to 1.25% for the 2017 calendar year. The full 2.5% buffer requirement will not be fully phased-in until January 2019. A banking organization is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below any of the minimum capital requirements, taking into account the applicable capital conservation buffer thresholds. Based on our current capital composition and levels and business plans, we are and expect to continue to be in compliance with the requirements for the foreseeable future. For additional information, see "— Liquidity and Capital Resources — Capital."April 5, 2022 due date.

Federal banking regulators jointly issued a proposed rule on September 27, 2017 that would simplify the treatment of certain assets and deductions for institutions that are not subject to the advanced approaches capital rule. Among other things, the proposed rule would increase or adjust the deduction thresholds for certain mortgage servicing assets, deferred tax assets, investments in the capital of unconsolidated financial institutions, and minority interest. As proposed, the new rules would apply to Discover Financial Services and its subsidiary banks. We are in the process of assessing the potential impact of the proposed rule changes.

~~Liquidity~~

We are subject to the Federal Reserve's final rule implementing certain enhanced prudential standards under the Dodd-Frank Act for large U.S. bank holding companies, including enhanced liquidity and risk management requirements, which became effective January 1, 2015. The final rule prescribes a broad range of qualitative liquidity risk management practices.

Additionally, we are subject to the U.S. liquidity coverage ratio rule issued by federal banking regulators in 2014, which became effective on January 1, 2016. This quantitative requirement is designed to promote the short-term resilience of the liquidity risk profile of large and internationally active banking organizations in the United States. The rule requires covered banks to maintain an amount of high-quality liquid assets sufficient to cover projected net cash outflows during a prospective 30-day calendar period under an acute, hypothetical liquidity stress scenario. Given our current asset size, we are subject to a modified liquidity coverage ratio requirement which requires a lower level of high-quality liquid assets to meet the minimum ratio requirement due to adjustments to the net cash outflow amount. Under the rule's transition period, we are required to maintain a liquidity ratio of 100% in 2017. As of September 30, 2017, our liquidity coverage ratio was in excess of the applicable regulatory requirement. On ~~December 19, 2016,~~June 23, 2022, the Federal Reserve ~~issued a final rule that will require banking institutions subject~~released results of the 2022 CCAR exercise. Discover’s results showed strong capital levels under stress, well above regulatory minimums. These results were used to set the ~~liquidity coverage ratio rule to publish quarterly public disclosures regarding~~new SCB effective October 1, 2022. On August 4, 2022, the ~~company’s liquidity risk profile and components of its liquidity coverage ratio calculation. Discover will be required to publish its first disclosure under~~Federal Reserve disclosed the ~~rule beginning~~new SCB for DFS is 2.5%, the ~~fourth quarter of 2018.~~lowest possible requirement.

London Interbank Offered Rate

In April 2016, the federal banking agencies issued a notice of proposed rulemaking to implement, within the United States, the long-term liquidity standards previously issued at the international level by the Basel Committee on Banking

Supervision. The proposed rule would impose a new quantitative liquidity requirement called the Net Stable Funding Ratio (“NSFR”) to ensure that covered banking organizations maintain stable funding to meet their funding needs over a one year time horizon. The NSFR is intended to complement the shorter-term liquidity coverage ratio requirement. Under the proposed rule, we would be subject to a less stringent “modified” NSFR requirement. If adopted as a final rule, the minimum NSFR requirements would take effect on January 1, 2018.

~~Funding~~

On July ~~27,~~ 2017, the UK Financial Conduct Authority ("FCA") announced that it would no longer encourage or compel banks to continue to contribute quotes and maintain the London Interbank Offered Rate ("LIBOR") after 2021. To support a smooth transition away from LIBOR, the Federal Reserve and the Federal Reserve Bank of New York convened the Alternative Reference Rates Committee ("ARRC"), a group of private-market participants tasked with facilitating a successful transition from U.S. dollar ("USD") LIBOR to a more robust reference rate. The ARRC initially identified the Secured Overnight Financing Rate ("SOFR") as its recommended alternative reference rate for USD LIBOR. The ARRC has also established several priorities and milestones to support the use of SOFR and SOFR-based indices, including developing contractual "fallback" language for capital markets and consumer products; providing clarity on legal, tax, accounting and regulatory matters; promoting broad outreach and education efforts around the LIBOR transition; and recommending spread adjustments for SOFR and SOFR-based indices, which will be of critical importance to market participants once USD LIBOR settings cease in 2023.

With regard to recent LIBOR transition developments, in March 2021, the FCA announced the future cessation and loss of representativeness for all LIBOR benchmark settings. While non-USD and several less frequently referenced USD LIBOR settings ceased publication immediately after December 31, 2021, commonly referenced USD LIBOR settings will cease publication immediately after June 30, 2023; this future cessation event will trigger fallback provisions in many financial contracts to convert their benchmark index from LIBOR to an alternative rate. In July 2021, the ARRC announced its recommendation of forward-looking term rates based on SOFR as additional alternative reference rate options.

In December 2021, the Consumer Financial Protection Bureau ("CFPB") finalized a rule to facilitate transition from LIBOR, which became effective on April 1, 2022. Specifically, this final rule provides guidance on LIBOR replacements and the LIBOR transition for purposes of Regulation Z. We have communicated with the CFPB regarding our plans for the LIBOR transition.

A cross-functional team is ~~commonly used~~overseeing and managing our transition away from the use of LIBOR. This team assesses evolving industry and marketplace norms and conventions for LIBOR-indexed instruments, evaluates the impacts stemming from the future cessation of LIBOR publication and oversees and takes actions to transition our LIBOR exposures to alternative benchmark rates, usually SOFR. Our existing LIBOR exposures are limited to two instruments—variable-rate student loans and capital markets securities.

As of September 30, 2022, LIBOR-indexed variable-rate loans comprised approximately 40% of our private student loan portfolio and approximately 4% of our aggregate loan portfolio. These outstanding student loans indexed to LIBOR will convert to a SOFR index in 2023 when 3-month USD LIBOR will no longer be published. U.S. banking regulators have directed banks to cease entering into new contracts that use USD LIBOR as a ~~benchmark~~reference rate after December 31, 2021. Therefore, as of November 2021, we no longer originate new variable-rate student loans indexed to ~~determine~~LIBOR. Instead, new originations of such loans are indexed solely to 3-month term SOFR published by the Chicago Mercantile Exchange.

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We ceased entering into new LIBOR-indexed interest ~~rates~~rate derivatives in 2018 and have since actively reduced LIBOR exposures in our derivatives portfolio. During the third quarter of 2021, we terminated our last LIBOR-indexed interest rate swap maturing after June 2023; our last LIBOR-indexed interest rate swap matured in January 2022.

Most of our capital markets securities indexed to USD LIBOR are floating-rate asset-backed securities. Beginning in 2018, we included fallback provisions in all newly issued securities that will facilitate an orderly transition from LIBOR to an appropriate reference rate, which may be based on SOFR, once 1- and 3-month LIBOR cease to be published after June 2023. Approximately $1.5 billion of our capital markets securities that mature after June 2023 with no fallback provisions would be covered under New York LIBOR legislation enacted in April 2021 or federal legislation enacted in March 2022, which preempts the New York LIBOR legislation. This legislation would allow us to replace the LIBOR index with SOFR under a safe harbor provision.Approximately $500 million of our capital markets securities have a rate reset in August 2023 that contains a fallback provision that may not be covered under the New York LIBOR legislation or the federal legislation; however, we may decide to exercise our right to call and redeem those securities on their reset date.

We have prepared for ~~certain~~the cessation of USD LIBOR by taking steps to avoid new exposures and actively reduce our remaining exposures.We completed scheduled transition work before year-end 2021, including providing our stakeholders with information about the cessation of USD LIBOR and how it will affect their contracts with us. The transition process will continue through the end of 2023.

Consumer Financial Services

The CFPB regulates consumer financial products and ~~instruments. We~~services and examines certain providers of consumer financial products and services, including Discover. The CFPB's authority includes rulemaking, supervisory and enforcement powers with respect to federal consumer protection laws; preventing "unfair, deceptive or abusive acts or practices" ("UDAAP") and ensuring that consumers have access to fair, transparent and competitive financial products and services. Historically, the CFPB's policy priorities focused on several financial products of the type we offer (e.g., credit cards and other consumer lending products). In addition, the CFPB is required by statute to undertake certain actions, including its biennial review of the consumer credit card market.

Under Director Rohit Chopra’s leadership, the CFPB’s priorities have focused on and are ~~analyzing~~expected to continue focusing on, among other things, increased enforcement of existing consumer protection laws, with a particular focus on fees charged to consumers, UDAAP, fair lending, student lending and servicing, debt collection and credit reporting. Additionally, detection of repeat offenders, such as companies that violate a formal court or agency order, has become a top priority for the CFPB. In remarks by Director Chopra in March 2022, he identified, as repeat offenders, several companies that have had multiple enforcement actions, including us. The CFPB has recently taken action against financial institutions for violating prior enforcement actions. Enhanced regulatory requirements, potential supervisory findings, or enforcement actions and ratings could negatively impact our ability to implement certain consumer-focused enhancements to product features and functionality and business strategies, limit or change our business practices, limit our consumer product offerings, cause us to invest more management time and resources in compliance efforts or limit our ability to obtain related required regulatory approvals. The additional expense, time and resources needed to comply with ongoing or new regulatory requirements may adversely impact the cost of and access to credit for consumers and results of business operations.

In December 2020, certain of our subsidiaries entered into a consent order with the CFPB regarding identified private student loan servicing practices. See Note 13: Litigation and Regulatory Matters to our condensed consolidated financial statements for more information.

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Data Security and Privacy

Policymakers at the federal and state levels remain focused on enhancing data security and data breach incident response requirements. Furthermore, regulations and legislation at various levels of government have been proposed and enacted to augment consumer data privacy standards. The California Consumer Privacy Act ("CCPA") creates a broad set of privacy rights and remedies modeled in part on the European Union's General Data Protection Regulation. The CCPA went into effect in January 2020, and the California Attorney General's final regulations became effective in August 2020, with enforcement beginning in July 2020. The California Privacy Rights Act ("CPRA"), a ballot measure led by the original proponent of the CCPA, passed in November 2020, with an effective date of January 1, 2023, and enforcement set to begin on July 1, 2023. The CPRA replaces the CCPA to enhance consumer privacy protections further and creates a new California Privacy Protection Agency ("CPPA"). The CPPA Board released a Notice of Proposed Rulemaking initiating a 45-day comment period, which closed on August 23, 2022, with final regulations still forthcoming. While the CPRA retains an exemption for information collected, processed, sold, or disclosed subject to the Gramm-Leach-Bliley Act, we continue to evaluate the impact of the CPRA on our businesses and other providers of consumer financial services.

Environmental, Social and Governance Matters

Environmental, social and governance ("ESG") issues, including climate change, human capital and governance practices, are a significant area of focus by lawmakers at the state and federal levels, regulatory agencies, shareholders and other stakeholders. Proposed legislation and rulemakings have been issued or are being considered, including proposals to require disclosure of climate, cybersecurity and other ESG metrics and risk. The potential impact to us of these legislative and regulatory developments is uncertain at this time.

In particular, in March 2022, the Securities and Exchange Commission proposed climate-related disclosure requirements. Through an enterprise-wide working group, we continue to assess the potential impact ~~on our business.~~of the proposed rules, if adopted.

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Segments

We manage our business activities in two segments, ~~Direct~~Digital Banking and Payment Services, based on the products and services provided. For a detailed description of the operations of each segment, as well as the allocation conventions used in our business segment reporting, see Note ~~15:~~16: Segment Disclosures to our condensed consolidated financial statements.

The following table presents segment data (dollars in millions):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Digital Banking
Interest income
Credit card loans	$	2,783	$	2,193	$	7,475	$	6,452
Private student loans	211		184		597		554
Personal loans	221		219		633		662
Other loans	44		30		113		85
Other interest income	98		48		190		156
Total interest income	3,357		2,674		9,008		7,909
Interest expense	514		269		1,076		875
Net interest income	2,843		2,405		7,932		7,034
Provision for credit losses	773		185		1,476		(45)
Other income	541		447		1,584		1,284
Other expense	1,346		1,151		3,624		3,290
Income before income taxes	1,265		1,516		4,416		5,073
Payment Services


Other income (loss)	95		(75)		89		833
Other expense	42		39		117		203
Income (loss) before income taxes	53		(114)		(28)		630
Total income before income taxes	$	1,318	$	1,402	$	4,388	$	5,703

The following table presents information on transaction volume (dollars in millions):


	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2022		2021		2022		2021
Network Transaction Volume
PULSE Network	$	63,437	$	59,872	$	186,265	$	183,126
Network Partners	11,894		10,377		34,109		29,474
Diners Club(1)	8,793		6,547		24,350		18,570
Total Payment Services	84,124		76,796		244,724		231,170
Discover Network — Proprietary(2)	56,633		49,360		160,600		135,763
Total Network Transaction Volume	$	140,757	$	126,156	$	405,324	$	366,933
Transactions Processed on Networks
Discover Network	924		868		2,671		2,345
PULSE Network	1,611		1,415		4,534		4,124
Total Transactions Processed on Networks	2,535		2,283		7,205		6,469
Credit Card Volume
Discover Card Volume(3)	$	58,561	$	50,389	$	165,324	$	138,772
Discover Card Sales Volume(4)	$	54,793	$	47,613	$	154,982	$	130,817

(1)Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment.

(2)Represents gross Discover card sales volume on the Discover Network.

(3)Represents Discover card activity related to sales net of returns, balance transfers, cash advances and other activity.

(4)Represents Discover card activity related to sales net of returns.

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The following table presents segment data (dollars in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,

2017 2016 2017 2016
Direct Banking
Interest income
Credit card $ 2,026
$ 1,812
$ 5,818
$ 5,279
Private student loans 132
112
383
329
PCI student loans 39
46
121
142
Personal loans 224
185
629
523
Other 55
29
141
85
Total interest income 2,476
2,184
7,092
6,358
Interest expense 426
359
1,212
1,032
Net interest income 2,050
1,825
5,880
5,326
Provision for loan losses 675
445
1,908
1,279
Other income 401
408
1,184
1,210
Other expense 909
857
2,634
2,576
Income before income tax expense 867
931
2,522
2,681
Payment Services
Provision for loan losses (1 ) —
(8 ) 2
Other income 74
68
219
205
Other expense 39
38
111
111
Income before income tax expense 36
30
116
92
Total income before income tax expense $ 903
$ 961
$ 2,638
$ 2,773

The following table presents information on transaction volume (in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Network Transaction Volume
PULSE Network $ 39,828
$ 33,913
$ 114,742
$ 102,449
Network Partners 3,811
3,313
10,933
10,598
Diners Club⁽¹⁾
7,989
7,331
23,171
21,267
Total Payment Services 51,628
44,557
148,846
134,314
Discover Network—Proprietary⁽²⁾
33,576
31,759
96,777
92,115
Total Volume $ 85,204
$ 76,316
$ 245,623
$ 226,429
Transactions Processed on Networks
Discover Network 579
535
1,633
1,559
PULSE Network 996
871
2,827
2,565
Total 1,575
1,406
4,460
4,124
Credit Card Volume
Discover Card Volume⁽³⁾
$ 35,581
$ 33,471
$ 103,284
$ 96,884
Discover Card Sales Volume⁽⁴⁾
$ 32,161
$ 30,683
$ 93,467
$ 88,937


~~(1)~~	~~Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment.~~


~~(2)~~	~~Represents gross proprietary sales volume on the Discover Network.~~


~~(3)~~	~~Represents Discover card activity related to net sales, balance transfers, cash advances and other activity.~~


~~(4)~~	~~Represents Discover card activity related to net sales.~~

~~Direct~~Digital Banking

Our ~~Direct~~Digital Banking segment reported pretax income of ~~$867 million~~$1.3 billion and ~~$2.5~~$4.4 billion, respectively, for the three and nine months ended September 30, ~~2017, respectively,~~2022, as compared to a pretax income of ~~$931 million~~$1.5 billion and ~~$2.7~~$5.1 billion, respectively, for the three and nine months ended September 30, ~~2016, respectively.~~2021.

Net interest ~~margin~~income increased for the three and nine months ended September 30, ~~2017~~2022, as compared to the same periods in ~~2016~~2021, primarily driven by a higher ~~yields~~average level of receivables and higher yield on ~~credit card~~ loans, partially offset by higher funding costs. The increase in yields on credit card loans was primarily due to prime rate increases and a higher portion of revolving card receivables, partially offset by higher promotional balances in the card portfolio and higher interest charge-offs. Interest income increased ~~during~~for the three and nine months ended September 30, ~~2017~~2022, as compared to the same periods in ~~2016~~2021, due to a higher average level of loan ~~growth~~receivables and ~~yield expansion.~~higher market rates. Interest expense increased ~~during~~for the three and nine months ended September 30, ~~2017~~2022, as compared to the same periods in ~~2016 primarily~~2021, due to higher funding costs driven by higher market rates. The interest expense increase for the three months ended September 30, 2022 was also driven by a larger funding ~~base, higher market rates and a change in funding mix.~~base.

For the three and nine months ended September 30, ~~2017,~~2022, the overall portfolio provision for ~~loan~~credit losses increased as compared to the same periods in ~~2016~~2021. The increase was primarily ~~due to higher levels of charge-offs combined with a larger reserve build.~~driven by continued loan growth and credit normalization. For a detailed discussion on provision for ~~loan~~credit losses, see "— Loan Quality — Provision and Allowance for ~~Loan~~Credit Losses."

Total other income remained flat in the three months ended September 30, 2017 and decreased in the nine months ended September 30, 2017 as compared to the same periods in 2016. During the nine months ended September 30, 2017, the decrease was due primarily to higher promotional rewards offset by the increase in discount and interchange revenue, both of which were primarily the result of higher sales volume. The increase in loan fee income was primarily due to an increase in late fees.

~~Total other expense~~ increased in the three and nine months ended September 30, 2017 as compared to the same periods in 2016. During the three and nine months ended September 30, 2017, the increase was primarily driven by an increase in employee compensation and benefits and professional fees offset by a decrease in information processing and communications. The increase in employee compensation and benefits was primarily driven by the impact of added headcount for regulatory and compliance needs and higher average salaries. The increase in professional fees was driven primarily by investments in technology and infrastructure as well as higher spend in collection efforts in 2017, offset by the completion of a look back project related to anti-money laundering remediation in 2016. The decrease in information processing and communications was primarily the result of infrastructure efficiencies.

~~Discover card sales volume was $32.2 billion and $93.5 billion~~ for the three and nine months ended September 30, ~~2017,~~2022, as compared to the same periods in 2021, which was due to increases in net discount and interchange revenue and loan fee income. The increase in discount interchange revenue was partially offset by an increase in rewards, both of which were driven by higher sales volume. Loan fee income increased primarily due to a higher volume of late payments.

Total other expense increased for the three and nine months ended September 30, 2022, as compared to the same periods in 2021, primarily due to increases in marketing and business development, employee compensation and benefits and professional fees. The increase in marketing and business development was driven by growth investments in card and consumer banking. Employee compensation and benefits increased primarily from higher headcount. The increase in professional fees was due primarily to investments in technology and increased consulting costs.

Discover card sales volume was $54.8 billion and $155 billion, respectively, for the three and nine months ended September 30, 2022, which was an increase of ~~4.8%~~15.1% and ~~5.1%~~18.5%, respectively, as compared to the same periods in ~~2016.~~2021. This volume growth was primarily driven by ~~an increase in~~higher consumer ~~spending.~~spending across all spending categories.

Payment Services

Our Payment Services segment reported pretax income of ~~$36~~$53 million and ~~$116~~a pretax loss of $28 million, respectively, for the three and nine months ended September 30, ~~2017, respectively,~~2022, as compared to pretax loss of $114 million and pretax income of ~~$30~~$630 million, ~~and $92 million~~respectively, for the same periods in ~~2016.~~2021. The increase in segment pretax income for the three months ended September 30, 2022 was primarily driven by anthe change in fair value of equity investments that are carried at fair value because the shares are publicly traded. The fair value adjustments resulted in the recognition of smaller unrealized losses in the current period compared to the prior period. Also contributing to the increase ~~in transaction processing revenue~~were realized gains on equity investments due to ~~higher point-of-sale transactions.~~

~~Downturns~~sales in the ~~global economy or negative impacts~~current period.

The decrease in foreign currency may adversely affect our financial condition or results of operations in our Payment Services segment. We continue to work with our Diners Club licensees with regard to their ability to maintain financing sufficient to support business operations. We may continue to provide additional support insegment pretax income for the future, including loans, facilitating transfer of ownership, or acquiring assets or licensees, which may cause us to incur losses. The licensees that we currently consider to be of concern accounted for approximately 3% and 4% of Diners Club revenues during the three and nine months ended September 30, ~~2017, respectively.~~2022 was driven by fair value adjustments of equity investments that resulted in the recognition of unrealized losses in the current period and unrealized gains in the prior period. This decrease was offset by an increase in realized gains on equity investments due to sales in the current period.

