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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2025

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

For the transition period from to

Commission File Number 001-33378

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Delaware

(State or other jurisdiction of incorporation or organization)

36-2517428

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

2500 Lake Cook Road, Riverwoods, Illinois 60015

(Address of principal executive offices, including zip code)

(224) 405-0900

(Registrant's telephone number, including area code)


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

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

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

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

Large Accelerated Filer

☒

Accelerated Filer

☐

Non-accelerated Filer

☐

Smaller Reporting Company

☐

Emerging Growth Company

☐

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

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

As of April 25, 2025, there were 251,653,378 shares of the registrant's Common Stock, par value $0.01 per share, outstanding.

DISCOVER FINANCIAL SERVICES

Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2025

TABLE OF CONTENTS


Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	39
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	62
Item 4.	Controls and Procedures	63
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	65
Item 1A.	Risk Factors	65
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	65
Item 3.	Defaults Upon Senior Securities	65
Item 4.	Mine Safety Disclosures	65
Item 5.	Other Information	65
Item 6.	Exhibits	66

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

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

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Part I. FINANCIAL INFORMATION

Item 1. Financial Statements

DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Financial Condition (unaudited)

(dollars in millions, except for share amounts)


	March 31, 2025		December 31, 2024
Assets
Cash and cash equivalents	$	11,865	$	8,474
Restricted cash	970		25
Other short-term investments	4,728		5,423
Investment securities (includes available-for-sale securities of $14,502 and $14,359 reported at fair value with associated amortized cost of $14,489 and $14,475 at March 31, 2025 and December 31, 2024, respectively)	14,775		14,630
Loan receivables
Loan receivables	117,403		121,118
Allowance for credit losses	(8,108)		(8,323)
Net loan receivables	109,295		112,795
Premises and equipment, net	1,080		1,072
Goodwill	255		255

Other assets	4,946		4,966
Total assets	$	147,914	$	147,640
Liabilities and Stockholders' Equity
Liabilities
Deposits
Interest-bearing deposit accounts	$	106,620	$	105,459
Non-interest bearing deposit accounts	1,600		1,550
Total deposits	108,220		107,009

Long-term borrowings	14,538		16,253
Accrued expenses and other liabilities	6,193		6,452
Total liabilities	128,951		129,714
Commitments, contingencies and guarantees (Notes 9, 12 and 13)
Stockholders' Equity
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 573,042,256 and 572,608,227 shares issued at March 31, 2025 and December 31, 2024, respectively	6		6
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 10,700 shares issued and outstanding at March 31, 2025 and December 31, 2024, respectively	1,056		1,056
Additional paid-in capital	4,678		4,651
Retained earnings	34,478		33,583
Accumulated other comprehensive loss	(152)		(296)
Treasury stock, at cost; 321,413,252 and 321,268,743 shares at March 31, 2025 and December 31, 2024, respectively	(21,103)		(21,074)
Total stockholders' equity	18,963		17,926
Total liabilities and stockholders' equity	$	147,914	$	147,640

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Financial Condition (unaudited)

(dollars in millions)

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


	March 31, 2025		December 31, 2024
Assets
Restricted cash	$	740	$	25
Loan receivables	$	27,650	$	29,394
Allowance for credit losses allocated to securitized loan receivables	$	(1,277)	$	(1,294)
Other assets	$	3	$	1
Liabilities
Short- and long-term borrowings	$	7,237	$	8,475
Accrued expenses and other liabilities	$	12	$	13

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Income (unaudited)

(dollars in millions, except for share amounts)


	For the Three Months Ended March 31,
		2025		2024
Interest income
Credit card loans		$	3,979	$	3,938
Other loans		506		712
Investment securities		143		124
Other interest income		173		174
Total interest income		4,801		4,948
Interest expense
Deposits		1,058		1,210
Short-term borrowings		—		6
Long-term borrowings		185		245
Total interest expense		1,243		1,461
Net interest income		3,558		3,487
Provision for credit losses		1,244		1,497
Net interest income after provision for credit losses		2,314		1,990
Other income
Discount and interchange revenue, net		334		321
Protection products revenue		42		42
Loan fee income		204		200
Transaction processing revenue		89		87

Other income		24		23
Total other income		693		673
Other expense
Employee compensation and benefits		735		671
Marketing and business development		246		250
Information processing and communications		180		163
Professional fees		289		292
Premises and equipment		24		20
Other expense		89		148
Total other expense		1,563		1,544
Income before income taxes		1,444		1,119
Income tax expense		340		268
Net income		$	1,104	$	851
Net income allocated to common stockholders		$	1,069	$	813
Basic earnings per common share		$	4.25	$	3.25
Diluted earnings per common share		$	4.25	$	3.25

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(dollars in millions)


	For the Three Months Ended March 31,
		2025		2024
Net income		$	1,104	$	851
Other comprehensive income (loss), net of tax
Unrealized gains (losses) on available-for-sale investment securities, net of tax		95		(97)
Unrealized gains (losses) on cash flow hedges, net of tax		49		(71)

Other comprehensive income (loss)		144		(168)
Comprehensive income		$	1,248	$	683

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

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

(dollars in millions, shares in thousands)


							Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Treasury Stock		Total Stockholders' Equity
	Preferred Stock			Common Stock
	Shares	Amount		Shares	Amount






























For the Three Months Ended March 31, 2024
Balance at December 31, 2023	11	$	1,056	570,838	$	6	$	4,553	$	29,855	$	(225)	$	(21,010)	$	14,235
Cumulative effect of ASU No. 2023-02 adoption	—	—		—	—		—		(37)		—		—		(37)
Net income	—	—		—	—		—		851		—		—		851
Other comprehensive loss	—	—		—	—		—		—		(168)		—		(168)
Purchases of treasury stock	—	—		—	—		—		—		—		(28)		(28)
Common stock issued under employee benefit plans	—	—		25	—		3		—		—		—		3
Common stock issued and stock-based compensation expense	—	—		732	—		22		—		—		—		22

Dividends — common stock ($0.70 per share)	—	—		—	—		—		(177)		—		—		(177)
Dividends — Series C preferred stock ($2,750 per share)	—	—		—	—		—		(16)		—		—		(16)
Dividends — Series D preferred stock ($3,062.50 per share)	—	—		—	—		—		(15)		—		—		(15)
Balance at March 31, 2024	11	$	1,056	571,595	$	6	$	4,578	$	30,461	$	(393)	$	(21,038)	$	14,670

For the Three Months Ended March 31, 2025
Balance at December 31, 2024	11	$	1,056	572,608	$	6	$	4,651	$	33,583	$	(296)	$	(21,074)	$	17,926
Net income	—	—		—	—		—		1,104		—		—		1,104
Other comprehensive income	—	—		—	—		—		—		144		—		144
Purchases of treasury stock	—	—		—	—		—		—		—		(29)		(29)
Common stock issued under employee benefit plans	—	—		24	—		4		—		—		—		4
Common stock issued and stock-based compensation expense	—	—		410	—		23		—		—		—		23

Dividends — common stock ($0.70 per share)	—	—		—	—		—		(178)		—		—		(178)
Dividends — Series C preferred stock ($2,750 per share)	—	—		—	—		—		(16)		—		—		(16)
Dividends — Series D preferred stock ($3,062.50 per share)	—	—		—	—		—		(15)		—		—		(15)
Balance at March 31, 2025	11	$	1,056	573,042	$	6	$	4,678	$	34,478	$	(152)	$	(21,103)	$	18,963

See Notes to the Condensed Consolidated Financial Statements.