Critical Accounting Estimates

In preparing our ~~condensed~~ consolidated financial statements in conformity with accounting principles generally accepted in the ~~United States~~U.S. ("GAAP"), management must make judgments and use estimates and assumptions about the effects of matters that are uncertain. For estimates that involve a high degree of judgment and subjectivity, it is possible that different estimates could reasonably be derived for the same period. For estimates that are particularly sensitive to changes in economic or market conditions, significant changes to the estimated amount from period to period are also possible. Management believes the current assumptions and other considerations used to estimate amounts reflected in our ~~condensed~~ consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts in our ~~condensed~~ consolidated financial statements, the resulting changes could have a material effect on our consolidated results of

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operations and, in certain cases, could have a material effect on our consolidated financial condition. Management has identified the estimates related to our allowance for ~~loan~~credit losses ~~the evaluation of goodwill and other non-amortizable intangible assets for potential impairment, the accrual of income taxes and estimates of future cash flows associated with PCI loans~~ as a critical accounting ~~estimates. These critical~~estimate.

Allowance for Credit Losses

The allowance for credit losses was approximately $7.1 billion at September 30, 2022, which reflects a $304 millionbuild over June 30, 2022. The allowance for credit losses represents management’s estimate of expected credit losses over the remaining expected life of our financial assets measured at amortized cost and certain off-balance sheet loan commitments. Changes in the allowance for credit losses, and in the related provision for credit losses, can materially affect net income.

In estimating the expected credit losses, we use a combination of statistical models and qualitative analysis. There is a significant amount of judgment applied in selecting inputs and analyzing the results produced to estimate the allowance for credit losses. For more information on these judgments and our accounting ~~estimates are discussed in greater detail~~policies and methodologies used to determine the allowance for credit losses, see "Management's Discussion and Analysis of Financial Condition and Results of Operations — Loan Quality," Note 4: Loan Receivables and Note 2: Summary of Significant Accounting Policies to our consolidated financial statements in our annual report on Form 10-K for the year ended December 31, ~~2016. That discussion can be found within “Management’s Discussion~~2021.

One of the key assumptions requiring significant judgment in estimating the current expected credit losses ("CECL") on a quarterly basis is the determination of the macroeconomic forecasts used in the loss forecast models. For the reasonable and ~~Analysis~~supportable loss forecast period, we consider forecasts of ~~Financial Condition~~multiple economic scenarios that generally include a base scenario with one or more optimistic (upside) or pessimistic (downside) scenarios. These scenarios incorporate a variety of macroeconomic variables, including annualized gross domestic product growth and ~~Results~~unemployment rate. The scenarios that are chosen each quarter and the amount of ~~Operations” under~~weighting given to each scenario depend on a variety of factors including recent economic events, leading economic indicators, views of internal and third-party economists and industry trends. Assumptions about the ~~heading “— Critical Accounting Estimates.” There have not been any material~~macroeconomic environment are inherently uncertain and, as a result, actual changes in the ~~methods used~~allowance for credit losses may be different from the simulated scenario presented below.

To demonstrate the sensitivity of the estimated credit losses to ~~formulate these critical accounting estimates from those discussed~~the macroeconomic scenarios, we compared the modeled credit losses determined using our base and one or more adverse macroeconomic scenarios. Our allowance for credit losses would increase by approximately $578 million at September 30, 2022 if we applied 100% weight to the most adverse scenario in our ~~annual report~~sensitivity analysis to reflect the economic deterioration from a resurgence of COVID-19 and resulting economic stress, as well as increasing inflationary pressures, including persistent supply-chain disruptions and the influence of geopolitical events.

The sensitivity disclosed above is hypothetical. It is difficult to estimate how potential changes in any one factor or input, such as the weighting of macroeconomic forecasts, might affect the overall allowance for credit losses because we consider a variety of factors and inputs in estimating the allowance for credit losses. The macroeconomic scenarios used are constructed with interrelated projections of multiple economic variables, and loss estimates are produced that consider the historical correlation of those economic variables with credit losses. The inputs in the macroeconomic scenarios may not change at the same rate and may not be consistent across all geographies or product types, and changes in factors and inputs may be directionally inconsistent, such that improvement in one factor or input may offset deterioration in others. As a result, the sensitivity analysis above does not necessarily reflect the nature and extent of future changes in the allowance for credit losses. It is intended to provide insights into the impact of different judgments about the economy on ~~Form 10-K~~our modeled loss estimates for the ~~year ended December 31, 2016.~~loan portfolio and does not imply any expectation of future losses. Furthermore, the hypothetical increase in our allowance for credit losses for loans does not incorporate the impact of management judgment for qualitative factors applied in the current allowance for credit losses, which may have a positive or negative effect on our actual financial condition and results of operations.

The overall economic environment directly impacts the macroeconomic variables that are used in the loss forecast models. If management used different assumptions about the economic environment in estimating expected credit losses, the impact to the allowance for credit losses could have a material effect on our consolidated financial condition and results of operations. In addition, if we experience a rapidly changing economic environment, as experienced during the COVID-19 pandemic, the uncertainty around the credit loss forecasts may increase, both due to the uncertainty of the economic forecasts and the challenges our models may have in incorporating them.

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Earnings Summary

The following table outlines changes in our condensed consolidated statements of income (dollars in millions):


	For the Three Months Ended September 30,				2022 vs. 2021 Increase (Decrease)				For the Nine Months Ended September 30,				2022 vs. 2021 Increase (Decrease)
	2022		2021		$		%		2022		2021		$		%
Interest income	$	3,357	$	2,674	$	683	26	%	$	9,008	$	7,909	$	1,099	14	%
Interest expense	514		269		245		91	%	1,076		875		201		23	%
Net interest income	2,843		2,405		438		18	%	7,932		7,034		898		13	%
Provision for credit losses	773		185		588		318	%	1,476		(45)		1,521		(3,380)	%
Net interest income after provision for credit losses	2,070		2,220		(150)		(7)	%	6,456		7,079		(623)		(9)	%
Other income	636		372		264		71	%	1,673		2,117		(444)		(21)	%
Other expense	1,388		1,190		198		17	%	3,741		3,493		248		7	%
Income before income tax expense	1,318		1,402		(84)		(6)	%	4,388		5,703		(1,315)		(23)	%
Income tax expense	312		311		1		—	%	1,029		1,321		(292)		(22)	%
Net income	$	1,006	$	1,091	$	(85)	(8)	%	$	3,359	$	4,382	$	(1,023)	(23)	%
Net income allocated to common stockholders	$	967	$	1,055	$	(88)	(8)	%	$	3,277	$	4,289	$	(1,012)	(24)	%

The following table outlines changes in our condensed consolidated statements of income (dollars in millions):
For the Three Months Ended September 30, 2017 vs. 2016
Increase (Decrease) For the Nine Months Ended September 30, 2017 vs. 2016
Increase (Decrease)
2017 2016 $ % 2017 2016 $ %
Interest income $ 2,476
$ 2,184
$ 292
13 % $ 7,092
$ 6,358
$ 734
12 %
Interest expense 426
359
67
19 % 1,212
1,032
180
17 %
Net interest income 2,050
1,825
225
12 % 5,880
5,326
554
10 %
Provision for loan losses 674
445
229
51 % 1,900
1,281
619
48 %
Net interest income after provision for loan losses 1,376
1,380
(4 ) — % 3,980
4,045
(65 ) (2 )%
Other income 475
476
(1 ) — % 1,403
1,415
(12 ) (1 )%
Other expense 948
895
53
6 % 2,745
2,687
58
2 %
Income before income tax expense 903
961
(58 ) (6 )% 2,638
2,773
(135 ) (5 )%
Income tax expense 301
322
(21 ) (7 )% 926
943
(17 ) (2 )%
Net income $ 602
$ 639
$ (37 ) (6 )% $ 1,712
$ 1,830
$ (118 ) (6 )%

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Net Interest Income

The table that follows this section has been provided to supplement the discussion below and provide further analysis of net interest income and net interest margin. Net interest income represents the difference between interest income earned on our interest-earning assets and the interest expense incurred to finance those assets. We analyze net interest income in total by calculating net interest margin (net interest income as a percentage of average total loan receivables) and net yield on ~~interest-bearing~~interest-earning assets (net interest income as a percentage of average total interest-earning assets). We also separately consider the impact of the level of loan receivables and the related interest yield and the impact of the cost of funds related to each of our funding sources, along with the income generated by our liquidity portfolio, on net interest income.

Our interest-earning assets consist of: (i) cash and cash equivalents primarily related to amounts on deposit with the Federal Reserve Bank of Philadelphia, (ii) restricted cash, (iii) other short-term investments, (iv) investment securities and (v) loan receivables. Our interest-bearing liabilities consist primarily of deposits, both direct-to-consumer and brokered, and long-term borrowings, including amounts owed to securitization investors. ~~Net~~The following factors influence net interest ~~income is influenced by the following:~~income:

•The level and composition of loan receivables, including the proportion of credit card loans to other loans, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates;

•The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income;

•The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate;

•The interest rates necessary to attract and maintain direct-to-consumer deposits;

•The level and composition of other ~~interest-bearing~~interest-earning assets, ~~and liabilities,~~ including our liquidity ~~portfolio;~~portfolio, and interest-bearing liabilities;

•Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the ~~Federal Funds~~federal funds rate, the interest rate on reserve balances and LIBOR; and

•The effectiveness of interest rate swaps in our interest rate risk management ~~program; and~~program.

~~The difference between the carrying amount and future cash flows expected to be collected on PCI loans.~~

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Average Balance Sheet Analysis

(dollars in ~~yields~~millions)


	For the Three Months Ended September 30,
	2022						2021
	Average Balance		Yield/Rate		Interest		Average Balance		Yield/Rate		Interest
Assets
Interest-earning assets
Cash and cash equivalents	$	10,057	2.29	%	$	58	$	12,192	0.16	%	$	3
Restricted cash	853		2.25	%	$	5	571		0.03	%	NM
Other short-term investments	NM		0.10	%	NM		NM		0.10	%	NM
Investment securities	6,000		2.32	%	35		8,431		2.09	%	45
Loan receivables(1)
Credit card loans(2)(3)	81,445		13.56	%	2,783		69,416		12.53	%	2,193
Private student loans	10,132		8.26	%	211		9,932		7.36	%	184
Personal loans	7,408		11.83	%	221		6,900		12.61	%	219
Other loans	3,050		5.70	%	44		2,108		5.41	%	30
Total loan receivables	102,035		12.67	%	3,259		88,356		11.79	%	2,626
Total interest-earning assets	118,945		11.20	%	3,357		109,550		9.68	%	2,674
Allowance for credit losses	(6,758)						(7,020)
Other assets	5,923						6,430
Total assets(4)	$	118,110					$	108,960
Liabilities and Stockholders' Equity
Interest-bearing liabilities
Interest-bearing deposits
Time deposits	$	25,279	1.97	%	125		$	22,804	1.76	%	101
Money market deposits	8,432		1.92	%	41		8,108		0.53	%	11
Other interest-bearing savings deposits	44,372		1.60	%	179		41,059		0.42	%	44
Total interest-bearing deposits	78,083		1.76	%	345		71,971		0.86	%	156
Borrowings
Short-term borrowings	98		1.62	%	$	1.00	6		0.24	%	NM
Securitized borrowings(5)(6)(7)	10,246		2.79	%	72		8,292		1.10	%	22
Other long-term borrowings(6)(7)	9,087		4.20	%	96		9,550		3.78	%	91
Total borrowings	19,431		3.45	%	169		17,848		2.53	%	113
Total interest-bearing liabilities	97,514		2.09	%	514		89,819		1.19	%	269
Other liabilities and stockholders' equity(8)	20,596						19,141
Total liabilities and stockholders' equity	$	118,110					$	108,960
Net interest income					$	2,843					$	2,405
Net interest margin(9)			11.05	%					10.80	%
Net yield on interest-earning assets(10)			9.48	%					8.71	%
Interest rate spread(11)			9.11	%					8.49	%

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	For the Nine Months Ended September 30,
	2022						2021
	Average Balance		Yield/Rate		Interest		Average Balance		Yield/Rate		Interest
Assets
Interest-earning assets
Cash and cash equivalents	$	9,074	1.20	%	$	81	$	15,725	0.12	%	$	14
Restricted cash	556		1.19	%	5		536		0.03	%	NM
Other short-term investments	NM		0.11	%	NM		235		0.12	%	NM
Investment securities	6,094		2.28	%	104		9,125		2.08	%	142
Loan receivables(1)
Credit card loans(2)(3)	76,832		13.01	%	7,475		68,522		12.59	%	6,452
Private student loans	10,225		7.81	%	597		10,044		7.38	%	554
Personal loans	7,101		11.92	%	633		6,953		12.73	%	662
Other loans	2,697		5.60	%	113		2,002		5.64	%	85
Total loan receivables	96,855		12.17	%	8,818		87,521		11.84	%	7,753
Total interest-earning assets	112,579		10.70	%	9,008		113,142		9.35	%	7,909
Allowance for credit losses	(6,740)						(7,521)
Other assets	6,014						6,189
Total assets(4)	$	111,853					$	111,810
Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits
Time deposits	$	21,772	1.73	%	281		$	24,856	1.90	%	354
Money market deposits	8,322		1.14	%	71		8,151		0.53	%	32
Other interest-bearing savings deposits	43,476		0.94	%	306		40,760		0.43	%	133
Total interest-bearing deposits	73,570		1.20	%	658		73,767		0.94	%	519
Borrowings
Short-term borrowings	300		0.69	%	2		3		0.21	%	NM
Securitized borrowings(5)(6)(7)	8,758		2.06	%	135		9,798		1.05	%	77
Other long-term borrowings(6)(7)	9,233		4.07	%	281		10,037		3.72	%	279
Total borrowings	18,291		3.05	%	418		19,838		2.40	%	356
Total interest-bearing liabilities	91,861		1.57	%	1,076		93,605		1.25	%	875
Other liabilities and stockholders’ equity(8)	19,992						18,205
Total liabilities and stockholders’ equity	$	111,853					$	111,810
Net interest income					$	7,932					$	7,034
Net interest margin(9)			10.95	%					10.74	%
Net yield on interest-earning assets(10)			9.42	%					8.31	%
Interest rate spread(11)			9.13	%					8.10	%

(1)Average balances of loan receivables and yield calculations include non-accruing loans. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.

(2)Interest income on credit card loans includes $99 million and $73 million of amortization of balance transfer fees for the three months ended September 30, 2022 and 2021, respectively, and $261 million and $217 million for the nine months ended September 30, 2022 and 2021, respectively.

(3)Includes the impact of interest rate swap agreements used to change a portion of floating-rate assets to fixed-rate assets for the three and nine months ended September 30, 2022 and 2021.

(4)The return on average assets, based on net income, was ~~primarily~~0.85% and 1.00% for the three months ended September 30, 2022 and 2021, respectively, and 3.00% and 3.92% for the nine months ended September 30, 2022 and 2021, respectively.

(5)Includes the impact of one terminated derivative formerly designated as a cash flow hedge for the three and nine months ended September 30, 2022 and 2021.

(6)Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding for the three and nine months ended September 30, 2022 and 2021.

(7)Includes the impact of terminated derivatives formerly designated as fair value hedges for the three and nine months ended September 30, 2022 and 2021.

(8)The return on average stockholders' equity, based on net income, was 6.86% and 8.08% for the three months ended September 30, 2022 and 2021, respectively, and 23.61% and 34.96% for the nine months ended September 30, 2022 and 2021, respectively.

(9)Net interest margin represents net interest income as a percentage of average total loan receivables.

(10)Net yield on interest-earning assets represents net interest income as a percentage of average total interest-earning assets.

(11)Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.

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Loan Quality

Impact of the COVID-19 Pandemic on the Loan Portfolio

The COVID-19 pandemic and its impact on the economy significantly affected our sales volume and credit card loan growth during the first half of 2021. We tightened credit standards for new accounts and for growing existing accounts across all products and reduced our marketing and customer acquisition expenditures at the onset of the pandemic. Recognizing the strong economic recovery from the COVID-19 pandemic-induced recession, we returned most of our underwriting criteria to pre-pandemic standards and resumed our investment in marketing and business development during the second quarter of 2021. This change in our credit underwriting, in addition to changes in consumer spending behavior, increased marketing and the re-opening of the U.S. economy upon expiration of certain COVID-19 containment measures, contributed to an increase in sales volume for the three and nine months ended September 30, 2022, when compared to the same periods in 2021. Our outstanding loan receivables as of September 30, 2022, increased when compared to December 31, 2021, due to ~~prime rate increases~~strong sales and new account growth.

Troubled debt restructuring ("TDR") program balances and the number of accounts reported as TDRs were favorably impacted by accounting and financial reporting exemptions provided by the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") for the year ended December 31, 2021. See Note 4: Loan Receivables to our annual report on Form 10-K for the year ended December 31, 2021, for more information about the impact of the CARES Act on loan modifications.

The table below reflects the number and balance of both new loan modifications reported as TDRs and new loan modifications excluded from the TDR designation pursuant to the CARES Act (dollars in millions):


	Accounts that entered a loan modification program and were classified as TDRs during the period			Accounts that entered a loan modification program and were exempt from the TDR designation pursuant to the CARES Act(1)
	Number of Accounts	Balances		Number of Accounts	Balances
For the Three Months Ended September 30, 2022
Credit card loans	63,803	$	414	—	$	—
Private student loans	1,863	$	36	—	$	—
Personal loans	1,799	$	25	—	$	—

For the Three Months Ended September 30, 2021
Credit card loans	13,964	$	86	27,925	$	200
Private student loans	102	$	2	2,325	$	46
Personal loans	888	$	10	239	$	3

For the Nine Months Ended September 30, 2022
Credit card loans	167,655	$	1,071	—	$	—
Private student loans	5,141	$	96	—	$	—
Personal loans	4,561	$	62	—	$	—

For the Nine Months Ended September 30, 2021
Credit card loans	48,887	$	315	97,449	$	697
Private student loans	355	$	7	7,038	$	135
Personal loans	3,102	$	38	1,177	$	18

(1)Accounts that entered into a ~~higher portion~~loan modification on or after January 1, 2022, are not eligible for this exemption.

The number and balance of ~~revolving~~new credit card ~~receivables, partially offset by higher promotional balances in the card portfolio~~ and ~~higher interest charge-offs. Interest income~~personal loan modifications increased during the three and nine months ended September 30, ~~2017 as~~2022, when compared to total modifications, including both TDRs and those exempt from the TDR designation, in the same periods in ~~2016~~2021. The increase was primarily due to the expiration of government stimulus and disaster relief programs.

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The number and balance of new private student loan ~~growth and yield expansion. Interest expense increased~~modifications decreased during the three and nine months ended September 30, ~~2017 as~~2022, when compared to total modifications, including both TDRs and those exempt from the TDR designations, in the same periods in ~~2016~~2021, due primarily ~~due~~ to heightened utilization of programs in the prior periods driven by the impacts of the COVID-19 pandemic on student loan borrowers.

The following table provides the number of accounts that exited a ~~larger funding base, higher market rates~~temporary loan modification program that were exempt from the TDR designation pursuant to the CARES Act and ~~a change~~corresponding outstanding balances along with the amount of the outstanding balances that were delinquent (30 or more days past due) upon exiting the temporary loan modification program (dollars in ~~funding mix.~~millions):


	For the Three Months Ended September 30,
	2022					2021
	Number of Accounts	Outstanding Balances		Balances Delinquent(1)		Number of Accounts	Outstanding Balances		Balances Delinquent(1)
Credit card loans	20,229	$	109	$	23	42,067	$	254	$	35
Private student loans	308	$	7	NM		2,290	$	40	NM
Personal loans	70	$	1	NM		1,307	$	21	NM

	For the Nine Months Ended September 30,
	2022					2021
	Number of Accounts	Outstanding Balances		Balances Delinquent(1)		Number of Accounts	Outstanding Balances		Balances Delinquent(1)
Credit card loans	79,621	$	437	$	89	155,712	$	955	$	129
Private student loans	3,773	$	74	$	5	6,024	$	106	NM
Personal loans	598	$	8	$	2	4,101	$	61	NM

(1)Includes balances charged off at the end of the month the account exited the temporary loan modification program. The balances charged off were not meaningful for the three and nine months ended September 30, 2022 and 2021.

Our estimate of expected loss reflected in our allowance for credit losses includes the risk associated with all loans, including all modified loans. Refer to Note 3: Loan Receivables to our condensed consolidated financial statements for more details on modification programs, TDRs and the allowance for credit losses.

Loan receivables consist of the following (dollars in millions):


	September 30, 2022		December 31, 2021
Credit card loans	$	83,630	$	74,369
Other loans
Private student loans	10,349		10,113
Personal loans	7,674		6,936
Other loans	3,255		2,266
Total other loans	21,278		19,315
Total loan receivables	104,908		93,684
Allowance for credit losses	(7,061)		(6,822)
Net loan receivables	$	97,847	$	86,862

Average Balance Sheet Analysis
(dollars in millions)
For the Three Months Ended September 30,
2017 2016
Average Balance Rate Interest Average Balance Rate Interest
Assets
Interest-earning assets
Cash and cash equivalents $ 12,895
1.26 % $ 42
$ 10,419
0.50 % $ 13
Restricted cash 848
1.15 % 2
621
0.32 % 1
Other short-term investments —
— % —
1,048
0.87 % 2
Investment securities 1,652
1.62 % 6
2,294
1.49 % 9
Loan receivables⁽¹⁾

Credit card⁽²⁾
62,647
12.83 % 2,026
57,561
12.53 % 1,812
Personal loans 7,208
12.33 % 224
6,036
12.23 % 186
Private student loans 6,725
7.79 % 132
6,023
7.41 % 112
PCI student loans 2,261
6.88 % 39
2,772
6.52 % 45
Other 348
5.56 % 5
276
4.96 % 4
Total loan receivables 79,189
12.15 % 2,426
72,668
11.82 % 2,159
Total interest-earning assets 94,584
10.39 % 2,476
87,050
9.98 % 2,184
Allowance for loan losses (2,379 ) (1,947 )
Other assets 4,192
4,282

Total assets $ 96,397
$ 89,385

Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits
Time deposits⁽³⁾
$ 26,862
1.93 % 131
$ 24,495
1.83 % 112
Money market deposits⁽⁴⁾
6,772
1.35 % 23
6,939
1.10 % 19
Other interest-bearing savings deposits 20,458
1.23 % 64
17,321
1.05 % 47
Total interest-bearing deposits⁽⁵⁾
54,092
1.59 % 218
48,755
1.45 % 178
Borrowings
Short-term borrowings 1
1.33 % —
2
0.62 % —
Securitized borrowings⁽³⁾⁽⁴⁾
17,206
2.37 % 103
16,736
2.07 % 87
Other long-term borrowings⁽³⁾
9,721
4.30 % 105
8,746
4.27 % 94
Total borrowings 26,928
3.07 % 208
25,484
2.82 % 181
Total interest-bearing liabilities 81,020
2.08 % 426
74,239
1.92 % 359
Other liabilities and stockholders’ equity 15,377
15,146

Total liabilities and stockholders’ equity $ 96,397
$ 89,385

Net interest income $ 2,050
$ 1,825
Net interest margin⁽⁶⁾
10.28 % 9.99 %
Net yield on interest-bearing assets⁽⁷⁾
8.60 % 8.34 %
Interest rate spread⁽⁸⁾
8.31 % 8.06 %

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Average Balance Sheet Analysis
(dollars in millions)
For the Nine Months Ended September 30,
2017 2016

Average
Balance
Rate Interest
Average
Balance
Rate Interest
Assets
Interest-earning assets
Cash and cash equivalents $ 13,166
1.04 % $ 103
$ 10,541
0.50 % $ 40
Restricted cash 742
0.92 % 5
562
0.37 % 2
Other short-term investments —
— % —
635
0.86 % 3
Investment securities 1,693
1.61 % 20
2,662
1.49 % 30
Loan receivables⁽¹⁾

Credit card⁽²⁾
61,165
12.72 % 5,818
56,606
12.46 % 5,279
Personal loans 6,872
12.24 % 629
5,717
12.23 % 523
Private student loans 6,679
7.67 % 383
5,953
7.38 % 329
PCI student loans 2,388
6.75 % 121
2,906
6.51 % 142
Other 316
5.52 % 13
260
5.06 % 10
Total loan receivables 77,420
12.03 % 6,964
71,442
11.75 % 6,283
Total interest-earning assets 93,021
10.19 % 7,092
85,842
9.89 % 6,358
Allowance for loan losses (2,270 ) (1,910 )
Other assets 4,169
4,411

Total assets $ 94,920
$ 88,343

Liabilities and Stockholders’ Equity
Interest-bearing liabilities
Interest-bearing deposits
Time deposits⁽³⁾
$ 26,512
1.90 % 376
$ 24,874
1.75 % 325
Money market deposits⁽⁴⁾
6,830
1.25 % 64
6,942
1.07 % 55
Other interest-bearing savings deposits 19,732
1.14 % 168
16,260
1.03 % 126
Total interest-bearing deposits⁽⁵⁾
53,074
1.53 % 608
48,076
1.41 % 506
Borrowings
Short-term borrowings 2
1.02 % —
2
0.63 % —
Securitized borrowings⁽³⁾⁽⁴⁾
16,770
2.29 % 287
16,773
2.06 % 258
Other long-term borrowings⁽³⁾
9,767
4.35 % 317
8,224
4.35 % 268
Total borrowings 26,539
3.04 % 604
24,999
2.81 % 526
Total interest-bearing liabilities 79,613
2.03 % 1,212
73,075
1.89 % 1,032
Other liabilities and stockholders’ equity 15,307
15,268

Total liabilities and stockholders’ equity $ 94,920
$ 88,343

Net interest income $ 5,880
$ 5,326
Net interest margin⁽⁶⁾
10.16 % 9.96 %
Net yield on interest-bearing assets⁽⁷⁾
8.45 % 8.29 %
Interest rate spread⁽⁸⁾
8.16 % 8.00 %


~~(1)~~	Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.


~~(2)~~	Interest income on credit card loans includes $55 million and $51 million of amortization of balance transfer fees for the three months ended September 30, 2017 and 2016, respectively. Interest income on credit card loans includes $161 million and $144 million of amortization of balance transfer fees for the nine months ended September 30, 2017 and 2016, respectively.


~~(3)~~	~~Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.~~


~~(4)~~	~~Includes the impact of interest rate swap agreements used to change a portion of floating-rate funding to fixed-rate funding.~~


~~(5)~~	~~Includes the impact of FDIC insurance premiums and Large Institution Surcharge.~~


~~(6)~~	~~Net interest margin represents net interest income as a percentage of average total loan receivables.~~


~~(7)~~	~~Net yield on interest-bearing assets represents net interest income as a percentage of average total interest-earning assets.~~


~~(8)~~	~~Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.~~

~~Loan Quality~~

Loan receivables consist of the following (dollars in millions):
September 30,
2017 December 31, 2016
Loan receivables
Credit card loans $ 63,475
$ 61,522
Other loans
Personal loans 7,397
6,481
Private student loans 6,998
6,393
Other 371
274
Total other loans 14,766
13,148
PCI loans⁽¹⁾
2,202
2,584
Total loan receivables 80,443
77,254
Allowance for loan losses (2,531 ) (2,167 )
Net loan receivables $ 77,912
$ 75,087


~~(1)~~	~~Represents PCI private student loans. See Note 3: Loan Receivables to our condensed consolidated financial statements for more information regarding PCI loans.~~

Provision and Allowance for ~~Loan~~Credit Losses

Provision for ~~loan~~credit losses is the expense related to maintaining the allowance for ~~loan~~credit losses at an appropriate level to absorb the ~~estimated probable~~estimate of credit losses inanticipated over the remaining expected life of loan ~~portfolio~~receivables at each period end date. ~~While establishing~~In deriving the estimate of expected credit losses, we consider the collectability of principal, interest and fees associated with our loan receivables. We also consider expected recoveries of amounts that were either previously charged off or are expected to be charged-off. Establishing the estimate for ~~probable~~expected credit losses requires significant management ~~judgment, the~~judgment. The factors that influence the provision for ~~loan~~credit losses include:

•Increases or decreases in outstanding loan balances, including:

•Changes in consumer spending, payment and credit utilization behaviors;

•The level of originations and maturities; and

•Changes in the overall mix of accounts and products within the portfolio;

•The credit quality of the loan portfolio, which reflects our credit granting practices and the effectiveness of collection efforts, among other factors;

•The impact of ~~current and predictive~~ general economic conditions on the consumer, including national and regional conditions, unemployment levels, bankruptcy trends and interest rate movements;

~~Changes in consumer spending and payment behaviors;~~

~~Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the portfolio and maturation of the loan portfolio;~~

•The level and direction of historical losses; and ~~anticipated loan delinquencies and charge-offs;~~

~~The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and effectiveness of collection efforts; and~~

•Regulatory changes or new regulatory guidance.

~~In determining~~Refer to "Management's Discussion and Analysis of Financial Condition and Results of Operations — Critical Accounting Estimates" and Note 3: Loan Receivables to our condensed consolidated financial statements for more details on how we estimate the allowance for loan losses, we estimate probable losses separately for segments of the loan portfolio that have similar risk characteristics. We use a migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency. We use other analyses to estimate losses incurred from non-delinquent accounts, which adds to the identification of loss emergence. We use these analyses together as a basis for determiningcredit losses.

The following tables provide changes in our allowance for credit losses (dollars in millions):

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	For the Three Months Ended September 30, 2022
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at June 30, 2022	$	5,307	$	832	$	572	$	46	$	6,757
Additions
Provision for credit losses(1)	649		20		69		5		743
Deductions
Charge-offs	(592)		(29)		(38)		—		(659)
Recoveries	197		6		17		—		220
Net charge-offs	(395)		(23)		(21)		—		(439)

Balance at September 30, 2022	$	5,561	$	829	$	620	$	51	$	7,061

	For the Three Months Ended September 30, 2021
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at June 30, 2021	$	5,409	$	828	$	745	$	44	$	7,026
Additions
Provision for credit losses(1)	178		46		(64)		—		160
Deductions
Charge-offs	(495)		(23)		(38)		—		(556)
Recoveries	206		6		19		—		231
Net charge-offs	(289)		(17)		(19)		—		(325)

Balance at September 30, 2021	$	5,298	$	857	$	662	$	44	$	6,861

	For the Nine Months Ended September 30, 2022
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at December 31, 2021	$	5,273	$	843	$	662	$	44	$	6,822
Additions
Provision for credit losses(1)	1,395		54		19		7		1,475
Deductions
Charge-offs	(1,720)		(86)		(115)		—		(1,921)
Recoveries	613		18		54		—		685
Net charge-offs	(1,107)		(68)		(61)		—		(1,236)

Balance at September 30, 2022	$	5,561	$	829	$	620	$	51	$	7,061

	For the Nine Months Ended September 30, 2021
	Credit Card Loans		Private Student Loans		Personal Loans		Other Loans		Total Loans
Balance at December 31, 2020	$	6,491	$	840	$	857	$	38	$	8,226
Additions
Provision for credit losses(1)	(18)		61		(96)		6		(47)
Deductions
Charge-offs	(1,778)		(63)		(150)		—		(1,991)
Recoveries	603		19		51		—		673
Net charge-offs	(1,175)		(44)		(99)		—		(1,318)

Balance at September 30, 2021	$	5,298	$	857	$	662	$	44	$	6,861

(1)Excludes a $30 million and $25 million adjustment of the liability for expected credit losses on unfunded commitments for the three months ended September 30, 2022 and 2021, respectively, and $1 million and $2 million for the nine months ended September 30, 2022 and 2021, respectively, as the liability is recorded in accrued expenses and other liabilities in our condensed consolidated statements of financial condition.

The allowance for credit losses was approximately $7.1 billion at September 30, 2022, which reflects a $304 millionbuild over June 30, 2022 and a $239 million build from December 31, 2021. Thebuild in the allowance for credit losses for the three and nine months ended September 30, 2022 was primarily driven by continued loan ~~losses.~~growth.

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Our allowance estimation process begins with a loss forecast that uses certain macroeconomic variables and multiple macroeconomic scenarios among its inputs. In estimating the allowance at September 30, 2022, we used a macroeconomic forecast that projected (i) an unemployment rate of 4.2% at the end of 2022, peaking at 4.6% during 2023 and finishing the year at 4.5%; and (ii) 0.2% annualized decline in the real gross domestic product for 2022 and 1.8% annualized growth in the real gross domestic product for 2023.

In estimating expected credit losses, we considered the uncertainties associated with borrower behavior and payment trends, as well as higher consumer price inflation experienced during 2022 and the fiscal and monetary policy responses to that inflation. During 2022, the Federal Reserve raised its federal funds rate target range multiple times and signaled additional rate hikes throughout the remainder of the year. In recognition of the risks related to the macroeconomic environment, the estimation of the allowance for credit losses has required significant management judgment.

The forecast period we deemed to be reasonable and supportable was 18 months for all periods presented. The 18-month reasonable and supportable forecast period was deemed appropriate given the current economic conditions. For all periods presented, we determined that a reversion period of 12 months was appropriate for the same reason. We applied a weighted reversion method to provide a more reasonable transition to historical losses for all loan products for all periods presented.

The provision for ~~loan~~credit losses is the amount of expense realized after considering the level of net charge-offs in the period and the required amount of allowance for ~~loan~~credit losses at the balance sheet date. For the three and nine months ended September 30, ~~2017,~~2022, the provision for ~~loan~~credit losses increasedby ~~$229~~$583 million ~~or 51%,~~ and ~~$619 million, or 48%,~~$1.5 billion respectively, as compared to the same periods in ~~2016.~~2021. The increase was primarily ~~due to higher levels of charge-offs combined with a larger reserve build for the three and nine months ended September 30, 2017 as compared to the same periods in 2016.~~

During the quarter, certain customers with accounts in Federal Emergency Management Agency designated hurricane disaster areas were provided relief that had the effect of freezing the customer payment status, suspending late fees and placing a hold on collection efforts. We recorded an adjustment of $17 million to expense for loans that would have otherwise charged off without such relief. The ultimate impact may be somewhat greater than this amount as we continue to evaluate the longer term ramifications on borrowers in the affected areas.

The allowance for loan losses was $2.5 billion at September 30, 2017, which reflects a $364 million reserve build over the amount of the allowance for loan losses at December 31, 2016. The reserve build was due to seasoning ofdriven by continued loan growth and ~~increasing consumer leverage.~~credit normalization.

The following tables provide changes in our allowance for loan losses (dollars in millions):
For the Three Months Ended September 30, 2017
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,980
$ 235
$ 159
$ 10
$ 2,384
Additions
Provision for loan losses 550
91
34
(1 ) 674
Deductions
Charge-offs (555 ) (64 ) (32 ) —
(651 )
Recoveries 116
6
2
—
124
Net charge-offs (439 ) (58 ) (30 ) —
(527 )
Balance at end of period $ 2,091
$ 268
$ 163
$ 9
$ 2,531

For the Three Months Ended September 30, 2016
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,603
$ 176
$ 151
$ 19
$ 1,949
Additions
Provision for loan losses 372
51
21
1
445
Deductions
Charge-offs (425 ) (46 ) (17 ) —
(488 )
Recoveries 111
5
2
—
118
Net charge-offs (314 ) (41 ) (15 ) —
(370 )
Balance at end of period $ 1,661
$ 186
$ 157
$ 20
$ 2,024

For the Nine Months Ended September 30, 2017
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,790
$ 200
$ 158
$ 19
$ 2,167
Additions
Provision for loan losses 1,607
231
69
(7 ) 1,900
Deductions
Charge-offs (1,651 ) (182 ) (71 ) (3 ) (1,907 )
Recoveries 345
19
7
—
371
Net charge-offs (1,306 ) (163 ) (64 ) (3 ) (1,536 )
Balance at end of period $ 2,091
$ 268
$ 163
$ 9
$ 2,531

For the Nine Months Ended September 30, 2016
Credit Card Personal Loans
Student Loans⁽¹⁾
Other Total
Balance at beginning of period $ 1,554
$ 155
$ 143
$ 17
$ 1,869
Additions
Provision for loan losses 1,081
139
58
3
1,281
Deductions
Charge-offs (1,312 ) (123 ) (51 ) —
(1,486 )
Recoveries 338
15
7
—
360
Net charge-offs (974 ) (108 ) (44 ) —
(1,126 )
Balance at end of period $ 1,661
$ 186
$ 157
$ 20
$ 2,024


~~(1)~~	~~Includes both PCI and non-PCI private student loans.~~

Net Charge-offs

Our net charge-offs include the principal amount of losses charged off less principal recoveries and exclude charged-off and recovered interest and fees and fraud losses. Charged-off and recovered interest and fees are recorded in interest income and loan fee income, respectively, which is effectively a reclassification of the provision for ~~loan~~credit losses, while fraud losses are recorded in other expense. ~~Credit card~~

The following table presents amounts and rates of net charge-offs of key loan ~~receivables are charged off at the end of the month during which an account becomes 180 days contractually past due. Personal loans~~products (dollars in millions):


	For the Three Months Ended September 30,								For the Nine Months Ended September 30,
	2022				2021				2022				2021
	$		%		$		%		$		%		$		%
Credit card loans	$	395	1.92	%	$	289	1.65	%	$	1,107	1.93	%	$	1,175	2.29	%
Private student loans	$	23	0.91	%	$	17	0.68	%	$	68	0.89	%	$	44	0.58	%
Personal loans	$	21	1.14	%	$	19	1.11	%	$	61	1.16	%	$	99	1.91	%

The net charge-offs and private student loans, which are closed-end consumer loan receivables, are generally charged off at the end of the month during which an account becomes 120 days contractually past due. Generally, customer bankruptcies and probate accounts are charged off at the end of the month 60 days following the receipt of notification of the bankruptcy or death but not later than the 180-day or 120-day contractual time frame.

The following table presents amounts and rates of net charge-offs of key loan products (dollars in millions):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
$ % $ % $ % $ %
Credit card loans $ 439
2.80 % $ 314
2.17 % $ 1,306
2.86 % $ 974
2.30 %
Personal loans $ 58
3.19 % $ 41
2.63 % $ 163
3.18 % $ 108
2.49 %
Private student loans (excluding PCI⁽¹⁾)
$ 30
1.52 % $ 15
1.02 % $ 64
1.17 % $ 44
0.99 %


~~(1)~~	Charge-offs for PCI loans did not result in a charge to earnings during any of the periods presented and are therefore excluded from the calculation. See Note 3: Loan Receivables to our condensed consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans.

~~The~~ net charge-off rates ~~on our credit card loans, personal loans and private student loans excluding PCI~~for all loan products increased ~~by 63, 56, and 50 basis points~~ for the three months ended September 30, ~~2017, respectively,~~2022, when compared to the same periods in 2021, primarily due to credit normalization. The net charge-offs and net charge-off rates for credit card and personal loans decreased for the nine months ended September 30, 2022, as compared to the same period in 2021. The decrease in net charge-offs for credit card was primarily driven by lower average balances at charge off. The net charge-off rate for credit card benefited from a higher average level of loan receivables period-over-period. The decrease in net charge-offs and the net charge-off rate for personal loans was primarily driven by continued benefit from tighter credit underwriting standards implemented in 2020. The increase in net charge-offs and the net charge-off rate for private student loans for the nine months ended September 30, 2022, when compared to the same period in 2016. The net charge-off rates on our credit card loans, personal loans and private student loans excluding PCI increased by 56, 69 and 18 basis points for the nine months ended September 30, 2017, respectively, when compared to the same periods in 2016. The increase for all three portfolios2021, was primarily driven by ~~seasoning~~credit normalization and the diminishing benefit from pandemic programs.

Table of ~~continued loan growth and increasing consumer leverage.~~Contents

Delinquencies

Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when contractual payments on the loan become 30 days past due.

The following table presents the amounts and delinquency rates of key loan products that are 30 and 90 days or more delinquent, loan receivables that are not accruing interest regardless of delinquency and loans restructured in TDR programs (dollars in millions):


	September 30, 2022				December 31, 2021
	$		%		$		%
Loans 30 or more days delinquent
Credit card loans	$	1,761	2.11	%	$	1,232	1.66	%
Private student loans	$	201	1.94	%	$	157	1.55	%
Personal loans	$	53	0.69	%	$	48	0.69	%

Total loan receivables	$	2,034	1.94	%	$	1,451	1.55	%

Loans 90 or more days delinquent(1)
Credit card loans	$	770	0.92	%	$	562	0.76	%
Private student loans	$	43	0.42	%	$	36	0.35	%
Personal loans	$	14	0.18	%	$	13	0.20	%

Total loan receivables	$	837	0.80	%	$	618	0.66	%

Loans not accruing interest	$	224	0.21	%	$	225	0.24	%

Troubled debt restructurings:
Credit card loans(2)(3)(4)
Currently enrolled	$	1,371	1.64	%	$	833	1.12	%
No longer enrolled	212		0.25		267		0.36
Total credit card loans	$	1,583	1.89	%	$	1,100	1.48	%
Private student loans(5)	$	309	2.99	%	$	249	2.46	%
Personal loans(6)	$	177	2.31	%	$	187	2.70	%

The following table presents the amounts and rates of key loan products that are 30 and 90 days or more delinquent, loan receivables that are not accruing interest, regardless of delinquency and restructured loans (dollars in millions):
September 30, 2017 December 31, 2016
$ % $ %
Loans 30 or more days delinquent
Credit card loans $ 1,359
2.14 % $ 1,252
2.04 %
Personal loans $ 94
1.27 % $ 74
1.12 %
Private student loans (excluding PCI loans⁽¹⁾)
$ 150
2.14 % $ 141
2.22 %

Loans 90 or more days delinquent
Credit card loans $ 646
1.02 % $ 597
0.97 %
Personal loans $ 26
0.35 % $ 19
0.29 %
Private student loans (excluding PCI loans⁽¹⁾)
$ 36
0.52 % $ 35
0.55 %

Loans not accruing interest $ 225
0.29 % $ 216
0.29 %

Restructured loans
Credit card loans⁽²⁾
$ 1,180
1.86 % $ 1,085
1.76 %
Personal loans⁽³⁾
$ 99
1.34 % $ 81
1.25 %
Private student loans (excluding PCI loans⁽¹⁾)⁽⁴⁾
$ 126
1.80 % $ 86
1.35 %

(1)Credit card loans that were 90 or more days delinquent at September 30, 2022 and December 31, 2021, included $55 million and $73 million, respectively, in modified loans exempt from the TDR designation pursuant to the CARES Act. Within private student and personal loans that were 90 or more days delinquent at September 30, 2022 and December 31, 2021, the respective amounts associated with modifications exempt from the TDR designation under the CARES Act were immaterial.