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DISCOVER FINANCIAL SERVICES

Condensed Consolidated Statements of Cash Flows (unaudited)

(dollars in millions)


	For the Three Months Ended March 31,
	2025		2024
Cash flows provided by operating activities
Net income	$	1,104	$	851
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for credit losses	1,244		1,497
Deferred income taxes	68		(27)
Depreciation and amortization	11		96
Amortization of deferred revenues	(101)		(123)
Net losses on investments and other assets	16		16

Other, net	27		29
Changes in assets and liabilities:
Increase in other assets	(49)		(246)
Decrease in accrued expenses and other liabilities	(188)		(250)
Net cash provided by operating activities	2,132		1,843

Cash flows provided by (used for) investing activities
Maturities of other short-term investments	750		—

Maturities of available-for-sale investment securities	397		522
Purchases of available-for-sale investment securities	(375)		(475)
Maturities of held-to-maturity investment securities	5		4
Purchases of held-to-maturity investment securities	(7)		(12)

Net change in principal on loans originated for investment	2,311		398


Proceeds from the sale of other investments	—		1
Purchases of other investments	(11)		(9)

Purchases of premises and equipment	(64)		(71)
Net cash provided by investing activities	3,006		358

Cash flows provided by (used for) financing activities
Net change in short-term borrowings	—		(750)
Net change in deposits	1,173		1,488

Maturities and repayment of securitized debt	(1,250)		(4)

Maturities and repayments of other long-term borrowings	(506)		(1)
Proceeds from issuance of common stock	4		3
Purchases of treasury stock	(29)		(28)

Dividends paid on common and preferred stock	(194)		(194)
Net cash (used for) provided by financing activities	(802)		514
Net increase in cash, cash equivalents and restricted cash	4,336		2,715
Cash, cash equivalents and restricted cash, at the beginning of the period	8,499		11,728
Cash, cash equivalents and restricted cash, at the end of the period	$	12,835	$	14,443

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	11,865	$	14,004
Restricted cash	970		439
Cash, cash equivalents and restricted cash, at the end of the period	$	12,835	$	14,443

See Notes to the Condensed Consolidated Financial Statements.

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Notes to the Condensed Consolidated Financial Statements

(unaudited)

1. Background and Basis of Presentation

Description of Business

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

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

Sale of The Private Student Loan Portfolio

The Company completed the sale of its private student loan portfolio during the fourth quarter of 2024.

Pending Merger with Capital One Financial Corporation

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

On April 18, 2025, Capital One received regulatory approval for the merger from the Board of Governors of the Federal Reserve System and the Office of the Comptroller of the Currency ("OCC"). As of that date, all required regulatory approvals to complete the merger had been received. The closing of the merger is expected to occur on or around May 18, 2025, subject to the satisfaction or waiver of the remaining closing conditions set forth in the Merger Agreement.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete consolidated financial statements. In the opinion of management, the financial statements reflect all adjustments necessary for the fair presentation of results for the interim period. All such adjustments are of a normal, recurring nature. The preparation of financial statements in conformity with GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and related disclosures. These estimates are based on information available as of the date of the condensed consolidated financial statements. The Company believes that the estimates used in the preparation of the condensed consolidated financial statements are reasonable. Actual results could differ from these estimates. These interim condensed consolidated financial statements should be read in conjunction with the Company's 2024 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2024.

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Certain prior period amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on the Company’s condensed consolidated financial condition, results of operations or changes in stockholders’ equity.

Recently Issued Accounting Pronouncements (Not Yet Adopted)

In November 2024, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. This ASU aims to build a better understanding of an entity’s expenses through more detailed tabular disclosures surrounding certain costs and expenses (including but not limited to employee compensation, amortization of intangibles, and depreciation), defining and disclosing selling expense, and qualitatively describing remaining amounts not disaggregated in relevant expense captions. In addition, certain existing expense disclosures will be required to be presented within the same note and tabular format as prescribed by ASU No. 2024-03. The guidance is effective for the Company for the year ending December 31, 2027, and interim periods thereafter and can be applied on a prospective or retrospective basis. While the ASU implements further disclosure requirements, it does not change how an entity calculates and/or records its expenses, and it will have no impact on the Company’s consolidated financial condition, results of operations or cash flows.

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

2. Investments

The Company's other short-term investments and investment securities consist of the following (dollars in millions):


	March 31, 2025		December 31, 2024
U.S. Treasury bills(1)	$	4,728	$	5,423

Total other short-term investments	$	4,728	$	5,423

U.S. Treasury securities(2)	$	14,146	$	13,988
Residential mortgage-backed securities - Agency(3)	629		642
Total investment securities	$	14,775	$	14,630

(1)Includes U.S. Treasury bills with maturity dates greater than 90 days but less than one year at the time of acquisition.

(2)Includes $346 million and $364 million of U.S. Treasury securities pledged as swap collateral as of March 31, 2025 and December 31, 2024, respectively.

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

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


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value
At March 31, 2025
Available-for-Sale Investment Securities(1)
U.S. Treasury securities	$	14,122	$	50	$	(26)	$	14,146
Residential mortgage-backed securities - Agency	367		—		(11)		356
Total available-for-sale investment securities	$	14,489	$	50	$	(37)	$	14,502
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	273	$	1	$	(21)	$	253
Total held-to-maturity investment securities	$	273	$	1	$	(21)	$	253

At December 31, 2024
Available-for-Sale Investment Securities(1)
U.S. Treasury securities	$	14,087	$	9	$	(108)	$	13,988
Residential mortgage-backed securities - Agency	388		—		(17)		371
Total available-for-sale investment securities	$	14,475	$	9	$	(125)	$	14,359
Held-to-Maturity Investment Securities(2)
Residential mortgage-backed securities - Agency(3)	$	271	$	—	$	(24)	$	247
Total held-to-maturity investment securities	$	271	$	—	$	(24)	$	247

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

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

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

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

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


	Number of Securities in a Loss Position	Less than 12 months				More than 12 months
		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
At March 31, 2025
Available-for-Sale Investment Securities
U.S. Treasury securities	89	$	4,735	$	(17)	$	1,600	$	(9)
Residential mortgage-backed securities - Agency	30	$	—	$	—	$	356	$	(11)

At December 31, 2024
Available-for-Sale Investment Securities
U.S. Treasury securities	177	$	9,492	$	(91)	$	1,963	$	(17)
Residential mortgage-backed securities - Agency	30	$	—	$	—	$	371	$	(17)

There were no proceeds from sales or recognized gains or losses on available-for-sale securities during the three months ended March 31, 2025 and 2024. See Note 8: Accumulated Other Comprehensive Income for unrealized gains and losses on available-for-sale securities during the three months ended March 31, 2025 and 2024.

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


At March 31, 2025	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 securities	$	2,787	$	11,335	$	—	$	—	$	14,122
Residential mortgage-backed securities - Agency(1)	—		39		125		203		367
Total available-for-sale investment securities	$	2,787	$	11,374	$	125	$	203	$	14,489
Held-to-Maturity Investment Securities — Amortized Cost
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	273	$	273
Total held-to-maturity investment securities	$	—	$	—	$	—	$	273	$	273
Available-for-Sale Investment Securities — Fair Values
U.S. Treasury securities	$	2,784	$	11,362	$	—	$	—	$	14,146
Residential mortgage-backed securities - Agency(1)	—		38		121		197		356
Total available-for-sale investment securities	$	2,784	$	11,400	$	121	$	197	$	14,502
Held-to-Maturity Investment Securities — Fair Values
Residential mortgage-backed securities - Agency(1)	$	—	$	—	$	—	$	253	$	253
Total held-to-maturity investment securities	$	—	$	—	$	—	$	253	$	253

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

Other Investments

As a part of the Company’s community reinvestment initiatives, the Company has made equity investments in certain limited partnerships and limited liability companies that finance the construction and rehabilitation of affordable rental housing and stimulate economic development in low- to moderate-income communities. These investments are recorded within other assets on the Company’s condensed consolidated statements of financial condition. As of March 31, 2025 and December 31, 2024, the Company had outstanding investments in these entities of $522 million and $538 million, respectively, and related liabilities for delayed equity contributions of $213 million and $223 million, respectively. The Company recognized $15 million and $16 million of amortization of the investments in income tax expense during the three months ended March 31, 2025 and 2024, respectively. The Company recognized $18 million of income tax credits and other income tax benefits recorded in income tax expense during the three months ended March 31, 2025 and 2024. Non-income tax benefits comprised only immaterial cash distributions from these investments during the three months ended March 31, 2025 and 2024.

The Company holds non-controlling equity positions in several payment services entities and third-party venture capital funds, which invest in such entities. Most of the direct investments in such entities are not subject to equity method accounting because the Company does not have significant influence over the investee. The Company's investments in third-party venture capital funds represent limited partnership interests and are accounted for under the equity method. The common or preferred equity securities that the Company holds typically do not have readily determinable fair values. As a result, these investments are carried at cost minus impairment, if any. As of March 31, 2025 and December 31, 2024, the carrying value of these investments, which are recorded within other assets on the Company's condensed consolidated statements of financial condition, was $39 million and $38 million, respectively.

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3. Loan Receivables

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

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


	March 31, 2025		December 31, 2024
Credit card loans(1)(2)	$	99,027	$	102,786
Other loans(3)
Personal loans	10,096		10,314
Home loans	8,223		7,963
Other loans	57		55
Total other loans	18,376		18,332
Total loan receivables	117,403		121,118
Allowance for credit losses	(8,108)		(8,323)
Net loan receivables	$	109,295	$	112,795

(1)Amounts include carrying values of $9.2 billion and $10.8 billion underlying investors' interest in trust debt at March 31, 2025 and December 31, 2024, respectively, and $18.5 billion and $18.6 billion in seller's interest at March 31, 2025 and December 31, 2024, respectively. See Note 4: Credit Card Loan Securitization Activities for additional information.

(2)Unbilled accrued interest receivable on credit card loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $759 million and $785 million at March 31, 2025 and December 31, 2024, respectively.

(3)Accrued interest receivable on personal and home loans, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was $75 million and $30 million, respectively, at March 31, 2025 and $77 million and $30 million, respectively, at December 31, 2024.

Credit Quality Indicators

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

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

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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, personal and home loan receivables (dollars in millions):


	Credit Risk Profile by FICO Score
	March 31, 2025								December 31, 2024
	660 and Above				Less than 660 or No Score				660 and Above				Less than 660 or No Score
	$		%		$		%		$		%		$		%
Credit card loans	$	78,660	79	%	$	20,367	21	%	$	82,422	80	%	$	20,364	20	%
Personal loans by origination year
2025	$	1,154	100	%	$	5	—	%
2024	4,160		98	%	106		2	%	$	4,712	99	%	$	66	1	%
2023	2,589		92	%	210		8	%	3,042		94	%	203		6	%
2022	1,110		89	%	144		11	%	1,355		90	%	157		10	%
2021	385		88	%	53		12	%	478		89	%	60		11	%
Prior	155		86	%	25		14	%	210		87	%	31		13	%
Total personal loans	$	9,553	95	%	$	543	5	%	$	9,797	95	%	$	517	5	%
Home loans by origination year
2025	$	358	100	%	$	—	—	%
2024	2,826		100	%	13		—	%	$	2,853	100	%	$	13	—	%
2023	2,259		97	%	76		3	%	2,293		97	%	77		3	%
2022	1,425		97	%	48		3	%	1,442		97	%	48		3	%
2021	642		97	%	18		3	%	653		97	%	19		3	%
Prior	536		96	%	22		4	%	545		96	%	20		4	%
Total home loans	$	8,046	98	%	$	177	2	%	$	7,786	98	%	$	177	2	%

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 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, personal and home loan receivables (dollars in millions):


	March 31, 2025						December 31, 2024
	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	$	1,770	$	1,852	$	3,622	$	1,964	$	1,980	$	3,944
Personal loans by origination year
2025	$	—	$	—	$	—
2024	33		9		42		$	21	$	7	$	28
2023	49		19		68		51		21		72
2022	28		11		39		34		15		49
2021	8		4		12		11		6		17
Prior	5		3		8		6		2		8
Total personal loans	$	123	$	46	$	169	$	123	$	51	$	174
Home loans by origination year
2025	$	—	$	—	$	—
2024	5		3		8		$	4	$	1	$	5
2023	18		12		30		17		9		26
2022	20		14		34		20		14		34
2021	7		8		15		9		8		17
Prior	6		8		14		8		8		16
Total home loans	$	56	$	45	$	101	$	58	$	40	$	98

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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 March 31, 2025
	Credit Card Loans		Private Student Loans		Personal Loans		Home Loans		Total Loans
Balance at December 31, 2024	$	7,403	$	—	$	780	$	140	$	8,323
Additions
Provision for credit losses	1,132		—		99		13		1,244
Deductions
Charge-offs	(1,711)		—		(129)		(4)		(1,844)
Recoveries	362		—		23		—		385
Net charge-offs	(1,349)		—		(106)		(4)		(1,459)

Balance at March 31, 2025	$	7,186	$	—	$	773	$	149	$	8,108

	For the Three Months Ended March 31, 2024
	Credit Card Loans		Private Student Loans		Personal Loans		Home Loans		Total Loans
Balance at December 31, 2023	$	7,619	$	858	$	722	$	84	$	9,283


Additions
Provision for credit losses(1)	1,333		53		134		11		1,531
Deductions
Charge-offs	(1,649)		(47)		(113)		(3)		(1,812)
Recoveries	238		5		13		—		256
Net charge-offs	(1,411)		(42)		(100)		(3)		(1,556)

Balance at March 31, 2024	$	7,541	$	869	$	756	$	92	$	9,258

(1)Excludes a $34 million adjustment of the liability for expected credit losses on unfunded commitments for the three months ended March 31, 2024, 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 $8.1 billion at March 31, 2025, which reflects a $215 million release from December 31, 2024. The release in the allowance for credit losses for the three months ended March 31, 2025 was primarily driven by a seasonal decline in receivables and improved credit quality in the credit card portfolio, partially offset by changes in macroeconomic forecasts.