~~(1)~~	Excludes PCI loans which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because we are recognizing interest income on a pool of loans, it is all considered to be performing.


~~(2)~~	~~Restructured credit card loans include $66 million and $60 million at September 30, 2017 and December 31, 2016, respectively, that are also included in loans over 90 days delinquent or more.~~


~~(3)~~	~~Restructured personal loans include $4 million and $2 million at September 30, 2017 and December 31, 2016, respectively, that are also included in loans over 90 days delinquent or more.~~


~~(4)~~	~~Restructured private student loans include $4 million and $3 million at September 30, 2017 and December 31, 2016, that are also included in loans over 90 days delinquent or more.~~

(2)We estimate that interest income recognized on credit card loans restructured in TDR programs was $35 million and $24 million for the three months ended September 30, 2022 and 2021, respectively, and $87 million and $84 million for the nine months ended September 30, 2022 and 2021, respectively. We do not separately track interest income on loans in TDR programs. We estimate this amount by applying an average interest rate to the average loans in the various TDR programs.

(3)We estimate that the incremental interest income that would have been recorded in accordance with the original terms of credit card loans restructured in TDR programs was $37 million and $34 million for the three months ended September 30, 2022 and 2021, respectively, and $100 million and $106 million for the nine months ended September 30, 2022 and 2021, respectively. We do not separately track the amount of incremental interest income that would have been recorded if the loans in TDR programs had not been restructured and interest had instead been recorded in accordance with the original terms. We estimate this amount by applying the difference between the average interest rate earned on non-modified loans and the average interest rate earned on loans in the TDR programs to the average loans in the TDR programs.

(4)Credit card loans restructured in TDR programs include $89 million and $45 million at September 30, 2022 and December 31, 2021, respectively, which are also included in loans 90 or more days delinquent.

(5)Private student loans restructured in TDR programs include $8 million and $7 million at September 30, 2022 and December 31, 2021, respectively, which are also included in loans 90 or more days delinquent.

(6)Personal loans restructured in TDR programs include $4 million at September 30, 2022 and December 31, 2021, which are also included in loans 90 or more days delinquent.

The 30-day and 90-day delinquency rates in the table above include all loans, including TDRs, modified loans exempt from TDR status and prior modifications that are no longer required to be reported as TDRs. The 30-day and 90-day delinquency rates for credit card ~~loans~~ and ~~personal loans at September 30, 2017 increased as compared to December 31, 2016 primarily due to seasoning of continued loan growth. The 30-day delinquency rates for~~ private student loans at September 30, ~~2017 decreased as~~2022, increased compared to December 31, ~~2016 due to seasonality while the~~2021, primarily driven by credit normalization. The 30-day and 90-day delinquency ~~rate remained relatively flat~~rates for personal loans at September 30, ~~2017 as~~2022, remained relatively flat compared to December 31, ~~2016.~~2021.

The ~~restructured~~balance of credit card and ~~personal loan balances~~ private student loans reported as TDRs increasedat September 30, ~~2017 increased as~~2022, compared to December 31, ~~2016~~2021, primarily due to ~~loan growth and seasoning. At~~the expiration of the CARES Act exemption for new modifications effective January 1,

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2022. The balance of personal loans reported as TDRs decreased at September 30, ~~2017, the restructured private student loan balance increased as~~2022, compared to December 31, ~~2016~~2021, primarily due to continued benefit from tighter credit underwriting standards implemented in 2020, partially offset by enrollments in loan modification programs that are no longer exempt from the TDR designation under the CARES Act. To provide additional clarity with respect to credit card loans classified as TDRs, the table above presents loans that are currently enrolled in modification programs separately from loans that have exited those programs but retain that classification.

The following table provides the balance of loan receivables restructured through a temporary loan modification program that were exempt from the TDR designation pursuant to the CARES Act (dollars in millions):


	September 30, 2022				December 31, 2021
	$		%		$		%
Credit card loans	$	1,261	1.51	%	$	1,620	2.18	%
Private student loans	$	202	1.95	%	$	242	2.39	%
Personal loans	$	22	0.29	%	$	45	0.65	%

We believe loan modification programs are useful in assisting customers experiencing financial difficulties and help to prevent defaults. We plan to continue to use loan modification programs as a ~~result~~means to provide relief to customers experiencing financial difficulties. See Note 3: Loan Receivables to our condensed consolidated financial statements for additional description of ~~greater utilization~~our use of loan modification programs ~~available as more loans have entered into repayment~~.to provide relief to customers experiencing financial hardship.

Modified and Restructured Loans

~~We have loan modification programs that provide for temporary or permanent hardship relief for our credit card~~For information regarding modified and restructured loans, to borrowers experiencing financial difficulties. The temporary hardship program primarily consists of a reduced minimum payment and an interest rate reduction, both lasting for a period no longer than 12 months. The permanent modification program involves changing the structuresee "— Loan Quality — Delinquencies", "— Loan Quality — Impact of the ~~loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate~~COVID-19 Pandemic on the loan. The permanent modification program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. We also make permanent loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans continue to be subject to the original minimum payment termsLoan Portfolio" and do not normally include waiver of unpaid principal, interest or fees. Credit card loans included in temporary and permanent programs are accounted for as troubled debt restructurings. For additional information regarding the accounting treatment for these loans as well as

~~amounts recorded in the financial statements related to these loans, see~~ Note 3: Loan Receivables to our condensed consolidated financial statements.

For personal loan customers, in certain situations we offer various payment programs, including temporary and permanent programs. The temporary programs normally consist of a reduction of the minimum payment for a period of no longer than 12 months with the option of a final balloon payment required at the end of the loan term or an extension of the maturity date with the total term not exceeding nine years. Further, in certain circumstances, the interest rate on the loan is reduced. The permanent programs involve changing the terms of the loan in order to pay off the outstanding balance over a longer term and also in certain circumstances reducing the interest rate on the loan. Similar to the temporary programs, the total term may not exceed nine years. We also allow permanent loan modifications for customers who request financial assistance through external sources, similar to our credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are accounted for as troubled debt restructurings.

At September 30, 2017, there was $5.3 billion of private student loans in repayment, which includes both PCI and non-PCI loans to students who are not in deferment. To assist student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, we may offer hardship forbearance or programs that include payment deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A modified loan typically meets the definition of a troubled debt restructuring based on the cumulative length of the concession period and an evaluation of the credit quality of the borrower based on FICO scores. Prior to the third quarter of 2016, only a second forbearance when the borrower was 30 days or greater delinquent was considered a troubled debt restructuring. The balance of student loans being accounted for as troubled debt restructurings has increased since then, although it has not led to significant changes in the balance of overall allowance for loan losses.

Borrower performance after using payment programs or forbearance is monitored and we believe the programs help to prevent defaults and are useful in assisting customers experiencing financial difficulties. We plan to continue to use payment programs and forbearance and, as a result, we expect to have additional loans classified as troubled debt restructurings in the future.

Other Income

The following table presents the components of other income (dollars in millions):


	For the Three Months Ended September 30,				2022 vs 2021 Increase (Decrease)				For the Nine Months Ended September 30,				2022 vs. 2021 Increase (Decrease)
	2022		2021		$		%		2022		2021		$		%
Discount and interchange revenue, net(1)	$	346	$	299	$	47	16	%	$	1,056	$	879	$	177	20	%
Protection products revenue	42		43		(1)		(2)	%	128		129		(1)		(1)	%
Loan fee income	168		121		47		39	%	450		333		117		35	%
Transaction processing revenue	65		58		7		12	%	183		167		16		10	%
Unrealized (losses) gains on equity investments	(37)		(167)		130		(78)	%	(394)		562		(956)		(170)	%
Realized gains on equity investments	33		—		33		NM		186		—		186		NM
Other income	19		18		1		6	%	64		47		17		36	%
Total other income	$	636	$	372	$	264	71	%	$	1,673	$	2,117	$	(444)	(21)	%

The following table presents the components of other income (dollars in millions):
For the Three Months Ended September 30, 2017 vs. 2016
(Decrease) Increase For the Nine Months Ended September 30, 2017 vs. 2016
(Decrease) Increase
2017 2016 $ % 2017 2016 $ %
Discount and interchange revenue, net⁽¹⁾
$ 258
$ 263
$ (5 ) (2 )% $ 769
$ 801
$ (32 ) (4 )%
Protection products revenue 55
60
(5 ) (8 )% 169
180
(11 ) (6 )%
Loan fee income 95
91
4
4 % 267
250
17
7 %
Transaction processing revenue 43
40
3
8 % 124
115
9
8 %
Gain on investments 3
—
3
100 % 3
—
3
100 %
Other income 21
22
(1 ) (5 )% 71
69
2
3 %
Total other income $ 475
$ 476
$ (1 ) — % $ 1,403
$ 1,415
$ (12 ) (1 )%


~~(1)~~	~~Net of rewards, including~~ ~~Cashback Bonus~~ ~~rewards, of $417 million and $368~~(1)Net of rewards, including Cashback Bonus rewards, of $811 million and $689 million for ~~the three months ended September 30, 2017 and 2016, respectively, and of $1.2 billion and $1.0 billion for the nine months ended September 30, 2017 and 2016, respectively.~~

~~Total other income remained flat in~~ the three months ended September 30, ~~2017~~2022 and ~~decreased by $12 million in~~2021, respectively, and $2.2 billion and $1.8 billion for the nine months ended September 30, ~~2017~~2022 and 2021, respectively.

Total other income increased for the three months ended September 30, 2022, as compared to the same ~~periods~~period in ~~2016. During~~2021, primarily due to the change in fair value of equity investments, net discount and interchange revenue, loan fee income and realized gains on equity investments. The fair value adjustments resulted in the recognition of smaller unrealized losses in the current period compared to the prior period. The increase in discount and interchange revenue was partially offset by an increase in rewards, both of which were driven by higher sales volume. Loan fee income increased primarily due to a higher volume of late payments. Realized gains on equity investments increased due to sales in the current period.

Total other income decreased for the nine months ended September 30, ~~2017,~~2022, as compared to the ~~decrease was~~same period in 2021, primarily due ~~primarily to higher promotional rewards~~the change in fair value of equity investments offset by increases in realized gains on equity investments, net discount and interchange revenue and loan fee income. The fair value adjustments resulted in the recognition of unrealized losses in the current period and unrealized gains in the prior period. Realized gains on equity investments increased due to

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sales in the current period. The increase in discount and interchange revenue was partially offset by an increase in rewards, both of which were ~~primarily the result of~~driven by higher sales volume. ~~The increase in loan~~Loan fee income ~~was~~increased primarily due to ~~an increase in~~a higher volume of late ~~fees.~~payments.

Other Expense

The following table represents the components of other expense (dollars in millions):
For the Three Months Ended September 30, 2017 vs. 2016
Increase (Decrease) For the Nine Months Ended September 30,
2017 vs. 2016
Increase (Decrease)
2017 2016 $ % 2017 2016 $ %
Employee compensation and benefits $ 371
$ 342
$ 29
8 % $ 1,101
$ 1,027
$ 74
7 %
Marketing and business development 203
195
8
4 % 563
555
8
1 %
Information processing and communications 78
81
(3 ) (4 )% 235
258
(23 ) (9 )%
Professional fees 163
143
20
14 % 466
453
13
3 %
Premises and equipment 25
25
—
— % 73
72
1
1 %
Other expense 108
109
(1 ) (1 )% 307
322
(15 ) (5 )%
Total other expense $ 948
$ 895
$ 53
6 % $ 2,745
$ 2,687
$ 58
2 %

The following table represents the components of other expense (dollars in millions):


	For the Three Months Ended September 30,				2022 vs. 2021 Increase (Decrease)				For the Nine Months Ended September 30,				2022 vs. 2021 Increase (Decrease)
	2022		2021		$		%		2022		2021		$		%
Employee compensation and benefits	$	551	$	483	$	68	14	%	$	1,566	$	1,487	$	79	5	%
Marketing and business development	276		210		66		31	%	722		539		183		34	%
Information processing and communications	124		121		3		2	%	370		375		(5)		(1)	%
Professional fees	241		198		43		22	%	607		567		40		7	%
Premises and equipment	22		23		(1)		(4)	%	70		69		1		1	%
Other expense	174		155		19		12	%	406		456		(50)		(11)	%
Total other expense	$	1,388	$	1,190	$	198	17	%	$	3,741	$	3,493	$	248	7	%

Total other expense increased in the three and nine months ended September 30, 2017 by $53 million and $58 million, respectively, as compared to the same periods in 2016. During the three and nine months ended September 30, 2017, the increase was primarily driven by an increase in employee compensation and benefits and professional fees offset by a decrease in information processing and communications. The increase in employee compensation and benefits was primarily driven by the impact of added headcount for regulatory and compliance needs and higher average salaries. The increase in professional fees was driven primarily by investments in technology and infrastructure as well as higher spend in collection efforts in 2017, offset by the completion of a look back project related to anti-money laundering remediation in 2016. The decrease in information processing and communications was primarily the result of infrastructure efficiencies.

~~Income Tax Expense~~

The following table presents the calculation of the effective income tax rate (dollars in millions, except effective income tax rate):
For the Three Months Ended September 30, For the Nine Months Ended September 30,
2017 2016 2017 2016
Income before income tax expense $ 903
$ 961
$ 2,638
$ 2,773
Income tax expense $ 301
$ 322
$ 926
$ 943
Effective income tax rate 33.3 %
33.5 %
35.1 %
34.0 %

~~Income tax expense decreased $21 million and $17 million~~ for the three and nine months ended September 30, ~~2017, respectively,~~2022, as compared to the same periods in ~~2016.~~2021, primarily due to increases in marketing and business development, employee compensation and benefits and professional fees. The increase in marketing and business development was driven by growth investments in card and consumer banking. Employee compensation and benefits increased primarily from higher headcount. The increase in professional fees was due primarily to investments in technology and increased consulting costs. The increase in total other expense for the nine months ended September 30, 2022 was offset primarily by a decrease in other expense driven by certain one-time items in the prior period.

Income Tax Expense

The following table presents the calculation of the effective income tax rate (dollars in millions):


	For the Three Months Ended September 30,						For the Nine Months Ended September 30,
	2022			2021			2022			2021
Income before income taxes	$	1,318		$	1,402		$	4,388		$	5,703
Income tax expense	$	312		$	311		$	1,029		$	1,321
Effective income tax rate	23.6		%	22.2		%	23.4		%	23.2		%

Income tax expense was flat for the three months ended September 30, ~~2017 of 33.3% decreased from 33.5% for~~2022, as compared to the same period in ~~2016 primarily due to resolution of certain~~2021. Income tax ~~matters. The effective tax rate~~expense decreased $292 million for the nine months ended September 30, ~~2017 of 35.1% increased from 34.0% for~~2022, as compared to the same period in ~~2016~~2021, primarily due to a decrease in pretax income. The effective tax rate increased for the three and nine months ended September 30, 2022, as compared to the same periods in 2021, primarily due to a settlement with tax authorities in the ~~United States Congress Joint Committee on Taxation ("USCJCT") that occurred in 2016.~~prior periods.

Liquidity and Capital Resources

Funding and Liquidity

We seek to maintain stable, diversified and cost-effective 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 periods of economic or financial stress. In managing our liquidity risk, we seek to maintain a prudent liability maturity profile and ready access to an ample store of primary and contingent liquidity sources. Our primary funding sources include direct-to-consumer and brokered deposits, public term asset-backed securitizations and other short-term and long-term borrowings. Our primary liquidity sources include a ~~liquidity~~ portfolio ~~comprised~~composed of highly liquid, unencumbered assets, including cash and cash equivalents and investment securities, ~~and~~as well as secured borrowing capacity through private term asset-backed ~~securitizations.~~securitizations and Federal Home Loan Bank ("FHLB") advances. In addition, we have unused borrowing capacity ~~with~~at the Federal Reserve discount window, which provides another source of contingent liquidity.

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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”~~deposits"); and (ii) ~~indirectly through~~ contractual arrangements with securities brokerage firms (“("brokered ~~deposits”~~deposits"). Direct-to-consumer deposits include online savings accounts, certificates of deposit, money market accounts, ~~online~~IRA savings ~~and checking~~ accounts, ~~and~~ IRA certificates of deposit ~~while brokered~~and checking/debit accounts. Brokered deposits include certificates of deposit and sweep accounts. In December 2020, the Federal Deposit Insurance Corporation ("FDIC") issued the final rule on revisions to its brokered deposits regulation. In accordance with this final rule, our regulatory reporting reflects the changes required to deposit categorizations. Specifically, certain retail deposit products such as affinity deposits and deposits generated through certain sweep deposit relationships will no longer be categorized as brokered for regulatory reporting purposes. At September 30, ~~2017,~~2022, we had ~~$38.7~~$66.2 billion of direct-to-consumer deposits and ~~$17.4~~$16.6 billion of brokered deposits, of which there are $71.8 billion of deposit balances due in less than one year and ~~other deposits.~~$11.0 billion of deposit balances due in one year or thereafter.

Credit Card Securitization Financing

We ~~use the securitization of~~securitize credit card receivables as a source of funding. We access the asset-backed securitization market using the Discover Card Master Trust I ("DCMT") and the Discover Card Execution Note Trust ("DCENT")~~, through which we~~. In connection with our securitization transactions, credit card receivables are transferred to DCMT. DCMT has issued a certificate representing the beneficial interest in its credit card receivables to DCENT. We issue DCENT DiscoverSeries notes ~~both publicly~~in public and ~~through~~ private ~~transactions.~~transactions, which are collateralized by the beneficial interest certificate held by DCENT. From time to time, we may add credit card receivables to ~~these trusts~~DCMT to create sufficient funding capacity for future securitizations while managing ~~the seller’s~~seller's interest. We retain significant exposure to the performance of ~~trust assets~~the securitized credit card receivables through ~~holdings of~~holding the seller's interest and subordinated ~~security~~ classes of ~~DCENT.~~DCENT DiscoverSeries notes. At September 30, 2022, we had $11.0 billion of outstanding public asset-backed securities and $3.3 billion of outstanding subordinated asset-backed securities that had been issued to our wholly owned subsidiaries.

The securitization structures include certain features designed to protect investors. The primary feature relates to the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements, the insufficiency of which triggers early repayment of the securities. We refer to this as "economic early amortization," which is based on excess spread levels. Excess spread is the amount by which income received ~~by a trust~~with respect to the securitized credit card receivables during a collection period including interest collections, fees and interchange, exceeds the fees and expenses of ~~the trust~~DCENT during such collection period, including interest expense, servicing fees and charged-off receivables. In the event of an economic early amortization, which would occur if the excess spread fell below 0% on a three-month rolling average basis, we would be required to repay ~~the affected~~all outstanding securitized borrowings using available collections received bywith respect to the ~~trust (the~~securitized credit card receivables. For the three months ended September 30, 2022, the DiscoverSeries three-month rolling average excess spread was 14.21%. The period of ultimate repayment would be determined by the amount and timing of collections received). An early amortization event would negatively impact our liquidity and require us to utilize our available non-securitization related contingent liquidity or rely on alternative funding sources, which may or may not be available at the time. As of September 30, 2017, the DiscoverSeries three-month rolling average excess spread was 13.21%.received.

~~We may elect to add receivables to the restricted pool of receivables subject to certain requirements.~~ Through our ~~wholly-owned~~wholly owned indirect subsidiary, Discover Funding LLC, we are required to maintain an interest in a contractual minimum level of receivables in ~~the trust~~DCMT in excess of the face value of outstanding ~~investors’~~investors' interests. This ~~excess~~minimum interest is referred to as the minimum ~~seller’s~~seller's interest. The required minimum ~~seller’s~~seller's interest in the pool of trust receivables ~~which~~ is ~~included in credit card loan receivables restricted for securitization investors, is set at~~ approximately 7% in excess of the total ~~investors’~~investors' interests, ~~(which~~which includes interests held by third parties as well as those interests held by ~~us).~~us. If the level of receivables in ~~the trust~~DCMT were to fall below the required minimum, we would be required to add receivables from the unrestricted pool of receivables, which would increase the amount of credit card ~~loan~~ receivables restricted for securitization investors. A decline in the amount of the excess ~~seller’s~~seller's interest could occur if balance repayments and charge-offs exceeded new lending on the securitized accounts or as a result of changes in total outstanding ~~investors’~~investors' interests. Seller's interest ~~is impacted by~~exhibits seasonality as higher receivable balance repayments tend to occur in the first calendar year quarter. If we could not add enough receivables to satisfy the minimum seller's interest requirement, an early amortization (or repayment) of ~~investors’~~investors' interests would be triggered. No

An early amortization event would impair our liquidity and may require us to utilize our available non-securitization-related contingent liquidity or rely on alternative funding sources, which may or may not be available at the time. We have several strategies we can deploy to prevent an early amortization event. For instance, we could add receivables to DCMT, which would reduce our available borrowing capacity at the Federal Reserve discount window. As of September 30, 2022, there were $24.7 billion of credit card receivables in the trust and no accounts were added to those restricted for securitization

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investors for the three orand nine months ended September 30, ~~2017.~~2022. Alternatively, we could employ structured discounting, which was used effectively in 2009 to bolster excess spread and mitigate early amortization risk.