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 March 31, 2025, the Company used a macroeconomic forecast that projected the following weighted average amounts: (i) unemployment rate ending 2025 at 4.77% and, within the Company's reasonable and supportable period, peaking at 4.88% in the second quarter of 2026 and (ii) 1.69% growth rate in real gross domestic product in 2025.

In estimating expected credit losses, the Company considered the uncertainties associated with borrower behavior and payment trends, as well as recent and expected macroeconomic conditions including those relating to consumer price inflation and the fiscal and monetary policy responses to that inflation. The Federal Reserve acted to reduce the federal funds target range by 100 basis points since September 2024 citing improvement in inflation outlook and shifting focus to ensuring robust economic growth. While Federal Reserve officials believe recent trends in inflation and employment continue to be supportive of a less restrictive monetary policy in the longer-term, near-term outlook is less certain as inflation persists at higher than targeted levels while economic output and labor market data remains strong. The timing and magnitude of rate decreases throughout 2025 will be dependent on closely monitored trends in economic data, particularly inflation and labor market conditions, and monetary policy is expected to remain restrictive. While credit performance in the Company's lending portfolios has evolved in line with its expectations, the Company assessed the prospects for various macroeconomic outcomes including the potential impacts of anticipated developments in setting its allowance for credit losses.

The forecast period the Company deemed to be reasonable and supportable was 18 months for all periods presented. The 18 months 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.

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The Company applied a weighted reversion method to provide a more reasonable transition to historical losses for card and personal loans for all periods presented. A straight line reversion method was used for home loans for all periods presented.

The net charge-offs for credit card loans decreased for the three months ended March 31, 2025, when compared to the same period in 2024, primarily driven by improved credit performance. The net charge-offs for personal loans increased for the three months ended March 31, 2025, when compared to the same period in 2024, primarily driven by portfolio seasoning. The net charge-offs for home loans remained relatively flat for the three months ended March 31, 2025, when compared to the same period in 2024.

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 March 31,
	2025		2024
Interest and fees accrued subsequently charged-off, net of recoveries (recorded as a reduction of interest income)	$	299	$	279
Fees accrued subsequently charged-off, net of recoveries (recorded as a reduction to other income)	$	61	$	69

Gross principal charge-offs of the Company's loan portfolio are presented in the table below, on a year-to-date basis, for credit card, personal and home loan receivables (dollars in millions):


	For the Three Months Ended March 31,
		2025		2024
Credit card loans		$	1,711	$	1,649
Personal loans by origination year
2025		$	—
2024		24		$	—
2023		54		28
2022		34		48
2021		12		22
Prior		5		15
Total personal loans		$	129	$	113
Home loans by origination year
2025		$	—
2024		—		$	—
2023		—		—
2022		2		2
2021		1		1
Prior		1		—
Total home loans		$	4	$	3

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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):(1)


	30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing(2)
At March 31, 2025
Credit card loans	$	1,770	$	1,852	$	3,622	$	1,810	$	201
Other loans
Personal loans	123		46		169		44		11
Home loans	56		45		101		2		125

Total other loans	179		91		270		46		136
Total loan portfolio	$	1,949	$	1,943	$	3,892	$	1,856	$	337

At December 31, 2024
Credit card loans	$	1,964	$	1,980	$	3,944	$	1,940	$	194
Other loans
Personal loans	123		51		174		50		11
Home loans	58		40		98		9		94

Total other loans	181		91		272		59		105
Total loan portfolio	$	2,145	$	2,071	$	4,216	$	1,999	$	299

(1)The payment status of both modified and unmodified loans is included in this table.

(2)The Company estimates that the gross interest income that would have been recorded under the original terms of non-accruing credit card loans was $9 million for the three months ended March 31, 2025 and 2024. The Company does not separately track the amount of 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 most recent interest rates.

Loan Modifications to Borrowers Experiencing Financial Difficulty

The Company has internal loan modification programs that provide relief to credit card, personal and home loan borrowers who are experiencing financial hardship. The internal loan modification programs include both temporary and permanent programs, which vary by product. External loan modification programs, through third party consumer credit counseling agencies, are also available for credit card and personal loans. Those programs feature interest rate reductions, payment delays, term extensions, or a combination thereof.

For credit card customers, the Company offers both temporary and permanent hardship programs. The temporary hardship programs consist of an interest rate reduction 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.

The permanent modification program involves closing the account, changing the structure of the loan to a fixed payment loan with a maturity no longer than 72 months and reducing the interest rate on the loan. The permanent modification program does not 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, typically continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees.

For personal loan customers, the Company offers various payment programs, including temporary and permanent programs, in certain situations. The temporary programs normally consist of reducing the minimum payment for no longer than 12 months and, in certain circumstances, the interest rate on the loan is reduced. The permanent programs involve extending the loan term and, in certain circumstances, reducing the interest rate on the loan. These permanent programs may not extend the total term of the loan beyond 14 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.

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For home loan customers experiencing financial difficulties, the Company offers relief in the form of interest rate reductions and term extensions. Detailed quantitative disclosures about home loan modifications have been omitted because the amounts are immaterial in the periods presented.

In addition to the programs described above, the Company will in certain cases accept partial payment in full satisfaction of the outstanding receivable. This is a form of principal forgiveness also known as a settlement. The difference between the loan balance and the amount received at settlement is recorded as a charge-off.

The Company monitors borrower performance after using payment programs. The Company believes the programs are useful in assisting customers experiencing financial 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 to provide relief to customers experiencing financial difficulties.

The following table provides the period-end amortized cost basis, by modification category, of loans to borrowers experiencing financial difficulty that entered a modification program during the period (dollars in millions). Some of the loans presented in the table below may no longer be enrolled in a program at period-end:


	For the Three Months Ended March 31,
	2025			2024
Credit card loans(1)(2)
Interest rate reduction	$	1,091		$	920
Total credit card loans(3)	$	1,091		$	920
% of total class of financing receivables	1.10		%	0.92		%

Personal loans(1)
Payment delay(4)	$	5		$	4
Term extension(5)	12			10
Interest rate reduction and payment delay(4)	31			26
Interest rate reduction and term extension(5)	19			14
Total personal loans	$	67		$	54
% of total class of financing receivables	0.66		%	0.53		%

(1) Accrued interest receivable (including unbilled accrued interest receivable for credit card loans) on modified loans to borrowers experiencing financial difficulty, which is presented as part of other assets in the Company's condensed consolidated statements of financial condition, was immaterial at March 31, 2025 and 2024.

(2) Accounts that entered a credit card loan modification program include $215 million and $185 million that were converted from revolving line-of-credit arrangements to term loans during the three months ended March 31, 2025 and 2024, respectively.

(3) For settlements, the amortized cost basis is zero at period-end and therefore there is no amount reported for principal forgiveness in the table above. See financial effects table below for principal forgiveness to borrowers experiencing financial difficulty.

(4) The Company defines a payment delay as a temporary reduction in payments below the original contractually required payment amounts (e.g., interest only payments). The Company's credit card loan modification programs do not result in an other than insignificant delay in payment.

(5) The Company defines term extensions as only those modifications for which the maturity date is extended beyond the original contractual maturity date by virtue of a change in terms other than a payment delay as defined above. Modifications to credit card loans are not considered term extensions because credit card loans do not have a fixed repayment term.

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The following table provides information on the financial effects of loan modifications to borrowers experiencing financial difficulty, by modification type, made during the period (dollars in millions):


	For the Three Months Ended March 31,
	2025			2024
Credit card loans
Weighted-average interest rate reduction	13.80		%	14.42		%
Principal forgiven	$	72		$	56
Interest and fees forgiven(1)	$	70		$	56

Personal loans
Weighted-average interest rate reduction	13.79		%	13.20		%
Weighted-average term extension (in months)(2)	75			40
Payment delay duration (in months)(3)	6 to 12			6 to 12

(1) Represents the amount of interest and fees forgiven resulting from accounts entering into a credit card loan modification program and pre-charge off settlements. Interest and fees forgiven are reversed against the respective line items in the condensed consolidated statements of income.

(2) Beginning in the fourth quarter of 2024, permanent loan modification programs for personal loans involving a term extension may not extend the total term of the loan beyond 14 years. Previously, such programs were capped at a maximum of 9 years.

(3) For personal loan payment delays, the Company limits this assistance to a life of loan maximum of 12 months.

Loan receivables that have been modified are subject to the same requirements for the accrual of expected credit loss over their expected remaining lives as for unmodified loans. The allowance for credit losses incorporates modeling of historical loss data and thereby captures the higher risk associated with modified loans to borrowers experiencing financial difficulty based on their account attributes.

The following table presents the payment status and period-end amortized cost basis, by class of loan receivable, of loans that were modified on or after January 2023 to borrowers experiencing financial difficulty during the 12 months preceding each of the periods presented (dollars in millions):(1)


	Current		30-89 Days Delinquent		90 or More Days Delinquent
At March 31, 2025
Credit card loans	$	3,032	$	281	$	257
Personal loans	168		32		5
Total	$	3,200	$	313	$	262

At December 31, 2024
Credit card loans	$	2,885	$	297	$	244
Personal loans	156		29		6
Total	$	3,041	$	326	$	250

(1) This table includes any loan that entered a modification program during the preceding 12 months without regard to whether it remained in a modification program as of the reporting date.

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The following table presents the defaulted amount and period-end amortized cost basis, by modification category, of loans that defaulted during the period and were modified on or after January 2023 through the end of the reporting period to borrowers experiencing financial difficulty during the 12 months preceding default (dollars in millions):


	For the Three Months Ended March 31, 2025
	Defaulted Amount(1)		Period-end Amortized Cost Basis
Credit card loans
Interest rate reduction	$	262	$	194
Total credit card loans	$	262	$	194

Personal loans
Payment delay	$	1	$	1
Term extension	2		1
Interest rate reduction and payment delay	9		3
Interest rate reduction and term extension	6		4
Total personal loans	$	18	$	9

	For the Three Months Ended March 31, 2024
	Defaulted Amount(1)		Period-end Amortized Cost Basis
Credit card loans
Interest rate reduction	$	205	$	161
Total credit card loans	$	205	$	161

Personal loans
Payment delay	$	1	$	1
Term extension	2		1
Interest rate reduction and payment delay	7		3
Interest rate reduction and term extension	4		3
Total personal loans	$	14	$	8

(1)For purposes of this disclosure, a loan is considered to be defaulted when it is 60 days or more delinquent at month end and has advanced two stages of delinquency subsequent to modification. Loans that entered a modification program in any stage of delinquency but did not experience a further payment default are included in the payment status table above but are not counted as defaulted for purposes of this disclosure.

4. Credit Card Loan Securitization Activities

The 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 principles of consolidation with respect to VIEs, see Note 1: Background and Basis of Presentation to the consolidated financial statements in the Company's annual report on Form 10-K for the year ended December 31, 2024.

The Company accesses the term asset securitization market through Discover Card Master Trust I ("DCMT") and Discover Card Execution Note Trust ("DCENT"). Credit card loan receivables are transferred into DCMT and beneficial interests in DCMT are transferred into DCENT. DCENT issues debt securities to investors 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. To issue senior, higher-rated classes of notes, it is necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower-rated or more highly subordinated classes of notes. Wholly-owned subsidiaries of Discover Bank hold the subordinated classes of notes. The Company is exposed to credit risk associated with trust receivables as of the balance sheet date through the retention of these subordinated interests. The estimate of expected credit losses on trust receivables is included in the allowance for credit losses estimate.

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The Company's retained interests in the trust's assets, consisting of investments in DCENT notes held by subsidiaries of Discover Bank, constitute intercompany positions that are eliminated in the preparation of the 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 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. The trusts have ownership of cash balances, the amounts of which are reported in restricted cash within the Company's condensed consolidated statements of financial condition. Except for the seller's interest in trust receivables, the 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 those investors. Apart from the restricted assets related to securitization activities, the investors and the securitization trusts have no recourse to the Company's other assets or the Company's general credit for a shortage in cash flows.

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):


	March 31, 2025		December 31, 2024
Restricted cash	$	740	$	25

Investors' interests held by third-party investors	7,250		8,500
Investors' interests held by wholly-owned subsidiaries of Discover Bank	1,927		2,260
Seller's interest	18,473		18,634
Loan receivables(1)	27,650		29,394
Allowance for credit losses allocated to securitized loan receivables(1)	(1,277)		(1,294)
Net loan receivables	26,373		28,100
Other assets	3		1
Carrying value of assets of consolidated variable interest entities	$	27,116	$	28,126

(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 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 March 31, 2025, 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.

5. Deposits

The Company obtains deposits from consumers directly ("direct-to-consumer deposits") and through third-party securities brokerage firms that offer the Company's deposits to their customers ("brokered deposits"). Direct-to-consumer deposit products include savings accounts, certificates of deposit, money market accounts, IRA savings accounts, IRA certificates of deposit and checking accounts. Brokered deposit products include certificates of deposit and sweep accounts.

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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 March 31, 2025
2025	$	21,943
2026	10,050
2027	5,373
2028	2,235
2029	450
Thereafter	859
Total	$	40,910

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):


	March 31, 2025					December 31, 2024
	Maturity	Interest Rate	Weighted-Average Interest Rate	Outstanding Amount		Outstanding Amount
Securitized Debt
Fixed-rate asset-backed securities(1)	2025-2026	1.03% - 5.03%	3.83%	$	7,237	$	8,475

Total Discover Card Master Trust I and Discover Card Execution Note Trust				7,237		8,475

Discover Financial Services (Parent Company)
Fixed-rate senior notes	2026-2032	4.10% - 6.70%	5.03%	2,341		2,840
Fixed-rate retail notes	2025-2031	3.25% - 4.40%	3.82%	132		138
Fixed to floating-rate senior notes(2)	2034	7.96%	7.96%	993		993

Discover Bank
Fixed-rate senior bank notes(1)	2026-2030	2.70% - 4.65%	3.82%	2,813		2,792
Fixed-rate subordinated bank notes	2028	5.97%	5.97%	499		492
Fixed-rate Federal Home Loan Bank advances	2030	4.77% - 4.82%	4.82%	523		523

Total long-term borrowings				$	14,538	$	16,253

(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 applicable benchmark interest rates. The use of these interest rate swaps impacts the carrying value of the debt. See Note 15: Derivatives and Hedging Activities.

(2)The fixed to floating-rate senior notes include a rate reset on November 2, 2033, to a floating rate based on compounded SOFR + 3.370%.