~~At September 30, 2017, we had $16.4 billion~~The following table summarizes expected contractual maturities of ~~outstanding public asset-backed securities and $5.1 billion of outstanding subordinated asset-backed securities~~the investors' interests in credit card securitizations, excluding those that ~~had~~have been issued to our ~~wholly-owned subsidiaries.~~wholly owned subsidiaries (dollars in millions):


At September 30, 2022	Total		Less Than One Year		One Year and Thereafter
Scheduled maturities of borrowings - owed to credit card securitization investors	$	11,004	$	3,292	$	7,712

The following table summarizes expected contractual maturities of the investors’ interests in credit card securitizations, excluding those that have been issued to our wholly-owned subsidiaries (dollars in millions):
At September 30, 2017 Total
Less Than
One Year

One Year
Through
Three Years

Four Years
Through
Five Years

After Five
Years
Scheduled maturities of long-term borrowings - owed to credit card securitization investors $ 16,330
$ 4,173
$ 8,709
$ 2,128
$ 1,320

The ~~triple-A rating~~"AAA(sf)" and "Aaa(sf)" ratings of the DCENT DiscoverSeries Class A Notes issued to date ~~has~~have been based, in part, on an FDIC rule, which created a safe harbor that provides that the FDIC, as conservator or receiver, will not ~~using~~use its power to disaffirm or repudiate contracts, seek to reclaim or recover assets transferred in connection with a securitization, or recharacterize ~~them~~assets transferred in connection with a securitization as assets of the insured depository institution, provided such transfer satisfies the conditions for sale accounting treatment under previous GAAP. Although the implementation of ~~the~~ Financial Accounting Standards Board ("FASB") Accounting Standards Codification Topic 860, Transfers and Servicing, no longer qualified certain transfers of assets for sale accounting treatment, the FDIC approved a final rule that preserved the safe-harbor treatment applicable to revolving trusts and master trusts, including DCMT, so long as those trusts would have satisfied the original FDIC safe harbor if evaluated under GAAP pertaining to transfers of financial assets in effect prior to December 1, 2009. ~~Other~~However, other legislative and regulatory developments may ~~however,~~ impact our ability ~~and/~~or desire to issue asset-backed securities in the future.

Federal Home Loan Bank Advances

Discover Bank is a member bank of the FHLB of Chicago, one of 11 FHLBs that, along with the Office of Finance, compose the FHLB System. The FHLBs are government-sponsored enterprises of the U.S. ("U.S. GSEs") chartered to improve the availability of funds to support home ownership. As such, senior debt obligations of the FHLBs feature the same credit ratings as U.S. Treasury securities and are considered high-quality liquid assets for bank regulatory purposes. Consequently, the FHLBs benefit from consistent capital market access during nearly all macroeconomic and financial market conditions and low funding costs, which they pass on to their member banks when they borrow advances. Thus, we consider FHLB advances a stable and reliable funding source for Discover Bank for short-term contingent liquidity and long-term asset-liability management.

As a member of the FHLB of Chicago, Discover Bank has access to short- and long-term advance structures with maturities ranging from overnight to 30 years. At September 30, 2022, we had total committed borrowing capacity of $2.1 billion based on the amount and type of assets pledged, none of which was drawn. Under certain stressed conditions, we could pledge our liquidity portfolio securities and borrow against them at a modest reduction to their value.

Other Long-Term Borrowings—Private Student Loans

At September 30, ~~2017, we had $664~~2022, $88 million of ~~remaining~~ principal ~~balance~~was outstanding on securitized debt assumed as part of ~~the~~our acquisition of The Student Loan Corporation. Principal and interest payments on the underlying private student loans will reduce the balance of these secured borrowings over time.

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Other Long-Term ~~Borrowings -~~ Borrowings—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):
At September 30, 2017 Principal Amount Outstanding
Discover Financial Services (Parent Company) fixed-rate senior notes, maturing 2019-2027 $ 2,900
Discover Financial Services (Parent Company) fixed-rate retail notes, maturing 2017-2031 $ 279
Discover Bank fixed-rate senior bank notes, maturing 2018-2026 $ 6,150
Discover Bank fixed-rate subordinated bank notes, maturing 2019-2020 $ 700

~~Certain~~The following table provides a summary of Discover Financial Services (Parent Company) and Discover Bank outstanding fixed-rate debt (dollars in millions):


At September 30, 2022	Principal Amount Outstanding
Discover Financial Services (Parent Company) fixed-rate senior notes, maturing 2022-2027	$	3,100
Discover Financial Services (Parent Company) fixed-rate retail notes, maturing 2022-2031	$	167
Discover Bank fixed-rate senior bank notes, maturing 2023-2030	$	5,350
Discover Bank fixed-rate subordinated bank notes, maturing 2028	$	500

At September 30, 2022, $501 million of interest on our fixed-rate debt is due in less than one year and $1.1 billion of interest is due in one year and thereafter. See Note 6: Long-Term Borrowings to our condensed consolidated financial statements for more information on the maturities of our long-term borrowings. Certain DFS 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

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”~~("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~~highly rated investment securities such as U.S. Treasury bills or notes, or ~~federal agency~~ mortgage bonds or ~~debentures.~~debentures issued by government agencies or U.S. GSEs. At September 30, ~~2017 and December 31, 2016,~~2022, there were no outstanding balances in the federal funds market or under repurchase agreements. Additionally, we have access to short-term advance structures through the FHLB of Chicago and privately placed asset-backed securitizations. At September 30, 2022, there were no short-term advances outstanding from the FHLB.

Additional Funding Sources

Private Asset-Backed Securitizations

We have access to committed ~~undrawn~~ borrowing capacity through privately placed asset-backed securitizations. At ~~September 30, 2017, we had total committed capacity of $6.0 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, ~~based upon~~informed by our liquidity stress ~~testing~~test results, for potential contingency funding needs. At September 30, 2022, we had a total committed capacity of $3.5 billion, none of which was drawn. 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.~~dates and periodically drawing them for operational tests and seasonal funding needs.

Federal Reserve

Discover Bank has access to the Federal Reserve Bank of ~~Philadelphia’s~~Philadelphia's discount window. As of September 30, ~~2017~~,2022, Discover Bank had ~~$27.7~~$39.9 billion of available borrowing capacity through the discount window based on the amount and type

of assets ~~pledged. We~~pledged, primarily consumer loans. As of September 30, 2022, we have no borrowings outstanding under the discount window and reserve this capacity as a source of ~~contingency funding.~~contingent liquidity.

Funding Uses

Our primary uses of funds include the extensions of loans and credit to customers, primarily through Discover ~~Bank,~~Bank; the maintenance of sufficient working capital for routine operations; the service of our debt and capital obligations, including interest, principal and dividend payments; and the purchase of investment securities for our liquidity ~~portfolio, working capital,~~portfolio.

In addition to originating consumer loans to new customers, we also extend credit to existing customers, which primarily arises from agreements for unused lines of credit on certain credit cards and certain other loan products, provided there is no violation of conditions established in the related agreement. At September 30, 2022, our unused credit arrangements were approximately $225.6 billion. These arrangements, substantially all of which we can terminate at any time

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and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualification.

In the normal course of business, we enter into various contracts for goods and services, such as consulting, outsourcing, data, sponsorships, software licenses, telecommunications, global merchant acceptance and cashback rewards, among other things. These contracts are legally binding and specify all significant terms, including any applicable fixed future cash payments.

As of September 30, 2022, we have debt obligations, common stock and preferred stock outstanding. Refer to “— Funding Sources” and “— Capital” for more information related to our debt obligations and capital ~~service.~~ service, respectively, and the timing of expected payments.

We assess funding uses and liquidity needs under stressed and normal operating conditions, considering primary uses of funding, such as on-balance sheet loans and contingent uses of funding, such as the need to post additional collateral for derivatives positions. ~~In order to~~To anticipate funding needs under stress, we conduct liquidity stress ~~testing~~tests to assess the impact of idiosyncratic, ~~market-wide,~~systemic and hybrid (i.e., idiosyncratic and systemic) scenarios with varying levels of liquidity risk reflecting a range of stress severity. If we determine we have excess cash and cash equivalents, we may invest in highly liquid, unencumbered assets that we expect to be able to convert to cash quickly and with little loss of value using the repo market or outright sales.

Guarantees

Guarantees are contracts or indemnification agreements that may require us to make payments to a guaranteed party based on changes in an underlying asset, liability, or equity security of a guaranteed party, rate or index. Also included in guarantees are contracts that may require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. Our guarantees relate to transactions processed on the Discover Network and certain transactions processed by PULSE and Diners Club. In the ordinary course of business, we guarantee payment on behalf of subsidiaries relating to contractual obligations with external parties. The activities of the subsidiaries covered by any such guarantees are included in our consolidated financial statements. See Note 12: Commitments, Contingencies and Guarantees to our consolidated financial statements for further discussion regarding our guarantees.

Credit Ratings

Our borrowing costs and capacity in certain funding markets, including those for securitizations and unsecured senior and subordinated debt, may be affected by the credit ratings of DFS, Discover Bank and the securitization trusts. Downgrades in these credit ratings could result in higher interest expense on our unsecured debt and asset securitizations, as well as higher ~~collateral~~credit enhancement requirements for both our public and private asset securitizations. In addition to increased funding costs, deterioration in our credit ratings could reduce our borrowing capacity in the unsecured debt and asset securitization capital markets.

~~We also maintain agreements with certain of~~The table below reflects our derivative counterparties that contain provisions that require DFS and Discover Bank to maintain an investment grade credit rating from specified major credit rating agencies. At September 30, 2017, Discover Bank's credit rating met specified thresholds set by its counterparties. However, if Discover Bank'scurrent credit ratings ~~were reduced by one ratings notch, Discover Bank would be required to post additional collateral, which, as of~~ ~~September 30, 2017, would have been $34 million. DFS (Parent Company) had no outstanding derivatives as of September 30, 2017, therefore, no collateral was required.~~

and outlooks:

Moody's Investors Service

Standard & Poor's

Fitch
Ratings

Discover Financial Services

Senior unsecured debt

Baa3

BBB-

BBB+

Outlook for Discover Financial Services senior unsecured debt

Positive

Stable

Discover Bank

Senior unsecured debt

Baa2

BBB

BBB+

Outlook for Discover Bank senior unsecured debt

Positive

Stable

Subordinated debt

Baa2

BBB-

BBB

Discover Card Execution Note Trust (DCENT)

Class A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal at any time by the assigning rating organization, and each rating should be evaluated independently of any other rating. Our credit ratings are summarized in the following table:(1)

Aaa(sf)

AAA(sf)

~~Moody’s Investors Service~~

~~Standard & Poor’s~~

~~Fitch~~

(1)An "sf" in the rating denotes rating agency identification for structured finance product ratings.

A credit rating is not a recommendation to buy, sell or hold securities and may be subject to revision or withdrawal at any time by the assigning rating organization. Each rating should be evaluated independently of any other rating. A credit

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rating outlook reflects an agency's opinion regarding the likely rating direction over the medium term, often a period of about a year, and indicates the agency's belief that the issuer's credit profile is consistent with its current rating level at that point in time.

~~Ratings~~

~~Discover Financial ServicesSenior unsecured debtBa1BBB-BBB+Outlook for Discover Financial Services senior unsecured debtStableStableStableDiscover BankSenior unsecured debtBaa3BBBBBB+Outlook for Discover Bank senior unsecured debtStableStableStableSubordinated debtBa1BBB-BBBDiscover Card Execution Note Trust~~

~~Class A~~⁽¹⁾

~~Aaa(sf)AAA(sf)AAA(sf)~~


~~(1)~~	~~An “sf” in the rating denotes rating agency identification for structured finance product ratings.~~

Liquidity

We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth and satisfy debt obligations under stressed and normal operating conditions. In addition to the funding sources discussed in the previous section, we also maintain highly liquid, unencumbered assets in our liquidity portfolio that we expect to be able to convert to cash quickly and with little loss of value using either the repo market or outright sales.

We maintain a liquidity risk and funding management policy, which outlines the overall framework and general principles ~~for~~we follow in managing liquidity risk across our business. The ~~policy is approved by the~~ Board of Directors ~~with~~approves the ~~implementation responsibilities delegated to~~policy and the Asset and Liability Management Committee (the ~~“ALCO”~~"ALCO"). is responsible for its implementation. Additionally, we maintain a liquidity management framework document that outlines the general strategies, objectives and principles we utilize to manage our liquidity position and the various liquidity risks inherent in our business model. We seek to balance the trade-offs between maintaining too much liquidity, which may be costly, with having too little liquidity, which could cause financial distress. ~~Liquidity risk is centrally managed by the~~The ALCO, ~~which is~~ chaired by our Treasurer, ~~and~~ has cross-functional ~~membership.~~membership, and manages liquidity risk centrally. The ALCO monitors the liquidity risk profiles of DFS and Discover Bank and oversees any

actions Corporate Treasury may take to ensure that we maintain ready access to our funding sources and sufficient liquidity to meet current and projected needs. In addition, the ALCO and our Board of Directors regularly review our compliance with our liquidity limits at DFS and Discover Bank, which are established in accordance with the liquidity risk appetite set by our Board of Directors.

We employ a variety of metrics to monitor and manage liquidity. We utilize early warning indicators ~~(“EWIs”~~("EWIs") to detect ~~the initial phases of~~emerging liquidity stress events and a reporting and escalation process ~~that is~~ designed to be consistent with regulatory guidance. The EWIs include both idiosyncratic and systemic measures and are monitored ~~on a~~ daily ~~basis~~ and reported to the ALCO regularly. A warning from one or more of these indicators triggers prompt review and decision-making by our senior management team and, in certain instances, may lead to the convening of a senior-level response team and activation of our contingency funding plan.

In addition, we conduct liquidity stress ~~testing~~tests regularly and ensure contingency funding is in place to address potential liquidity shortfalls. We evaluate a range of stress scenarios that are designed ~~in accordance with~~according to regulatory requirements, including idiosyncratic, systemic and a combination of such events that could impact funding sources and our ability to meet liquidity needs. These scenarios measure the projected liquidity position at DFS and Discover Bank across a range of time horizons by comparing estimated contingency funding needs to available contingent liquidity.

Our primary contingency liquidity sources include our liquidity portfolio securities, which we could sell, repo or borrow against, and private securitizations with unused borrowing ~~capacity, which~~capacity. In addition, we could ~~utilize~~borrow FHLB advances by pledging securities to ~~satisfy liquidity needs during stressed or normal conditions.~~the FHLB of Chicago. Moreover, we have unused borrowing capacity with the Federal Reserve discount window, which provides an additional source of contingency liquidity. We seek to maintain sufficient liquidity ~~to be able~~ to satisfy all maturing obligations and fund business operations for at least 12 months in a severe stress environment. In ~~addition,~~such an environment, we ~~have unused capacity with~~may also take actions to curtail the ~~Federal Reserve discount window~~size of our balance sheet, which ~~provides a source of contingent~~would reduce the need for funding and liquidity.

At September 30, ~~2017,~~2022, our liquidity portfolio is ~~comprised~~composed of highly liquid, unencumbered assets, including cash and cash equivalents and investment securities. Cash and cash equivalents were primarily ~~in the form of~~ deposits with the Federal Reserve. Investment securities primarily included debt obligations of the U.S. Treasury and U.S. GSEs and residential mortgage-backed securities ("RMBS") issued by U.S. government ~~housing~~ agencies or ~~Government Sponsored Enterprises.~~U.S. GSEs. These investments are considered highly liquid and we expect to have the ability to raise cash by selling them, utilizing repurchase agreements or pledging certain of these investments to access secured funding. The size and composition of our liquidity portfolio may fluctuate based ~~upon~~on the size of our ~~Statement of Financial Condition~~balance sheet as well as operational requirements, market conditions and ~~market conditions.~~interest rate risk management objectives.

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At September 30, ~~2017,~~2022, our liquidity portfolio and undrawn credit facilities were ~~$47.6~~$61.5 billion, which ~~was $4.8~~is $8.6 billion higher than the balance at December 31, ~~2016.~~2021, primarily as a result of additional borrowing capacity available through the discount window. During the three and nine months ended September 30, ~~2017,~~2022, the average balance of our liquidity portfolio was ~~$14.7~~$16.0 billion and ~~$15.1~~$15.3 billion, respectively. Our liquidity portfolio and undrawn facilities consist of the following (dollars in millions):


	September 30, 2022		December 31, 2021
Liquidity portfolio
Cash and cash equivalents(1)	$	9,205	$	8,080

Investment securities(2)	6,837		6,879
Total liquidity portfolio	16,042		14,959
Private asset-backed securitizations(3)	3,500		3,500
Federal Home Loan Bank of Chicago	2,078		150
Primary liquidity sources	21,620		18,609
Federal Reserve discount window(3)	39,888		34,254
Total liquidity portfolio and undrawn credit facilities	$	61,508	$	52,863

September 30,
2017 December 31,
2016
(dollars in millions)
Liquidity portfolio
Cash and cash equivalents⁽¹⁾
$ 12,489
$ 11,103
Investment securities⁽²⁾
1,417
1,532
Total liquidity portfolio 13,906
12,635
Private asset-backed securitizations⁽³⁾
6,000
6,000
Primary liquidity sources 19,906
18,635
Federal Reserve discount window⁽³⁾
27,696
24,194
Total liquidity portfolio and undrawn credit facilities $ 47,602
$ 42,829

(1)Cash in the process of settlement and restricted cash are excluded from cash and cash equivalents for liquidity purposes.


~~(1)~~	~~Cash in the process of settlement and restricted cash are excluded from cash and cash equivalents for liquidity purposes.~~

~~(2)~~

~~Excludes~~ ~~$32 million~~ ~~and $73 million of U.S. Treasury securities that have been pledged as swap collateral in lieu of cash as of~~ ~~September 30, 2017~~ ~~and~~ ~~December 31, 2016, respectively.~~

(2)Excludes $35 million and $27 million of U.S. Treasury securities that have been pledged as swap collateral in lieu of cash as of September 30, 2022 and December 31, 2021, respectively.

(3)See "— Additional Funding Sources" for additional information.


~~(3)~~	~~See "— Additional Funding Sources" for additional information.~~

Bank Holding Company Liquidity

The primary uses of funds at the unconsolidated DFS level include debt service obligations (interest payments and return of principal) and capital service and management activities, ~~which include dividends~~including dividend payments on capital instruments and the periodic

repurchase of shares of our common stock. Our primary sources of funds at the bank holding company level include the proceeds from the issuance of unsecured debt and capital securities, as well as dividends from our subsidiaries, ~~particularly~~notably Discover Bank. Under periods of idiosyncratic or systemic stress, the bank holding company could lose or experience impaired access to the capital markets. In addition, our regulators have the discretion to restrict dividend payments from Discover Bank to the bank holding company.

We utilize a measure referred to as Number of Months of Pre-Funding to determine the length of time ~~Discover Financial Services~~DFS can meet upcoming funding obligations, including common and preferred stock dividend payments and debt service obligations using existing cash resources. ~~At September 30, 2017, Discover Financial Services had sufficient cash resources to fund the dividend and debt service payments for more than 18 months.~~

WeIn managing this metric, we structure our debt maturity schedule to ~~minimize~~manage prudently the amount of debt maturing ~~at the bank holding company~~ within a short ~~period of time.~~period. See Note 6: Long-Term Borrowings to our condensed consolidated financial statements for further information regarding our debt. Our ALCO and Board of Directors regularly review our compliance with our liquidity limits as a bank holding company, which are established in accordance with the liquidity risk appetite articulated by our Board.

Capital

Our primary sources of capital are the earnings generated by our businesses and the proceeds from issuances of capital securities. We seek to manage capital to a level and composition sufficient to support ~~the~~our businesses' growth, ~~and~~account for their risks, ~~of our businesses~~ and to meet regulatory requirements, rating agency targets and debt investor expectations. Within these constraints, we are focused on deploying capital in a manner that provides attractive returns to our stockholders. The level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives and legislative and regulatory developments.

Under regulatory capital requirements adopted by the Federal Reserve and the FDIC, DFS, along with Discover Bank, must maintain minimum ~~levels of capital.~~capital levels. Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our business activities and have a direct material effect on our financial ~~position~~condition and operating results. We must meet specific capital requirements that involve quantitative measures of assets, liabilities and certain off-balance sheet items, as calculated under regulatory guidance and regulations. Current or future legislative or regulatory ~~initiatives~~reforms, such as those related to the adoption of the CECL accounting model, may require us to hold more capital or adversely impact our capital level. We consider the potential impacts of these reforms in ~~the future.~~managing our capital position.