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):


	March 31, 2025
2025	$	4,418
2026	4,915
2027	1,002
2028	1,432
2029	8
Thereafter	2,763
Total	$	14,538

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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. As of March 31, 2025, the Company had total committed borrowing capacity of $5.4 billion based on the amount and type of assets pledged, of which the outstanding balance was comprised of $523 million in long-term advances. As of December 31, 2024, the Company had total committed borrowing capacity of $5.2 billion based on the amount and type of assets pledged, of which the outstanding balance was comprised of $523 million in long-term advances. These advances are presented as short- or long-term borrowings on the condensed consolidated statements of financial condition based on the contractual maturity at origination.

Additionally, the Company has access to committed borrowing capacity through private securitizations to support the funding of its credit card loan receivables. As of March 31, 2025 and December 31, 2024, the total commitment of secured credit facilities through private providers was $3.5 billion, none of which was drawn. Access to the unused portions of the secured credit facilities is subject to the terms of the agreements with each of the providers. The secured credit facilities have various expirations in 2025 and 2026. Borrowings outstanding under each facility bear interest at a margin above the Term Secured Overnight Financing Rate ("SOFR") or the asset-backed commercial paper costs of each 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. Preferred Stock

The table below presents a summary of the Company's non-cumulative perpetual preferred stock that is outstanding at March 31, 2025 (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 March 31, 2025		Total Depositary Shares Authorized, Issued and Outstanding		Carrying Value
							March 31, 2025	December 31, 2024	March 31, 2025		December 31, 2024
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 5.500% per annum until October 30, 2027. Thereafter, dividends declared will be payable quarterly in arrears at a floating rate equal to 3-month Term SOFR plus a spread of 3.338% 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 5 years to a fixed annual rate equal to the 5-year Treasury plus a spread of 5.783%.

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8. Accumulated Other Comprehensive Income

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


	Unrealized (Losses) Gains on Available-for-Sale Investment Securities, Net of Tax		(Losses) Gains on Cash Flow Hedges, Net of Tax		Losses on Pension Plan, Net of Tax		AOCI










For the Three Months Ended March 31, 2025
Balance at December 31, 2024	$	(86)	$	(20)	$	(190)	$	(296)
Net change	95		49		—		144
Balance at March 31, 2025	$	9	$	29	$	(190)	$	(152)

For the Three Months Ended March 31, 2024
Balance at December 31, 2023	$	(37)	$	(8)	$	(180)	$	(225)
Net change	(97)		(71)		—		(168)
Balance at March 31, 2024	$	(134)	$	(79)	$	(180)	$	(393)

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 (Expense) Benefit		Net of Tax


























For the Three Months Ended March 31, 2025
Available-for-Sale Investment Securities
Net unrealized holding gains arising during the period	$	126	$	(31)	$	95

Net change	$	126	$	(31)	$	95
Cash Flow Hedges
Net unrealized gains arising during the period	$	53	$	(13)	$	40
Amounts reclassified from AOCI	12		(3)		9
Net change	$	65	$	(16)	$	49




For the Three Months Ended March 31, 2024
Available-for-Sale Investment Securities
Net unrealized holding losses arising during the period	$	(129)	$	32	$	(97)

Net change	$	(129)	$	32	$	(97)
Cash Flow Hedges
Net unrealized losses arising during the period	$	(131)	$	32	$	(99)
Amounts reclassified from AOCI	37		(9)		28
Net change	$	(94)	$	23	$	(71)

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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 March 31,
		2025			2024
Income before income taxes		$	1,444		$	1,119
Income tax expense		$	340		$	268
Effective income tax rate		23.5		%	23.9		%

The effective tax rate decreased for the three months ended March 31, 2025 as compared to the same period in 2024 due to the recognition of a reduction of a non-deductible charge representing civil money penalties related to the card product misclassification.

The Company is subject to examination by the Internal Revenue Service and tax authorities in various state, local and foreign tax jurisdictions. The Company's federal income tax filings are open to examinations for the tax years ended December 31, 2021 and forward. The Company regularly assesses the likelihood of additional assessments or settlements in each of the taxing jurisdictions. At this time, the potential change in unrecognized tax benefits is expected to be 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.

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 March 31,
		2025		2024
Numerator
Net income		$	1,104	$	851
Preferred stock dividends		(31)		(31)
Net income available to common stockholders		1,073		820
Income allocated to participating securities		(4)		(7)
Net income allocated to common stockholders		$	1,069	$	813
Denominator
Weighted-average shares of common stock outstanding		252		250

Weighted-average shares of common stock outstanding and common stock equivalents		252		250

Basic earnings per common share		$	4.25	$	3.25
Diluted earnings per common share		$	4.25	$	3.25

Anti-dilutive securities were not material and had no impact on the computation of diluted EPS for the three months ended March 31, 2025 and 2024.

11. Capital Adequacy

DFS is subject to the capital adequacy guidelines of the Federal Reserve. Discover Bank, the Company's banking subsidiary, is subject to various regulatory capital requirements as administered by the 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 condition and operating results of DFS and Discover Bank. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, DFS and Discover Bank must meet specific risk-based capital 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.

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DFS and Discover Bank are subject to regulatory and capital rules issued by the Federal Reserve and FDIC, respectively, under the Basel Committee's December 2010 framework ("Basel III rules"). Under the Basel III rules, 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.

In accordance with the final rule on the impact of current expected credit losses ("CECL") on regulatory capital, the Company elected to phase in the impact over three years, which ended December 31, 2024. Accordingly, during the phase-in period, the Company's Common Equity Tier 1 ("CET1") capital ratios were higher than they otherwise would have been.

As of March 31, 2025 and December 31, 2024, DFS and Discover Bank met all Basel III minimum capital ratio requirements to which they were subject. DFS and Discover Bank also met the requirements to be considered "well-capitalized" under Regulation Y and prompt corrective action rules, respectively. There have been no conditions or events that management believes have changed DFS' or Discover Bank's category. To be categorized as "well-capitalized", DFS and Discover Bank must maintain minimum capital ratios outlined in the table below.

The following table shows the actual capital amounts and ratios of DFS 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(1)		Amount		Ratio	Amount(2)		Ratio(2)
March 31, 2025
Total capital (to risk-weighted assets)
Discover Financial Services	$	20,755	17.1	%	$	9,688	≥8.0%	$	12,109	≥10.0%
Discover Bank	$	16,801	14.1	%	$	9,526	≥8.0%	$	11,908	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	18,860	15.6	%	$	7,266	≥6.0%	$	7,266	≥6.0%
Discover Bank	$	14,181	11.9	%	$	7,145	≥6.0%	$	9,526	≥8.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	18,860	12.8	%	$	5,915	≥4.0%	N/A		N/A
Discover Bank	$	14,181	9.7	%	$	5,840	≥4.0%	$	7,300	≥5.0%
Common Equity Tier 1 (to risk-weighted assets)
Discover Financial Services	$	17,804	14.7	%	$	5,449	≥4.5%	N/A		N/A
Discover Bank	$	14,181	11.9	%	$	5,359	≥4.5%	$	7,740	≥6.5%

December 31, 2024
Total capital (to risk-weighted assets)
Discover Financial Services	$	20,420	16.5	%	$	9,892	≥8.0%	$	12,365	≥10.0%
Discover Bank	$	17,311	14.2	%	$	9,755	≥8.0%	$	12,193	≥10.0%
Tier 1 capital (to risk-weighted assets)
Discover Financial Services	$	18,503	15.0	%	$	7,419	≥6.0%	$	7,419	≥6.0%
Discover Bank	$	14,665	12.0	%	$	7,316	≥6.0%	$	9,755	≥8.0%
Tier 1 capital (to average assets)
Discover Financial Services	$	18,503	12.3	%	$	6,003	≥4.0%	N/A		N/A
Discover Bank	$	14,665	9.9	%	$	5,933	≥4.0%	$	7,417	≥5.0%
Common Equity Tier 1 (to risk-weighted assets)
Discover Financial Services	$	17,448	14.1	%	$	5,564	≥4.5%	N/A		N/A
Discover Bank	$	14,665	12.0	%	$	5,487	≥4.5%	$	7,926	≥6.5%

(1)Capital ratios are calculated based on the Basel III standardized approach rules, subject to applicable transition provisions, including CECL transition provisions which ended December 31, 2024.