~~In 2013, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued the Basel III rules applicable to DFS and Discover Bank. Under those rules,~~ DFS and Discover Bank are subject to regulatory capital rules issued by the Federal Reserve and the FDIC, respectively, under the Basel Committee's December 2010 framework ("Basel III rules"). Under the Basel III rules, DFS and

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Discover Bank are classified as ~~"Standardized Approach"~~"standardized approach" entities ~~defined~~ as they are U.S. banking organizations with consolidated total assets over $50 billion but not exceeding $250 billion and consolidated total on-balance sheet foreign exposures less than $10 billion. ~~Additional phase-in requirements related to components of the final capital rules will become effective through 2019.~~ The Basel III rules ~~include new~~require DFS and Discover Bank to maintain minimum ~~and "well-capitalized"~~ risk-based capital and leverage ratios ~~effective January 1, 2015,~~ and ~~refine the definition of~~define what constitutes ~~"capital"~~capital for purposes of calculating those ~~ratios~~ratios.

On March 27, 2020, federal bank regulatory agencies announced an interim and now final rule that allows banks that have implemented the CECL accounting model to delay the estimated impact of ~~which certain requirements are subject~~CECL on regulatory capital for two years, followed by a three-year transition period. For purposes of calculating regulatory capital, we have elected to ~~phase-in periods through the end of 2018 (the "transition period"). During the transition period, the effects~~defer recognition of the ~~changes to~~estimated impact of CECL on regulatory capital ~~(i.e., certain deductions~~for two years in accordance with the final rule; after that period of deferral, the estimated impact of CECL on regulatory capital will be phased in over three years, beginning in 2022. Electing this option raised our Common Equity Tier 1 ("CET1") capital ratios in 2022 and ~~adjustments) are recognized in 20% increments from 2015 through 2018. For example, one~~2021. The phase-in of the ~~deductions from~~CECL accounting model decreased CET1 ~~capital, goodwill and intangibles, was subject to a 40%~~by $537 million as of ~~total deduction in 2015 that increased to 60% in 2016 and so on, until reaching 100% deduction of total in 2018.~~January 1, 2022. For additional information regarding the risk-based capital and leverage ratios, see Note ~~10:~~11: Capital Adequacy to our condensed consolidated financial statements.

On March 4, 2020, the Federal Reserve announced the SCB final rule, which imposes limitations on DFS' capital distributions if we do not maintain our risk-based capital ratios above stated regulatory minimum ratios based on the results of supervisory stress tests. Under this rule, DFS is required to assess whether our planned capital actions are consistent with the effective capital distribution limitations that will apply on a pro-forma basis throughout the planning horizon.

The SCB requirement is institution-specific and is calculated as the greater of (i) 2.5% and (ii) the sum of (a) the difference between DFS' actual CET1 ratio at the beginning of the forecast and the projected minimum CET1 ratio based on the Federal Reserve's models in its nine-quarter Severely Adverse stress scenario, plus (b) the sum of the dollar amount of DFS' planned common stock dividend distributions for each of the fourth through seventh quarters of its nine-quarter capital planning horizon, expressed as a percentage of RWAs. For Category IV firms, including DFS, the Federal Reserve calculates each firm's SCB biennially in even-numbered calendar years, and did so in 2022. In odd-numbered years, each firm subject to Category IV standards that did not opt-in to such year's supervisory stress tests as part of the Federal Reserve's CCAR process receives an adjusted SCB requirement that is updated to reflect its planned common stock dividends per the firm's annual capital plan. On August 5, 2021, the Federal Reserve notified DFS of its adjusted SCB requirement of 3.6% based on the planned common stock dividends in the 2021 Capital Plan. DFS’ SCB was effective on October 1, 2021, and slightly increased from our SCB in effect for the preceding year, which was 3.5%. See "— Regulatory Environment and Developments — Banking — Capital Standards and Stress Testing" for additional information.

DFS elected to not participate in the Federal Reserve's supervisory stress test in 2021, but did participate in 2022. As part of CCAR, DFS submitted an annual capital plan by the April 5, 2022 due date ("2022 Capital Plan"). On June 23, 2022, the Federal Reserve released results of the 2022 CCAR stress test. Discover’s results showed strong capital levels under stress, well above regulatory minimums. These results were used to set the new SCB effective October 1, 2022. On August 4, 2022, the Federal Reserve disclosed the new SCB for DFS is 2.5%, the lowest possible requirement.

At September 30, 2022, DFS and Discover Bank met the requirements for "well-capitalized" status under the Federal Reserve's Regulation Y and the prompt corrective action rules and corresponding FDIC requirements, respectively, exceeding the regulatory minimums to which they were subject under the applicable rules.

Basel III rules also introduced a capital conservation buffer on top of the minimum risk-weighted asset ratios. The buffer is designed to absorb losses during periods of economic stress. The calculation of the buffer started to phase in beginning on January 1, 2016 at the rate of 0.625% and increases by 0.625% on each subsequent January 1 until it reaches the maximum 2.5% on January 1, 2019. When the capital conservation buffer is fully phased-in on January 1, 2019, this will effectively result in minimum ratios of (i) CET1 to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-weighted assets of at least 8.5% and (iii) Total capital to risk-weighted assets of at least 10.5%. Banking institutions with a capital ratio below the required amount will face constraints on dividends, equity repurchases and compensation based on the amount of the shortfall.

Another main component of the Basel III rules is a prescribed standardized approach for calculating risk-weighted assets that expands the risk-weight range from 0% to 100% (under Basel I) to 0% to 1,250% (under Basel III). The new range is intended to be more risk-sensitive and the risk weight assigned depends on the nature of the asset in question.

The Basel III rules provide for a number of the deductions from and adjustments to CET1, to the extent that any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15%.

~~Basel III also requires~~require disclosures relating to market discipline. This series of disclosures is commonly referred to as ~~“Pillar~~"Pillar 3.”" The objective is to increase the transparency of capital requirements for banking organizations. We are required to make prescribed regulatory disclosures ~~on a~~ quarterly ~~basis~~ regarding our capital structure, capital adequacy, risk exposures and risk-weighted assets. ~~The~~We make the Pillar 3 disclosures ~~are made~~ publicly available on our website in a report called "Basel III Regulatory Capital Disclosures."

At September 30, 2017, DFS and Discover Bank met the requirements for "well-capitalized" status under Regulation Y and the prompt corrective action rules, respectively, exceeding the regulatory minimums to which they were subject under the applicable rules.

~~As discussed in Note 10: Capital Adequacy to our condensed consolidated financial statements, we are subject to a CET1 capital ratio requirement under the Basel III rules.~~ We believe that providing an estimate of our capital position based on the Basel III fully phased-in rules is important to complement the existing capital ratios and for comparability to other financial institutions. In addition, we disclose tangible common equity, which represents common equity less goodwill and intangibles. Management believes that common stockholders' equity excluding goodwill and intangibles is ~~a more~~ meaningful ~~measure~~ to investors as a measure of our true net asset value. ~~As of~~At September 30, ~~2017, the CET1 capital ratio calculated under Basel III fully phased-in rules and~~2022, tangible common equity ~~are~~is considered to be a non-GAAP financial measure as it is not formally defined by ~~U.S.~~ GAAP or codified in the federal banking ~~regulations and, as such, they are considered to be non-GAAP financial measures.~~regulations. Other financial services companies may also disclose this ~~ratio and metric~~measure and definitions may ~~vary, so we~~vary. We advise users of this information to exercise caution in comparing this ~~ratio and metric~~measure for different companies.

The following table provides a reconciliation of total common stockholders’ equity (a U.S. GAAP financial measure) to tangible common equity (dollars in millions):
September 30,
2017 December 31,
2016
Total common stockholders’ equity⁽¹⁾
$ 10,627
$ 10,763
Less: Goodwill (255 ) (255 )
Less: Intangible assets, net (163 ) (166 )
Tangible common equity $ 10,209
$ 10,342

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The following table reconciles total common stockholders' equity (a GAAP financial measure) to tangible common equity (dollars in millions):


	September 30, 2022		December 31, 2021
Total common stockholders' equity(1)	$	13,230	$	12,352
Less: goodwill	(255)		(255)

Tangible common equity	$	12,975	$	12,097

(1)Total common stockholders' equity is calculated as total stockholders' equity less preferred stock.

Our Board of Directors declared the following common stock dividends during 2022 and 2021:

~~(1)~~Declaration Date

~~Total common stockholders’ equity is calculated as total stockholders’ equity less preferred stock.~~

Record Date

Payment Date

Dividend per Share

The following table provides a reconciliation of CET1 capital calculated under Basel III transition rules to CET1 capital and risk-weighted assets calculated under fully phased-in Basel III rules (dollars in millions):
September 30,
2017
Common equity Tier 1 capital (Basel III transition) $ 10,419
Adjustments related to capital components during transition⁽¹⁾
(25 )
Common equity Tier 1 capital (Basel III fully phased-in) $ 10,394

Risk-weighted assets (Basel III fully phased-in)⁽²⁾
$ 83,303
Common equity Tier 1 capital ratio (Basel III fully phased-in) 12.5 %

2022
~~(1)~~October 18, 2022			~~Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion.~~			November 23, 2022						December 08, 2022						$	0.60

July 20, 2022

August 25, 2022

September 08, 2022

0.60

April 27, 2022

May 26, 2022

June 09, 2022

0.60

January 18, 2022

February 18, 2021

March 04, 2021

0.50

Total common stock dividends

2.30

~~(2)~~2021

~~Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets include higher risk weighting for past-due loans and unfunded commitments.~~

October 19, 2021

November 24, 2021

December 09, 2021

0.50

July 20, 2021

August 19, 2021

September 02, 2021

0.50

April 20, 2021

May 20, 2021

June 03, 2021

0.44

January 19, 2021

February 18, 2021

March 04, 2021

0.44

Total common stock dividends

1.88

~~Additionally, we are required to submit an annual capital plan to~~Our Board of Directors declared the Federal Reserve that includes an assessment of our expected uses and sources of capital over a nine-quarter planning horizon. We submitted our annual capital plan to the Federal Reserve under the Federal Reserve’s CCAR program and received notice in June 2017 that the Federal Reserve does not object to our proposed capital plan, including planned quarterly capital distributions through June 30, 2018. Our ability to make capital distributions, including our ability to pay dividends on or repurchase shares of our common stock, will continue to be subject to the Federal Reserve’s review and non-objection of the actions that we propose each year in our annual capital plan.

Also in June 2017, the Federal Reserve published the results of its annual supervisory stress tests for bank holding companies with $50 billion or more in total consolidated assets, including DFS. At that same time, we published company-run stress test results for DFS and Discover Bank. DFS is required to publish company-run stress tests results twice each year in accordance with Federal Reserve rules and Discover Bank is required to publish bank-run stress test results under FDIC rules.

We recently declared a quarterly cash dividend on our common stock of $0.35 per share, payable on December 7, 2017 to holders of record on November 22, 2017, which is consistent with last quarter. We also recently declared a quarterly cash dividend on ourfollowing Series C preferred stock dividends during 2022 and 2021:


Declaration Date	Record Date	Payment Date	Dividend per Depositary Share
2022
July 20, 2022	October 14, 2022	October 31, 2022	$	27.50
January 18, 2022	April 15, 2022	May 02, 2022	27.50
Total Series C preferred stock dividends			$	55.00

2021
July 20, 2021	October 15, 2021	November 01, 2021	$	27.50
January 19, 2021	April 15, 2021	April 30, 2021	27.50
Total Series C preferred stock dividends			$	55.00

Our Board of ~~$16.25 per share, equal to $0.40625~~Directors declared the following Series D preferred stock dividends during 2022 and 2021:


Declaration Date	Record Date	Payment Date	Dividend per Depositary Share
2022
July 20, 2022	September 08, 2022	September 23, 2022	$	30.625
January 18, 2022	March 08, 2022	March 23, 2022	30.625
Total Series D preferred stock dividends			$	61.25

2021
July 20, 2021	September 08, 2021	September 23, 2021	$	30.625
January 19, 2021(1)	March 08, 2021	March 23, 2021	46.110
Total Series D preferred stock dividends			$	76.735

(1)The dividend includes $30.63 semi-annual dividend per depositary share ~~payable on December 1, 2017,~~plus $15.48 to ~~holders~~account for the long first dividend period.

Table of ~~record on November 14, 2017, which was the same as the amount paid on our preferred stock in the prior quarter.~~Contents

~~On July 25, 2017, our~~Our Board of Directors approved a new share repurchase program ~~authorizing the repurchase of~~in April 2022. The new program authorizes up to ~~$2.8~~$4.2 billion of ~~our outstanding shares of common stock. The program expires on October 31, 2018 and may be terminated at any time.~~share repurchases through June 30, 2023. This ~~program~~share repurchase authorization replaced ~~the prior $2.5~~a $2.4 billion share repurchase program, which ~~had $562 million of remaining authorization. During the three months ended September 30, 2017,~~expired on March 31, 2022. If and when we ~~repurchased approximately 9 million~~repurchase our shares or 2%, of our outstanding common stock for $555 million. We expect to continue to make share repurchases under our repurchase program from time to time based on market conditions and other factors, subject to legal and regulatory requirements and restrictions, including approval from the Federal Reserve as described above. Share repurchases under the program, we may ~~be made through a variety of~~use various methods, including open market purchases, privately negotiated transactions or other purchases, including block trades, accelerated share repurchase transactions, or any combination of such methods. During the three months ended September 30, 2022, we repurchased approximately 2 million shares for approximately $210 million. During the nine months ended September 30, 2022, we repurchased approximately 16 million shares for approximately $1.7 billion.

The amount and size of any future dividends and share repurchases will depend ~~upon~~on our results of operations, financial condition, capital levels, cash requirements, future prospects, regulatory review and other factors. As we previously disclosed in July 2022, we suspended our existing share repurchase program because of an internal investigation relating to our student loan servicing practices and related compliance matters that is being conducted under the oversight of a board-appointed independent special committee. The investigation is ongoing, and the previously announced suspension of our share repurchase program remains in effect. We continue to communicate with our regulators regarding the internal investigation, and we may be subject to reviews, investigations, proceedings or other actions in connection with our student loan servicing practices and related compliance matters. The declaration and payment of future dividends ~~as well as~~and the amount thereof are subject to the discretion of our Board of Directors. Holders of our shares of common stock are subject to the prior dividend rights of holders of our preferred stock or the depositary shares representing such preferred stock ~~outstanding, and~~outstanding. No dividend may be declared or paid or set aside for payment on our common stock if full dividends have not been declared and paid on all outstanding shares of preferred stock in any dividend ~~period, no dividend may be declared or paid or set aside for payment on our common stock.~~period. In addition, as noted above, banking laws and regulations and our banking regulators may limit our ability to pay dividends and make share repurchases, including limitations on the extent ~~to which~~ our banking ~~subsidiaries~~subsidiary (Discover Bank) can provide funds to us through dividends, loans or otherwise. Further, ~~also noted above,~~ current or future regulatory ~~initiatives~~reforms may require us to hold more capital ~~in the future. There~~or could adversely impact our capital level. As a result, there can be no assurance that we will declare and pay any dividends or repurchase any shares of our common stock in the future.

~~Certain Off-Balance Sheet Arrangements~~

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~~Guarantees~~

Guarantees are contracts or indemnification agreements that contingently require us to make payments to a guaranteed party based on changes in an underlying asset, liability, or equity security of a guaranteed party, rate or index. Also included in guarantees are contracts that contingently require the guarantor to make payments to a guaranteed party based on another entity’s failure to perform under an agreement. Our guarantees relate to transactions processed on the Discover NetworkItem 3. Quantitative and certain transactions processed by PULSE and Diners Club. See Note 11: Commitments, Contingencies and Guarantees to our condensed consolidated financial statements for further discussion regarding our guarantees.Qualitative Disclosures About Market Risk

~~Contractual Obligations and Contingent Liabilities and Commitments~~

~~In the normal course of business, we enter into various contractual obligations that may require future cash payments. Contractual obligations at~~ ~~September 30, 2017, which include deposits, long-term borrowings, operating and capital lease obligations, interest payments on fixed-rate debt, purchase obligations and other liabilities were~~ ~~$86.7 billion~~. For a description of our contractual obligations, see our annual report on Form 10-K for the year ended December 31, 2016 under “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Contractual Obligations and Contingent Liabilities and Commitments.”

We extend credit for consumer loans, primarily arising from agreements with customers for unused lines of credit on certain credit cards, provided there is no violation of conditions established in the related agreement. At ~~September 30, 2017, our unused commitments were approximately~~ ~~$188.3 billion~~. These commitments, substantially all of which we can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan qualification. In addition, in the ordinary course of business, we guarantee

payment on behalf of subsidiaries relating to contractual obligations with external parties. The activities of the subsidiaries covered by any such guarantees are included in our condensed consolidated financial statements.


~~Item 3.~~	~~Quantitative and Qualitative Disclosures About Market Risk~~

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, correlations or other market factors will result in losses for aan investment position or portfolio. We are exposed to market risk primarily from changes in interest rates.

Interest Rate Risk

We borrow money from ~~a variety of~~various depositors and institutions ~~in order~~ to provide loans to our customers ~~as well as~~and invest in other assets and our business. These loans to customers and other assets earn interest, which we use to pay interest on the money borrowed. Our net interest income and, therefore, earnings will be reduced if the interest rate earned on assets increases at a slower pace than ~~increases to~~ the interest rate ~~we owe~~paid on our borrowings. Changes in interest rates and ~~competitor~~our competitors' responses to those changes may influence customer payment rates, loan balances or deposit account activity. WeAs a result, we may incur higher funding costs ~~as a result, which has the potential to~~that could decrease our earnings.

Our interest rate risk management policies are designed to measure and manage the potential volatility of earnings that may arise from changes in interest rates by having a ~~financing~~ portfolio that reflects ~~the~~our mix of ~~variable~~variable- and fixed-rate ~~assets.~~assets and liabilities. To the extent that ~~asset and related financing~~the repricing characteristics of the assets and liabilities in a particular portfolio are not sufficiently matched, ~~effectively,~~ we may utilize interest rate derivative contracts, such as swap agreements, to achieve our objectives. Interest rate swap agreements effectively convert the underlying asset or liability from fixed- to floating-rate or from floating- to fixed-rate. See Note ~~14:~~15: Derivatives and Hedging Activities to our condensed consolidated financial statements for information on our derivatives activity.

We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting the possible earnings effect of a hypothetical, adverse change in interest rates over the ~~12-month period~~12 months from our reporting date, we assume that all ~~interest rate sensitive~~interest-rate-sensitive assets and liabilities ~~will be impacted by~~are subject to a hypothetical, immediate 100 basis point ~~increase~~change in interest rates relative to market consensus expectations as of the beginning of the period. The sensitivity ~~is based upon~~simulation includes the hypothetical assumption that all relevant types of interest rates ~~that affect our results~~ would ~~increase~~change instantaneously, simultaneously and to the same degree.

Our ~~interest rate sensitive~~interest-rate-sensitive assets include our ~~variable rate~~variable-rate loan receivables and ~~the~~certain assets ~~that make up~~in our liquidity portfolio. We have ~~restrictions~~limitations on our ability to mitigate interest rate risk by adjusting rates on existing ~~balances and~~balances. Further, competitive actions may ~~restrict~~limit our ability to increase the rates that we charge to customers for new loans. At September 30, ~~2017~~,2022, the majority of our credit card and private student loans ~~were at~~charge variable rates. ~~Assets with rates~~Fixed-rate assets that ~~are fixed at period end but which~~ will mature or otherwise contractually reset to a market-based indexed rate or other ~~fixed rate~~fixed-rate prior to the end of the 12-month measurement period are considered to be rate sensitive. The latter category includes certain revolving credit card loans that may be offered at below-market rates for an introductory period, such as balance transfers and special promotional programs, after which the loans will contractually reprice in accordance with our normal market-based pricing structure. For ~~purposes of measuring rate sensitivity for such loans, only the effect of the hypothetical 100 basis point increase in the underlying market-based indexed rate has been considered. For~~ assets ~~that have~~with a fixed interest rate ~~but which~~that contractually will, or ~~are~~is assumed to, reset to a market-based indexed rate or other fixed rate during the next 12 months, earnings sensitivity is measured from the expected repricing date. In addition, for all interest rate sensitive assets, earnings sensitivity is calculated net of expected ~~loan losses, which for~~credit losses. For purposes of this analysis, expected credit losses are assumed to remain unchanged relative to our baseline expectations over the analysis horizon.

~~Interest rate sensitive~~Interest-rate-sensitive liabilities are assumed to be those for which the stated interest rate is not contractually fixed for the next ~~12-month period.~~12 months. Thus, liabilities that vary with changes in a market-based index, such as the federal funds rate or ~~LIBOR,~~Secured Overnight Financing Rate ("SOFR"), which will reset before the end of the ~~12-month period,~~next 12 months, or liabilities ~~whose~~that have fixed rates ~~are fixed~~ at the fiscal period end but ~~which~~ will mature and are assumed to be replaced with a market-based indexed rate prior to the end of the ~~12-month period,~~next 12 months, are also ~~are~~ considered to be rate sensitive. For these fixed-rate liabilities, earnings sensitivity is measured from the expected maturity date.

Net interest income sensitivity ~~requires~~simulations require assumptions ~~to be made~~ regarding market conditions, consumer behavior and the ~~overall~~ growth and composition of ~~the~~our balance sheet. ~~These assumptions~~The degree by which our deposit rates change when benchmark interest rates change, our deposit “beta,” is one of the most significant of these assumptions. Assumptions about deposit beta and other matters are inherently uncertain and, as a result, actual earnings may differ from the simulated earnings presented ~~above.~~below. Our actual earnings depend on multiple factors including,

but not limited to, the direction and timing of changes in interest rates, the movement of short-term ~~versus~~interest rates relative to long-term rates, balance sheet ~~design,~~composition, competitor actions ~~which may affect~~affecting pricing decisions in our loans and deposits, the mix of promotional balances in our card portfolio, the level

Table of Contents

of interest charge-offs and recoveries, the influence of loan repayment rates on revolving balances and strategic actions undertaken by our management.

~~Assuming~~Our current short-term interest rate risk position is modestly asset-sensitive. We believe this position is prudent given benchmark interest rates have been prone to rise as the Federal Reserve has raised its federal funds rate target in response to high inflation. The following table shows the impacts to net interest income over the following 12-month period that we estimate would result from an immediate ~~100 basis point increase~~and parallel change in ~~the~~ interest rates affecting all interest rate sensitive assets and liabilities ~~at September 30, 2017, we estimate that~~(dollars in millions):


	At September 30, 2022				At December 31, 2021
Basis point change	$		%		$		%
+100	$	205	1.66	%	$	154	1.51	%
-100	$	(199)	(1.61)	%	NM		NM

An estimated impact on net interest income ~~over the following 12-month period would increase by approximately $211 million, or 3%. Assuming an immediate 100 basis point increase~~of a decrease in ~~the~~ interest rates ~~affecting all~~at December 31, 2021 was not provided as many of our interest rate sensitive assets and liabilities at December 31, 2016, we estimated that net interest income over the following 12-month period would increase by approximately $201 million, or 3%. Should an immediate 100 basis point interest rate decrease occur, we estimate that the impact would be approximately the inverse of the result of an immediate 100 basis point increase. However, at currentwere tied to interest rates ~~there is a higher level of uncertainty in the assumptions used to derive this estimate because a decline of~~(i.e., prime and federal funds) that ~~magnitude would result in a~~were near ~~zero interest rate environment.~~their historical minimum levels and, therefore, could not materially decrease.


~~Item 4.~~	~~Controls and Procedures~~

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the ~~“Exchange Act”~~"Exchange Act")), which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the ~~SEC’s~~SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.


~~Part II.~~	~~OTHER INFORMATION~~


~~Item 1.~~	~~Legal Proceedings~~

~~For a description~~Table of ~~legal proceedings, see~~Contents

Glossary of Acronyms

•ALCO: Asset and Liability Management Committee

•AOCI: Accumulated Other Comprehensive Income (Loss)

•ARRC: Alternative Reference Rates Committee

•ASC: Accounting Standards Codification

•ASU: Accounting Standards Update

•CARES Act: Coronavirus Aid, Relief, and Economic Security Act

•CCAR: Comprehensive Capital Analysis and Review

•CCPA: California Consumer Privacy Act

•CECL: Current Expected Credit Loss

•CET1: Common Equity Tier 1

•CFPB: Consumer Financial Protection Bureau

•COVID-19: Coronavirus Disease 2019

•CPPA: California Privacy Protection Agency

•CPRA: California Privacy Rights Act

•DCENT: Discover Card Execution Note ~~12:~~Trust

•DCMT: Discover Card Master Trust I

•DFS: Discover Financial Services

•EPS: Earnings Per Share

•ESG: Environmental, Social and Governance

•EWI: Early Warning Indicator

•FASB: Financial Accounting Standards Board

•FCA: UK Financial Conduct Authority

•FDIC: Federal Deposit Insurance Corporation

•FHLB: Federal Home Loan Bank

•GAAP: Accounting Principles Generally Accepted in the United States

•IRS: Internal Revenue Service

•LIBOR: London Interbank Offered Rate

•OCI: Other Comprehensive Income (Loss)

•OIS: Overnight Index Swap

•RMBS: Residential Mortgage-Backed Securities

•SCB: Stress Capital Buffer

•SEC: Securities and Exchange Commission

•SOFR: Secured Overnight Financing Rate

•TDR: Troubled Debt Restructuring

•UDAAP: Unfair, Deceptive or Abusive Acts or Practices

•U.S.: United States of America

•USD: United States Dollar

•U.S. GSE: Government-sponsored Enterprise of the U.S.

•VIE: Variable Interest Entity

Table of Contents

Part II. OTHER INFORMATION

Item 1. Legal Proceedings

See Note 13: Litigation and Regulatory Matters to our condensed consolidated financial ~~statements.~~statements for a description of legal proceedings.


~~Item 1A.~~	~~Risk Factors~~

Item 1A. Risk Factors

There have been no material changes to the risk factors disclosed in our ~~annual report~~Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2021.


~~Item 2.~~	~~Unregistered Sales of Equity Securities and Use of Proceeds~~

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

The following table sets forth information regarding purchases of our common stock related to our share repurchase program and employee transactions made by us or on our behalf during the most recent quarter.


Period	Total Number of Shares Purchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plan or Program	Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs
July 1 - 31, 2022
Repurchase program(1)	2,099,205	$	100.07	2,099,205	$	3,389,926
Employee transactions(3)	1,142	$	100.44	N/A	N/A
August 1 - 31, 2022
Repurchase program(1)(2)	—	$	—	—	$	3,389,926
Employee transactions(3)	15,846	$	102.13	N/A	N/A
September 1 - 30, 2022
Repurchase program(1)(2)	—	$	—	—	$	3,389,926
Employee transactions(3)	422	$	100.50	N/A	N/A

Total
Repurchase program(1)(2)	2,099,205	$	100.07	2,099,205	$	3,389,926
Employee transactions(3)	17,410	$	101.98	N/A	N/A

(1)In April 2022, our Board of Directors approved a new share repurchase program authorizing the purchase of up to $4.2 billion of our outstanding shares of common stock through June 30, 2023. This share repurchase authorization replaced our prior $2.4 billion share repurchase program that expired March 31, 2022.

(2)Share repurchases were suspended because of an internal investigation relating to our student loan servicing practices and related compliance matters. See "— Liquidity and Capital Resources — Capital" for additional information.

(3)Reflects shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units or upon the exercise of stock options.

The table below sets forth information regarding purchases of our common stock related to our share repurchase program and employee transactions that were made by us or on our behalf during the most recent quarter.
Period Total Number of Shares Purchased Average Price Paid Per Share
Total Number of Shares Purchased as Part of Publicly Announced Plan or Program⁽¹⁾

Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs⁽¹⁾
July 1 - 31, 2017
Repurchase program⁽¹⁾
2,983,406
$ 61.77
2,983,406
$ 2,707,083,123
Employee transactions⁽²⁾
1,562
$ 62.19
N/A
N/A
August 1 - 31, 2017
Repurchase program⁽¹⁾
3,252,466
$ 60.53
3,252,466
$ 2,510,212,170
Employee transactions⁽²⁾
1,911
$ 60.61
N/A
N/A
September 1 - 30, 2017
Repurchase program⁽¹⁾
2,914,936
$ 59.64
2,914,936
$ 2,336,369,727
Employee transactions⁽²⁾
—
$ —
N/A
N/A

Total
Repurchase program⁽¹⁾
9,150,808
$ 60.65
9,150,808
$ 2,336,369,727
Employee transactions⁽²⁾
3,473
$ 61.32
N/A
N/A


~~(1)~~	On July 25, 2017, our board of directors approved a share repurchase program authorizing the purchase of up to $2.8 billion of our outstanding shares of common stock. This share repurchase program expires on October 31, 2018 and may be terminated at any time.


~~(2)~~	Reflects shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units or upon the exercise of stock options.

Table of Contents


~~Item 3.~~	~~Defaults Upon Senior Securities~~

Item 3. Defaults Upon Senior Securities

None.


~~Item 4.~~	~~Mine Safety Disclosures~~

Item 4. Mine Safety Disclosures

None.


~~Item 5.~~	~~Other Information~~

Item 5. Other Information

None.


~~Item 6.~~	~~Exhibits~~

Item 6. Exhibits

See "Exhibit Index" for documents filed herewith and incorporated herein by reference.

Exhibit Index


Exhibit Number						Description

























31.1						Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

31.2						Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.

32.1						Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

101						Interactive Data File — the following financial statements from Discover Financial Services Quarterly Report on Form 10-Q formatted in inline XBRL: (1) Condensed Consolidated Statements of Financial Condition, (2) Condensed Consolidated Statements of Income, (3) Condensed Consolidated Statements of Comprehensive Income, (4) Condensed Consolidated Statements of Changes in Stockholders' Equity, (5) Condensed Consolidated Statements of Cash Flows and (6) Notes to the Condensed Consolidated Financial Statements.

104						Cover Page Interactive Data File — the cover page from Discover Financial Services Quarterly Report on Form 10-Q formatted in inline XBRL and contained in Exhibit 101.

Table of Contents

Signature

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	Discover Financial Services (Registrant)

	By:	~~Discover Financial Services~~ ~~(Registrant)~~

~~By:~~	/s/ ~~R. MARK~~JOHN T. G~~RAF~~REENE
	~~R. Mark Graf~~ ~~Executive Vice President and Chief Financial Officer~~

~~Date: November 2, 2017~~

~~Exhibit Index~~



~~Exhibit~~ ~~Number~~		~~Description~~

~~12.1~~	~~Statement regarding computation of ratio of earnings to fixed charges and computation of ratio of earnings to fixed charges and preferred stock dividends.~~

~~31.1~~	~~Certification of Chief~~ John T. Greene Executive ~~Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.~~

~~31.2~~	~~Certification of~~Vice President, Chief Financial Officer ~~pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.~~

~~32.1~~	~~Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.~~

~~101.INS~~	~~XBRL Instance Document.~~

~~101.SCH~~	~~XBRL Taxonomy Extension Schema Document.~~

~~101.CAL~~	~~XBRL Taxonomy Extension Calculation Linkbase Document.~~

~~101.DEF~~	~~XBRL Taxonomy Extension Definition Linkbase Document.~~

~~101.LAB~~	~~XBRL Taxonomy Extension Label Linkbase Document.~~

~~101.PRE~~	~~XBRL Taxonomy Extension Presentation Linkbase Document.~~

Date: October 27, 2022



~~Delaware~~				~~36-2517428~~Securities registered pursuant to Section 12(b) of the Act
~~(State or other jurisdiction~~Title of ~~incorporation or organization)~~each class		Trading symbol(s)	~~(I.R.S. Employer Identification No.)~~Name of each exchange on which registered
Common Stock, par value $0.01 per share		DFS
~~2500 Lake Cook Road,~~ ~~Riverwoods, Illinois 60015~~	~~(224) 405-0900~~
~~(Address of principal executive offices, including zip code)~~	~~(Registrant’s telephone number, including area code)~~New York Stock Exchange



	For the Nine Months Ended September 30,
	2017			2016
	(unaudited) (dollars in millions)
Cash flows from operating activities
Net income	$	1,712		$	1,830
Adjustments to reconcile net income to net cash provided by (used for) operating activities:
Provision for loan losses	1,900			1,281
Depreciation and amortization	289			262
Amortization of deferred revenues and accretion of accretable yield on acquired loans	(299		)	(298		)
Net loss on investments and other assets	42			40
Other, net	(42		)	119
Changes in assets and liabilities:
(Increase) decrease in other assets	(59		)	104
Increase (decrease) in accrued expenses and other liabilities	41			(205		)
Net cash provided by operating activities	3,584			3,133

Cash flows from investing activities
Maturities of other short-term investments	—			200
Purchases of other short-term investments	—			(1,050		)
Maturities of available-for-sale investment securities	154			1,279
Maturities of held-to-maturity investment securities	12			17
Purchases of held-to-maturity investment securities	(40		)	(56		)
Net principal disbursed on loans originated for investment	(4,455		)	(1,990		)
Proceeds from returns of investment	17			—
Purchases of other investments	(31		)	(23		)
Increase in restricted cash	(1,184		)	(848		)
Purchases of premises and equipment	(161		)	(132		)
Net cash used for investing activities	(5,688		)	(2,603		)

Cash flows from financing activities
Proceeds from issuance of securitized debt	4,242			3,026
Maturities and repayment of securitized debt	(3,715		)	(2,043		)
Proceeds from issuance of other long-term borrowings	1,098			1,100
Maturities and repayment of other long-term borrowings	(403		)	—
Proceeds from issuance of common stock	4			5
Purchases of treasury stock	(1,526		)	(1,430		)
Net increase in deposits	4,129			1,702
Dividends paid on common and preferred stock	(390		)	(386		)
Net cash provided by financing activities	3,439			1,974
Net increase in cash and cash equivalents	1,335			2,504
Cash and cash equivalents, at beginning of period	11,914			9,572
Cash and cash equivalents, at end of period	$	13,249		$	12,076


	For the Nine Months Ended September 30,
	2022		2021
Cash flows provided by operating activities
Net income	$	3,359	$	4,382
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,476		(45)
Deferred income taxes	(314)		388
Depreciation and amortization	424		387
Amortization of deferred revenues	(261)		(217)
Net unrealized and realized losses (gains) on investments and other assets	246		(531)
Other, net	73		227
Changes in assets and liabilities:
Increase in other assets	(350)		(273)
Increase in accrued expenses and other liabilities	312		359
Net cash provided by operating activities	4,965		4,677

Cash flows provided by investing activities
Maturities of other short-term investments	—		2,200

Maturities of available-for-sale investment securities	1,677		1,709
Purchases of available-for-sale investment securities	(2,001)		(9)
Maturities of held-to-maturity investment securities	26		63
Purchases of held-to-maturity investment securities	(40)		(28)
Net change in principal on loans originated for investment	(12,297)		(255)
Proceeds from the sale of available-for-sale securities	—		5
Proceeds from the sale of other investments	325		—
Purchases of other investments	(135)		(108)

Purchases of premises and equipment	(178)		(146)
Net cash (used for) provided by investing activities	(12,623)		3,431

Cash flows used for by financing activities
Net change in short-term borrowings	(1,750)		—
Net change in deposits	10,482		(4,359)
Proceeds from issuance of securitized debt	4,626		1,731
Maturities and repayment of securitized debt	(2,566)		(3,445)

Maturities and repayment of other long-term borrowings	(322)		(922)
Proceeds from issuance of common stock	7		7
Purchases of treasury stock	(1,757)		(1,487)

Dividends paid on common and preferred stock	(524)		(474)
Net cash provided by (used for) financing activities	8,196		(8,949)
Net increase (decrease) in cash, cash equivalents and restricted cash	538		(841)
Cash, cash equivalents and restricted cash, at the beginning of the period	11,332		13,589
Cash, cash equivalents and restricted cash, at the end of the period	$	11,870	$	12,748

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	10,004	$	12,716
Restricted cash	1,866		32
Cash, cash equivalents and restricted cash, at the end of the period	$	11,870	$	12,748


	September 30, 2022		December 31, 2021




U.S. Treasury(1) and U.S. GSE(2) securities	$	6,092	$	6,514
Residential mortgage-backed securities - Agency(2)	805		390
Total investment securities	$	6,897	$	6,904



x	~~QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
	~~For the quarterly period ended September 30, 2017~~



o	~~TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~
	For the transition period from to



Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4544
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6973
Item 4.	Controls and Procedures	7074
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	7176
Item 1A.	Risk Factors	7176
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7176
Item 3.	Defaults Upon Senior Securities	7177
Item 4.	Mine Safety Disclosures	7177
Item 5.	Other Information	7177
Item 6.	Exhibits	7177


	September 30, 2017			December 31, 2016				September 30, 2022		December 31, 2021
	(unaudited) (dollars in millions, except share amounts)
Assets							Assets
Cash and cash equivalents	$	13,249		$	11,914		Cash and cash equivalents	$	10,004	$	8,750
Restricted cash	1,279			95			Restricted cash	1,866		2,582
Investment securities (includes $1,449 and $1,605 at fair value at September 30, 2017 and December 31, 2016, respectively)	1,627			1,757

Investment securities (includes available-for-sale securities of $6,681 and $6,700 reported at fair value with associated amortized cost of $6,876 and $6,549 at September 30, 2022 and December 31, 2021, respectively)							Investment securities (includes available-for-sale securities of $6,681 and $6,700 reported at fair value with associated amortized cost of $6,876 and $6,549 at September 30, 2022 and December 31, 2021, respectively)	6,897		6,904
Loan receivables							Loan receivables
Loan receivables	80,443			77,254			Loan receivables	104,908		93,684
Allowance for loan losses	(2,531		)	(2,167		)
Allowance for credit losses							Allowance for credit losses	(7,061)		(6,822)
Net loan receivables	77,912			75,087			Net loan receivables	97,847		86,862
Premises and equipment, net	800			734			Premises and equipment, net	1,015		983
Goodwill	255			255			Goodwill	255		255
Intangible assets, net	163			166

Other assets	2,323			2,300			Other assets	4,002		3,906
Total assets	$	97,608		$	92,308		Total assets	$	121,886	$	110,242
Liabilities and Stockholders’ Equity
Liabilities and Stockholders' Equity							Liabilities and Stockholders' Equity
Liabilities							Liabilities
Deposits							Deposits
Interest-bearing deposit accounts	$	55,583		$	51,461		Interest-bearing deposit accounts	$	81,373	$	70,818
Non-interest bearing deposit accounts	552			531			Non-interest bearing deposit accounts	1,524		1,575
Total deposits	56,135			51,992			Total deposits	82,897		72,393
Short-term borrowings							Short-term borrowings	—		1,750
Long-term borrowings	26,737			25,443			Long-term borrowings	20,177		18,477
Accrued expenses and other liabilities	3,549			3,550			Accrued expenses and other liabilities	4,526		4,214
Total liabilities	86,421			80,985			Total liabilities	107,600		96,834
Commitments, contingencies and guarantees (Notes 8, 11 and 12)
Stockholders’ Equity:
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 563,475,745 and 562,414,040 shares issued at September 30, 2017 and December 31, 2016, respectively	6			5
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 575,000 shares issued and outstanding and aggregate liquidation preference of $575 at September 30, 2017 and December 31, 2016	560			560
Commitments, contingencies and guarantees (Notes 9, 12 and 13)							Commitments, contingencies and guarantees (Notes 9, 12 and 13)
Stockholders' Equity							Stockholders' Equity
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 569,637,306 and 568,830,897 shares issued at September 30, 2022 and December 31, 2021, respectively							Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 569,637,306 and 568,830,897 shares issued at September 30, 2022 and December 31, 2021, respectively	6		6
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively							Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	1,056		1,056
Additional paid-in capital	4,016			3,962			Additional paid-in capital	4,444		4,369
Retained earnings	16,452			15,130			Retained earnings	27,585		24,766
Accumulated other comprehensive loss	(148		)	(161		)	Accumulated other comprehensive loss	(353)		(94)
Treasury stock, at cost; 197,432,811 and 173,648,023 shares at September 30, 2017 and December 31, 2016, respectively	(9,699		)	(8,173		)
Total stockholders’ equity	11,187			11,323
Total liabilities and stockholders’ equity	$	97,608		$	92,308
Treasury stock, at cost; 296,412,179 and 280,502,577 shares at September 30, 2022 and December 31, 2021, respectively							Treasury stock, at cost; 296,412,179 and 280,502,577 shares at September 30, 2022 and December 31, 2021, respectively	(18,452)		(16,695)
Total stockholders' equity							Total stockholders' equity	14,286		13,408
Total liabilities and stockholders' equity							Total liabilities and stockholders' equity	$	121,886	$	110,242


																																									Additional Paid-in Capital					Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total Stockholders' Equity
							Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock			Total Stockholders’ Equity					Preferred Stock										Common Stock
	Preferred Stock			Common Stock													Shares							Amount						Shares					Amount
	Shares	Amount		Shares	Amount
	(unaudited) (dollars in millions, shares in thousands)
Balance at December 31, 2015	575	$	560	560,679	$	5			$	3,885			$				13,250								$	(160	)		$	(6,265	)		$	11,275
For the Three Months Ended September 30, 2021																								For the Three Months Ended September 30, 2021
Balance at June 30, 2021																								Balance at June 30, 2021		11						$	1,056			568,693		$	6					$	4,319					$	22,936			$	(39)			$	(15,107)			$	13,171
Net income	—	—		—	—				—				1,830				—						—				1,830			Net income		—				—		—						—					—				1,091				—				—			1,091
Other comprehensive loss	—	—		—	—		—			—					(5		)			—			(5		)	Other comprehensive loss		—						—			—			—			—					—				(29)				—				(29)
Purchases of treasury stock	—	—		—	—		—			—				—				(1,430		)	(1,430		)	Purchases of treasury stock		—						—				—		—			—					—				—				(815)				(815)
Common stock issued under employee benefit plans	—	—		66	—		3			—				—				—			3			Common stock issued under employee benefit plans		—						—				21		—			2					—				—				—				2
Common stock issued and stock-based compensation expense	—	—		1,646	—		58			—				—				—			58			Common stock issued and stock-based compensation expense		—						—				47		—			24					—				—				—				24
Dividends — common stock	—	—		—	—		—			(356		)		—				—			(356		)
Dividends — preferred stock	—	—		—	—		—			(28		)		—				—			(28		)
Balance at September 30, 2016	575	$	560	562,391	$	5	$	3,946		$	14,696			$	(165	)		$	(7,695	)	$	11,347