(2)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.

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12. Commitments, Contingencies and Guarantees

In the normal course of business, the Company enters into a number of off-balance sheet commitments, transactions and obligations under guarantee arrangements that expose the Company to varying degrees of risk. The Company's commitments, contingencies and guarantee relationships are described below.

Commitments

Unused Credit Arrangements

At March 31, 2025, the Company had unused credit arrangements for loans of approximately $237.9 billion. Such arrangements arise primarily from agreements with customers for unused lines of credit on certain credit cards and certain other loan products, provided there is no violation of conditions in the related agreements. These arrangements, substantially all of which the Company can terminate at any time and which do not necessarily represent future cash requirements, are periodically reviewed based on account usage, customer creditworthiness, loan qualification and the cost of capital. As the Company’s credit card loans are unconditionally cancellable, no liability for expected credit losses is required for unused lines of credit.

Contingencies

See Note 13: Litigation and Regulatory Matters for a description of potential liability arising from pending litigation or regulatory proceedings involving the Company.

Guarantees

The Company has obligations under certain guarantee arrangements, including contracts, indemnification agreements and representations and warranties, which contingently require the Company to make payments to the guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or index. Also included as guarantees are contracts that contingently require the Company to make payments to a guaranteed party based on another entity's failure to perform under an agreement. The Company's use of guarantees is disclosed below by type of guarantee.

Securitizations Representations and Warranties

As part of the Company's financing activities, the Company provides representations and warranties that certain assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is performed by the Company, which is intended to ensure that asset guideline qualifications are met. If the assets pledged as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through the allocation of excess seller's interest or from additional transfers from the unrestricted pool of receivables. If the Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of investors' interests would be triggered.

The maximum potential amount of future payments the Company could be required to make would be equal to the current outstanding balances of third-party investor interests in credit card asset-backed securities, plus any unpaid interest for the corresponding secured borrowings. The Company has recorded substantially all of the maximum potential amount of future payments in long-term borrowings on the Company's condensed consolidated statements of financial condition. The Company has not recorded any incremental contingent liability associated with its secured borrowing representations and warranties. Management believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured borrowing arrangements, including an early amortization event, is low.

Counterparty Settlement Guarantees

Diners Club and DFS Services LLC (on behalf of PULSE) have various counterparty exposures, which are listed below:

•Merchant Guarantee. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.

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•ATM Guarantee. PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.

•Global Network Alliance Guarantee. Discover Network, Diners Club and PULSE have entered into contractual relationships with certain international payment networks in which DFS Services LLC retains the counterparty exposure if a network fails to fulfill its settlement obligation.

The maximum potential amount of future payments related to such contingent obligations is dependent upon the transaction volume processed between the time a potential counterparty defaults on its settlement and the time at which the Company disables the settlement of any further transactions for the defaulting party. The Company has some contractual remedies to offset these counterparty settlement exposures (such as letters of credit or pledged deposits), however, there is no limitation on the maximum amount the Company may be liable to pay.

The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement obligations. In the event all licensees and/or issuers were to become unable to settle their transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees would be approximately $140 million as of March 31, 2025.

The Company believes that the estimated amounts of maximum potential future payments are not representative of the Company's actual potential loss exposure given Diners Club's and PULSE's insignificant historical losses from these counterparty exposures. As of March 31, 2025, the Company had not recorded any contingent liability in the condensed consolidated statements of financial condition for these counterparty exposures and management believes that the probability of any payments under these arrangements is low.

Discover Network Merchant Chargeback Guarantees

The Company operates the Discover Network, issues payment cards and permits third parties to issue payment cards. The Company is contingently liable for certain transactions processed on the Discover Network in the event of a dispute between the payment card customer and a merchant. The contingent liability arises if the disputed transaction involves a merchant or merchant acquirer with whom the Discover Network has a direct relationship. If a dispute is resolved in the customer's favor, the Discover Network will credit or refund the disputed amount to the Discover Network card issuer, who in turn credits its customer's account. The Discover Network will then charge back the disputed amount of the payment card transaction to the merchant or merchant acquirer, where permitted by the applicable agreement, to seek recovery of amounts already paid to the merchant for payment card transactions. If the Discover Network is unable to collect the amount subject to dispute from the merchant or merchant acquirer (e.g., in the event of merchant default or dissolution or after expiration of the time period for chargebacks in the applicable agreement), the Discover Network will bear the loss for the amount credited or refunded to the customer. In most instances, a loss by the Discover Network is unlikely to arise in connection with payments on card transactions because most products or services are delivered when purchased and credits are issued by merchants on returned items in a timely fashion, thus minimizing the likelihood of cardholder disputes with respect to amounts paid by the Discover Network. However, where the product or service is not scheduled to be provided to the customer until a later date following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases. Losses related to merchant chargebacks were not material for the three months ended March 31, 2025 and 2024.

The maximum potential amount of obligations of the Discover Network arising from such contingent obligations is estimated to be the portion of the total Discover Network transaction volume processed to date for which timely and valid disputes may be raised under applicable law and relevant issuer and customer agreements. There is no limitation on the maximum amount the Company may be liable to pay to issuers. However, the Company believes that such amount is not representative of the Company's actual potential loss exposure based on the Company's historical experience. The actual amount of the potential exposure cannot be quantified as the Company cannot determine whether the current or cumulative transaction volumes may include or result in disputed transactions.

The following table summarizes certain information regarding merchant chargeback guarantees (dollars in millions):


	For the Three Months Ended March 31,
		2025		2024
Aggregate sales transaction volume(1)		$	52,538	$	61,332

(1)Represents transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume.

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The Company did not record any contingent liability in the condensed consolidated financial statements for merchant chargeback guarantees as of March 31, 2025 and December 31, 2024. The Company mitigates the risk of potential loss exposure by withholding settlement from merchants, obtaining third-party guarantees, or obtaining escrow deposits or letters of credit from certain merchant acquirers or merchants that are considered a higher risk due to various factors such as time delays in the delivery of products or services. As of March 31, 2025 and December 31, 2024, the Company had escrow deposits and settlement withholdings of $4 million and $11 million, respectively, which are recorded in interest-bearing deposit accounts and accrued expenses and other liabilities on the Company's condensed consolidated statements of financial condition.