Balance at December 31, 2016	575	$	560	562,414	$	5	$	3,962		$	15,130			$	(161	)		$	(8,173	)	$	11,323
Dividends — common stock ($0.50 per share)																								Dividends — common stock ($0.50 per share)		—						—				—		—			—					(151)				—				—				(151)
Dividends — Series C preferred stock ($2,750 per share)																								Dividends — Series C preferred stock ($2,750 per share)		—						—				—		—			—					(15)				—				—				(15)
Dividends — Series D preferred stock ($3,062.50 per share)																								Dividends — Series D preferred stock ($3,062.50 per share)		—						—				—		—			—					(15)				—				—				(15)
Balance at September 30, 2021																								Balance at September 30, 2021		11						$	1,056			568,761		$	6		$	4,345				$	23,846			$	(68)			$	(15,922)			$	13,263

For the Three Months Ended September 30, 2022																								For the Three Months Ended September 30, 2022
Balance at June 30, 2022																								Balance at June 30, 2022		11						$	1,056			569,564		$	6		$	4,417				$	26,776			$	(251)			$	(18,240)			$	13,764
Net income	—	—		—	—		—			1,712				—				—			1,712			Net income		—						—				—		—			—					1,006				—				—				1,006
Other comprehensive income	—	—		—	—		—			—				13				—			13
Other comprehensive loss																								Other comprehensive loss		—						—				—		—			—					—				(102)				—				(102)
Purchases of treasury stock	—	—		—	—		—			—				—				(1,526		)	(1,526		)	Purchases of treasury stock		—						—				—		—			—					—				—				(212)				(212)
Common stock issued under employee benefit plans	—	—		63	—		4			—				—				—			4			Common stock issued under employee benefit plans		—						—				31		—			2					—				—				—				2
Common stock issued and stock-based compensation expense	—	—		999	1		50			—				—				—			51			Common stock issued and stock-based compensation expense		—						—				42		—			25					—				—				—				25
Dividends — common stock	—	—		—	—		—			(362		)		—				—			(362		)
Dividends — preferred stock	—	—		—	—		—			(28		)		—				—			(28		)
Balance at September 30, 2017	575	$	560	563,476	$	6	$	4,016		$	16,452			$	(148	)		$	(9,699	)	$	11,187

Dividends — common stock ($0.60 per share)																								Dividends — common stock ($0.60 per share)		—						—				—		—			—					(166)				—				—				(166)
Dividends — Series C preferred stock ($2,750 per share)																								Dividends — Series C preferred stock ($2,750 per share)		—						—				—		—			—					(15)				—				—				(15)
Dividends — Series D preferred stock ($3,062.50 per share)																								Dividends — Series D preferred stock ($3,062.50 per share)		—						—				—		—			—					(16)				—				—				(16)
Balance at September 30, 2022																								Balance at September 30, 2022		11						$	1,056			569,637		$	6		$	4,444				$	27,585			$	(353)			$	(18,452)			$	14,286

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

	September 30, 2017		December 31, 2016
U.S. Treasury securities⁽¹⁾	$	673	$	674
States and political subdivisions of states	1		2
Residential mortgage-backed securities - Agency⁽²⁾	953		1,081
Total investment securities	$	1,627	$	1,757


~~(1)~~	~~Includes $32 million and $73~~$27 million of U.S. Treasury securities pledged as swap collateral ~~as of September 30, 2017 and December 31, 2016, respectively.~~


~~(2)~~	~~Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and 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 September 30, 2017
Available-for-Sale Investment Securities⁽¹⁾
U.S. Treasury securities	$	676	$	—	$	(3	)	$	673
Residential mortgage-backed securities - Agency	776		3		(3		)	776
Total available-for-sale investment securities	$	1,452	$	3	$	(6	)	$	1,449
Held-to-Maturity Investment Securities⁽²⁾
States and political subdivisions of states	$	1	$	—	$	—		$	1
Residential mortgage-backed securities - Agency⁽³⁾	177		2		—			179
Total held-to-maturity investment securities	$	178	$	2	$	—		$	180

At December 31, 2016
Available-for-Sale Investment Securities⁽¹⁾
U.S. Treasury securities	$	676	$	—	$	(2	)	$	674
Residential mortgage-backed securities - Agency	934		2		(5		)	931
Total available-for-sale investment securities	$	1,610	$	2	$	(7	)	$	1,605
Held-to-Maturity Investment Securities⁽²⁾
States and political subdivisions of states	$	2	$	—	$	—		$	2
Residential mortgage-backed securities - Agency⁽³⁾	150		1		(1		)	150
Total held-to-maturity investment securities	$	152	$	1	$	(1	)	$	152


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


~~Part I.~~	~~FINANCIAL INFORMATION~~


2.	~~Investments~~


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

The following table provides information about 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
	Number of Securities in a Loss Position	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At September 30, 2017
Available-for-Sale Investment Securities
U.S. Treasury securities	1	$	673	$	(3	)	$	—	$	—
Residential mortgage-backed securities - Agency	14	$	245	$	(2	)	$	80	$	(1	)

At December 31, 2016
Available-for-Sale Investment Securities
U.S. Treasury securities	1	$	674	$	(2	)	$	—	$	—
Residential mortgage-backed securities - Agency	19	$	586	$	(5	)	$	—	$	—
Held-to-Maturity Investment Securities
Residential mortgage-backed securities - Agency	31	$	61	$	(1	)	$	—	$	—


	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At September 30, 2022
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	54	$	5,863	$	(163)	$	106	$	(3)
Residential mortgage-backed securities - Agency	28	$	584	$	(28)	$	5	$	(1)

At December 31, 2021
Available-for-Sale Investment Securities
U.S. Treasury and U.S. GSE securities	2	$	110	NM		$	—	$	—
Residential mortgage-backed securities - Agency	1	$	7	NM		$	—	$	—


At September 30, 2022	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	$	1,724	$	4,534	$	—	$	—	$	6,258
Residential mortgage-backed securities - Agency(1)	2		78		45		493		618
Total available-for-sale investment securities	$	1,726	$	4,612	$	45	$	493	$	6,876
Held-to-Maturity Investment Securities — Amortized Cost
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	216	$	216
Total held-to-maturity investment securities	$	—	$	—	$	—	$	216	$	216
Available-for-Sale Investment Securities — Fair Values
U.S. Treasury and U.S. GSE securities	$	1,709	$	4,383	$	—	$	—	$	6,092
Residential mortgage-backed securities - Agency(1)	2		75		43		469		589
Total available-for-sale investment securities	$	1,711	$	4,458	$	43	$	469	$	6,681
Held-to-Maturity Investment Securities — Fair Values
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	191	$	191
Total held-to-maturity investment securities	$	—	$	—	$	—	$	191	$	191

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

	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
At September 30, 2017
Available-for-Sale Investment Securities—Amortized Cost
U.S. Treasury securities	$	676	$	—	$	—	$	—	$	676
Residential mortgage-backed securities - Agency	—		73		517		186		776
Total available-for-sale investment securities	$	676	$	73	$	517	$	186	$	1,452
Held-to-Maturity Investment Securities—Amortized Cost
State and political subdivisions of states	$	—	$	—	$	—	$	1	$	1
Residential mortgage-backed securities - Agency	—		—		—		177		177
Total held-to-maturity investment securities	$	—	$	—	$	—	$	178	$	178
Available-for-Sale Investment Securities—Fair Values
U.S. Treasury securities	$	673	$	—	$	—	$	—	$	673
Residential mortgage-backed securities - Agency	—		73		517		186		776
Total available-for-sale investment securities	$	673	$	73	$	517	$	186	$	1,449
Held-to-Maturity Investment Securities—Fair Values
State and political subdivisions of states	$	—	$	—	$	—	$	1	$	1
Residential mortgage-backed securities - Agency	—		—		—		179		179
Total held-to-maturity investment securities	$	—	$	—	$	—	$	180	$	180

The following table provides the most recent FICO scores available for the Company’s customers as a percentage of each class of loan receivables:

	Credit Risk Profile by FICO Score
	660 and Above		Less than 660 or No Score
At September 30, 2017
Credit card loans	81	%	19	%
Personal loans	95	%	5	%
Private student loans (excluding PCI)⁽¹⁾	96	%	4	%

At December 31, 2016
Credit card loans	82	%	18	%
Personal loans	96	%	4	%
Private student loans (excluding PCI)⁽¹⁾	95	%	5	%

The following tables provide changes in the Company’s allowance for loan losses (dollars in millions):

	For the Three Months Ended September 30, 2017
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,980		$	235		$	159		$	10		$	2,384
Additions
Provision for loan losses	550			91			34			(1		)	674
Deductions
Charge-offs	(555		)	(64		)	(32		)	—			(651		)
Recoveries	116			6			2			—			124
Net charge-offs	(439		)	(58		)	(30		)	—			(527		)
Balance at end of period	$	2,091		$	268		$	163		$	9		$	2,531

	For the Three Months Ended September 30, 2016
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,603		$	176		$	151		$	19		$	1,949
Additions
Provision for loan losses	372			51			21			1			445
Deductions
Charge-offs	(425		)	(46		)	(17		)	—			(488		)
Recoveries	111			5			2			—			118
Net charge-offs	(314		)	(41		)	(15		)	—			(370		)
Balance at end of period	$	1,661		$	186		$	157		$	20		$	2,024

	For the Nine Months Ended September 30, 2017
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,790		$	200		$	158		$	19		$	2,167
Additions
Provision for loan losses	1,607			231			69			(7		)	1,900
Deductions
Charge-offs	(1,651		)	(182		)	(71		)	(3		)	(1,907		)
Recoveries	345			19			7			—			371
Net charge-offs	(1,306		)	(163		)	(64		)	(3		)	(1,536		)
Balance at end of period	$	2,091		$	268		$	163		$	9		$	2,531

	For the Nine Months Ended September 30, 2016
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,554		$	155		$	143		$	17		$	1,869
Additions
Provision for loan losses	1,081			139			58			3			1,281
Deductions
Charge-offs	(1,312		)	(123		)	(51		)	—			(1,486		)
Recoveries	338			15			7			—			360
Net charge-offs	(974		)	(108		)	(44		)	—			(1,126		)
Balance at end of period	$	1,661		$	186		$	157		$	20		$	2,024

The following tables provide additional detail of the Company’s allowance for loan losses and recorded investment in its loan portfolio by impairment methodology (dollars in millions):

	Credit Card		Personal Loans		Student Loans⁽¹⁾		Other Loans		Total
At September 30, 2017
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	1,889	$	241	$	112	$	3	$	2,245
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	202		27		20		6		255
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		31		—		31
Total allowance for loan losses	$	2,091	$	268	$	163	$	9	$	2,531
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	62,295	$	7,298	$	6,872	$	324	$	76,789
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	1,180		99		126		47		1,452
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		2,202		—		2,202
Total recorded investment	$	63,475	$	7,397	$	9,200	$	371	$	80,443

At December 31, 2016
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	1,623	$	179	$	105	$	3	$	1,910
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	167		21		18		16		222
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		35		—		35
Total allowance for loan losses	$	1,790	$	200	$	158	$	19	$	2,167
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	60,437	$	6,400	$	6,307	$	219	$	73,363
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	1,085		81		86		55		1,307
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		2,584		—		2,584
Total recorded investment	$	61,522	$	6,481	$	8,977	$	274	$	77,254

Additional information about modified loans classified as troubled debt restructurings is shown below (dollars in millions):

	Average recorded investment in loans		Interest income recognized during period loans were impaired⁽¹⁾		Gross interest income that would have been recorded with original terms⁽²⁾
For the Three Months Ended September 30, 2017
Credit card loans⁽³⁾	$	1,165	$	28	$	22
Personal loans	$	96	$	2	$	1
Private student loans	$	120	$	3	$	—

For the Three Months Ended September 30, 2016
Credit card loans⁽³⁾	$	1,030	$	23	$	18
Personal loans	$	74	$	2	$	1
Private student loans	$	63	$	1	$	—

For the Nine Months Ended September 30, 2017
Credit card loans⁽³⁾	$	1,137	$	78	$	64
Personal loans	$	90	$	7	$	3
Private student loans	$	107	$	6	$	—

For the Nine Months Ended September 30, 2016
Credit card loans⁽³⁾	$	1,023	$	65	$	57
Personal loans	$	71	$	6	$	2
Private student loans	$	57	$	3	$	—

The following table summarizes certificates of deposit in amounts of $100,000 or greater by contractual maturity (dollars in millions):

Maturity Period	September 30, 2017
Three months or less	$	867
Over three months through six months	885
Over six months through twelve months	1,529
Over twelve months	2,750
Total	$	6,031

The following table summarizes certificates of deposit maturing over the remainder of this year, over each of the next four years, and thereafter (dollars in millions):

Year	September 30, 2017
2017	$	2,934
2018	10,847
2019	4,524
2020	3,113
2021	2,178
Thereafter	4,297
Total	$	27,893

Long-term borrowings consist of borrowings having original maturities of one year or more. The following table provides a summary of the Company’s long-term borrowings and weighted-average interest rates on outstanding balances (dollars in millions):

	September 30, 2017					December 31, 2016
	Maturity	Interest Rate	Weighted-Average Interest Rate	Outstanding Amount		Outstanding Amount
Securitized Debt
Fixed-rate asset-backed securities⁽¹⁾	2017-2024	1.39%-2.53%	1.79%	$	10,121	$	9,868
Floating-rate asset-backed securities⁽²⁾⁽³⁾	2018-2024	1.46%-1.83%	1.67%	6,209		5,694
Total Discover Card Master Trust I and Discover Card Execution Note Trust				16,330		15,562

Floating-rate asset-backed securities^(4)(5)(6)(7)	2031-2036	1.49%-5.25%	3.00%	649		849
Total SLC Private Student Loan Trusts				649		849
Total long-term borrowings - owed to securitization investors				16,979		16,411

Discover Financial Services (Parent Company)
Fixed-rate senior notes⁽¹⁾	2019-2027	3.75%-10.25%	4.25%	2,703		2,090
Fixed-rate retail notes	2017-2031	2.85%-4.40%	3.71%	274		169

Discover Bank
Fixed-rate senior bank notes⁽¹⁾	2018-2026	2.00%-4.25%	3.21%	6,084		6,077
Fixed-rate subordinated bank notes	2019-2020	7.00%-8.70%	7.49%	697		696
Total long-term borrowings				$	26,737	$	25,443

Changes in each component of accumulated other comprehensive income (loss) ("AOCI") were as follows (dollars in millions):

	Unrealized (Loss) Gain on Available-for-Sale Investment Securities, Net of Tax			Loss on Cash Flow Hedges, Net of Tax			Loss on Pension Plan, Net of Tax			AOCI
For the Three Months Ended September 30, 2017
Balance at June 30, 2017	$	(2	)	$	(3	)	$	(145	)	$	(150	)
Net change	1			1			—			2
Balance at September 30, 2017	$	(1	)	$	(2	)	$	(145	)	$	(148	)

For the Three Months Ended September 30, 2016
Balance at June 30, 2016	$	18		$	(52	)	$	(140	)	$	(174	)
Net change	(4		)	13			—			9
Balance at September 30, 2016	$	14		$	(39	)	$	(140	)	$	(165	)

For the Nine Months Ended September 30, 2017
Balance at December 31, 2016	$	(3	)	$	(13	)	$	(145	)	$	(161	)
Net change	2			11			—			13
Balance at September 30, 2017	$	(1	)	$	(2	)	$	(145	)	$	(148	)

For the Nine Months Ended September 30, 2016
Balance at December 31, 2015	$	—		$	(20	)	$	(140	)	$	(160	)
Net change	14			(19		)	—			(5		)
Balance at September 30, 2016	$	14		$	(39	)	$	(140	)	$	(165	)

The table below presents each component of other comprehensive income (loss) ("OCI") before reclassifications and amounts reclassified from AOCI for each component of OCI before- and after-tax (dollars in millions):

	Before Tax			Tax (Expense) Benefit			Net of Tax
For the Three Months Ended September 30, 2017
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period	$	1		$	—		$	1
Net change	$	1		$	—		$	1
Cash Flow Hedges
Net unrealized loss arising during the period	$	(1	)	$	1		$	—
Amounts reclassified from AOCI	3			(2		)	1
Net change	$	2		$	(1	)	$	1

For the Three Months Ended September 30, 2016
Available-for-Sale Investment Securities
Net unrealized holding loss arising during the period	$	(6	)	$	2		$	(4	)
Net change	$	(6	)	$	2		$	(4	)
Cash Flow Hedges
Net unrealized gain arising during the period	$	12		$	(5	)	$	7
Amounts reclassified from AOCI	9			(3		)	6
Net change	$	21		$	(8	)	$	13

For the Nine Months Ended September 30, 2017
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period	$	3		$	(1	)	$	2
Net change	$	3		$	(1	)	$	2
Cash Flow Hedges
Net unrealized gain arising during the period	$	8		$	(3	)	$	5
Amounts reclassified from AOCI	11			(5		)	6
Net change	$	19		$	(8	)	$	11

For the Nine Months Ended September 30, 2016
Available-for-Sale Investment Securities
Net unrealized holding gain arising during the period	$	23		$	(9	)	$	14
Net change	$	23		$	(9	)	$	14
Cash Flow Hedges
Net unrealized loss arising during the period	$	(58	)	$	22		$	(36	)
Amounts reclassified from AOCI	27			(10		)	17
Net change	$	(31	)	$	12		$	(19	)

The following table shows the actual capital amounts and ratios of the Company and Discover Bank and comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in millions):

	Actual				Minimum Capital Requirements			Capital Requirements To Be Classified as Well-Capitalized
	Amount		Ratio		Amount		Ratio	Amount⁽¹⁾		Ratio⁽¹⁾
September 30, 2017
Total capital (to risk-weighted assets)
Discover Financial Services	$	12,230	14.7	%	$	6,667	≥8.0%	$	8,334	≥10.0%
Discover Bank	$	12,561	15.2	%	$	6,602	≥8.0%	$	8,252	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	10,979	13.2	%	$	5,000	≥6.0%	$	5,000	≥6.0%
Discover Bank	$	10,732	13.0	%	$	4,951	≥6.0%	$	6,602	≥8.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	10,979	11.4	%	$	3,842	≥4.0%	N/A		N/A
Discover Bank	$	10,732	11.3	%	$	3,805	≥4.0%	$	4,756	≥5.0%
CET1 capital (to risk-weighted assets) (Basel III transition)
Discover Financial Services	$	10,419	12.5	%	$	3,750	≥4.5%	N/A		N/A
Discover Bank	$	10,732	13.0	%	$	3,714	≥4.5%	$	5,364	≥6.5%

December 31, 2016
Total capital (to risk-weighted assets)
Discover Financial Services	$	12,445	15.5	%	$	6,408	≥8.0%	$	8,010	≥10.0%
Discover Bank	$	12,334	15.5	%	$	6,346	≥8.0%	$	7,932	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	11,152	13.9	%	$	4,806	≥6.0%	$	4,806	≥6.0%
Discover Bank	$	10,450	13.2	%	$	4,759	≥6.0%	$	6,346	≥8.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	11,152	12.3	%	$	3,624	≥4.0%	N/A		N/A
Discover Bank	$	10,450	11.6	%	$	3,591	≥4.0%	$	4,488	≥5.0%
CET1 capital (to risk-weighted assets) (Basel III transition)
Discover Financial Services	$	10,592	13.2	%	$	3,604	≥4.5%	N/A		N/A
Discover Bank	$	10,450	13.2	%	$	3,570	≥4.5%	$	5,156	≥6.5%


~~(1)~~	The Basel III rules do not establish well-capitalized thresholds for these measures for bank holding companies. Existing well-capitalized thresholds established in the Federal Reserve's Regulation Y have been included where available.

The Company leases various office space and equipment under capital and non-cancelable operating leases, which expire at various dates through 2029. Future minimum payments on capital leases were not material at September 30, 2017. The following table shows future minimum payments on non-cancelable operating leases with original terms in excess of one year (dollars in millions):

	September 30, 2017
2017	$	3
2018	13
2019	12
2020	11
2021	10
Thereafter	47
Total minimum lease payments	$	96

The table below summarizes certain information regarding merchant chargeback guarantees (in millions):

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2017		2016		2017		2016
Aggregate sales transaction volume⁽¹⁾	$	36,480	$	34,210	$	105,019	$	100,125


~~(1)~~	~~Represents period transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume.~~

Assets and liabilities measured at fair value on a recurring basis are as follows (dollars in millions):

	Quoted Price in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balance at September 30, 2017
Assets
U.S. Treasury securities	$	673	$	—	$	—	$	673
Residential mortgage-backed securities - Agency	—		776		—		776
Available-for-sale investment securities	$	673	$	776	$	—	$	1,449

Derivative financial instruments⁽¹⁾	$	—	$	3	$	—	$	3

Liabilities
Derivative financial instruments⁽¹⁾	$	—	$	10	$	—	$	10

Balance at December 31, 2016
Assets
U.S. Treasury securities	$	674	$	—	$	—	$	674
Residential mortgage-backed securities - Agency	—		931		—		931
Available-for-sale investment securities	$	674	$	931	$	—	$	1,605

Derivative financial instruments	$	—	$	7	$	—	$	7

Liabilities
Derivative financial instruments	$	—	$	94	$	—	$	94