13. Litigation and Regulatory Matters

In the normal course of business, from time to time, the Company has been named as a defendant in various legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities. Certain of the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims for indeterminate amounts of damages. The litigation process is not predictable and can lead to unexpected results. The Company contests liability and/or the amount of damages as appropriate in each pending matter.

The Company has historically offered its customers an arbitration clause in its customer agreements. The arbitration clause allows the Company and its customers to quickly and economically resolve disputes. Additionally, the arbitration clause has in some instances limited the costs of, and the Company's exposure to, litigation. Future legal and regulatory challenges and prohibitions may cause the Company to discontinue its offering and use of such clauses. From time to time, the Company is involved in legal actions challenging its arbitration clause. Bills may be periodically introduced in Congress to directly or indirectly prohibit the use of pre-dispute arbitration clauses.

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal and informal) by governmental agencies regarding the Company's business including, among other matters, regulatory, accounting, tax and other operational matters. The investigations and proceedings may result in significant adverse judgments, settlements, fines, penalties, injunctions, decreases in regulatory ratings, customer restitution or other relief. These outcomes could materially impact the Company's condensed consolidated financial statements, increase its cost of operations, or limit the Company's ability to execute its business strategies and engage in certain business activities. The Company and certain of its subsidiaries are subject to consent orders with the Consumer Financial Protection Bureau ("CFPB"), Federal Reserve and FDIC, as described below. Pursuant to powers granted under federal banking laws, regulatory agencies have broad and sweeping discretion and may assess civil money penalties, require changes to certain business practices or require customer restitution at any time.

In accordance with applicable accounting guidance, the Company establishes a liability for legal and regulatory matters when those matters create loss contingencies that are both probable and estimable. Except as discussed below regarding the card product misclassification matter, other litigation and regulatory settlement-related expenses were immaterial for the three months ended March 31, 2025 and 2024.

There may be an exposure to loss in excess of any amounts accrued. The Company believes the estimate of the aggregate range of reasonably possible losses (meaning the likelihood of losses is more than remote but less than likely), in excess of the amounts that the Company has accrued for legal and regulatory proceedings, is up to $60 million as of March 31, 2025. This estimated range of reasonably possible losses is based on currently available information for those proceedings in which the Company is involved and considers the Company's best estimate of such losses for those matters for which an estimate can be made. It does not represent the Company's maximum potential loss exposure. Various aspects of the legal and regulatory proceedings underlying the estimated range will change from time to time and actual results may vary significantly from the estimate.

The Company's estimated range noted above involves significant judgment, given the varying stages of the proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple years and, in some cases, a wide range of business activities), unspecified damages and/or the novelty of the legal issues presented. The outcome of pending matters could adversely affect the Company's reputation and be material to the Company's condensed consolidated financial condition, operating results and cash flows for a particular future period, depending on, among other things, the level of the Company's income for such period.

In July 2015, the Company announced that its subsidiaries, Discover Bank, The Student Loan Corporation and Discover Products Inc. (the "Discover Subsidiaries"), agreed to a consent order with the CFPB with respect to certain private

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student loan servicing practices (the "2015 Order"). The 2015 Order expired in July 2020. In December 2020, the Discover Subsidiaries agreed to a consent order (the "2020 Order") with the CFPB resolving the agency’s investigation into Discover Bank’s compliance with the 2015 Order. In connection with the 2020 Order, Discover is required to implement a redress and compliance plan and must pay at least $10 million in consumer redress to consumers who may have been harmed and has paid a $25 million civil money penalty to the CFPB.

On September 25, 2023, following the consent of the Board of Directors of Discover Bank, the FDIC issued a consent order (the "2023 Order") to Discover Bank. The 2023 Order addressed shortcomings in Discover Bank’s compliance management system for consumer protection laws and related matters. As part of the 2023 Order, Discover Bank agreed to improve its consumer compliance management system and enhance related corporate governance and enterprise risk management practices, and increase the level of Board oversight of such matters.

Discover Bank has been working diligently to complete items required by the 2023 Order. This includes having retained third party consultants to conduct independent reviews and the submission of action plans to the FDIC by the required deadlines for review and feedback. The actions completed to date, taken together with actions previously undertaken to improve and enhance its compliance management system and enhance related corporate governance, address multiple consent order objectives, however, many provisions require longer term implementation. As discussed further below, on April 16, 2025, following the consent of the Board of Directors of Discover Bank, Discover Bank entered into an amended and restated consent order (the "2025 FDIC Order") with the FDIC, which amends and restates the 2023 Order in order to reflect progress made to-date and remaining work with respect to items required by the 2023 Order and also to reflect the FDIC's investigation into the card product misclassification.

On March 8, 2016, a class-action lawsuit was filed against the Company, other credit card networks, other issuing banks and EMVCo in the U.S. District Court for the Northern District of California (B&R Supermarket, Inc., d/b/a Milam's Market, et al. v. Visa, Inc., et al.) alleging a conspiracy by defendants to shift fraud liability to merchants with the migration to the EMV security standard and chip technology. The plaintiffs assert joint and several liability among the defendants and seek unspecified damages, including treble damages, attorneys' fees, costs and injunctive relief. On December 6, 2024, plaintiffs and the Company reached an agreement on the terms of a class-wide settlement to resolve the claims against the Company. The parties finalized a settlement agreement on February 14, 2025, and that settlement must now be approved by the court.

Card Product Misclassification

As of March 31, 2025, the balance of the Company's counterparty restitution liability was $1.2 billion, including additional accruals for interest on the overcharges committed to as part of the counterparty restitution plan approved by the Board of Directors in the third quarter of 2023, additional concessions agreed to as part of the class action settlement negotiations through the first quarter of 2025 and settlement disbursements to date. As reported in the Company's Current Report on Form 8-K filed on July 3, 2024, the Company and certain of its subsidiaries entered into a settlement agreement to resolve putative class actions filed on behalf of merchants allegedly affected by the card product misclassification. The settlement agreement, which is subject to court approval, would resolve claims by parties affected by the card product misclassification (merchants, merchant acquirers and other intermediaries). The Company expects all payments under the settlement agreement to be covered by the $1.2 billion liability. Substantially all of the liability represents amounts payable to or on behalf of impacted merchants, merchant acquirers and other intermediaries in settlement of the card product misclassification matter, with $26 million of that balance representing provision for legal fees and expenses payable to plaintiffs' counsel. On August 27, 2024, plaintiffs moved for preliminary approval, and on October 22, 2024, the court entered an order granting preliminary approval. Subsequently, the parties to the putative class action entered into a revised settlement agreement, which resulted in minor adjustments to the restitution liability in the fourth quarter of 2024. On January 22, 2025, plaintiffs moved for preliminary approval of the revised settlement agreement. The liability does not include any potential regulatory fines or penalties, or the cost of administering the distribution of funds to affected parties.

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The following table summarizes the change in the Company's counterparty restitution liability pertaining to the card product misclassification (dollars in millions):


	For the Three Months Ended March 31, 2025
Balance at December 31, 2024	$	1,224
Provision for refund of overcharges	—
Provision for interest on overcharges	11
Provision for other settlement concessions	15
Disbursements	(4)
Balance at March 31, 2025	$	1,246

In addition to the 2025 FDIC Order discussed above, on April 18, 2025, the Federal Reserve, following the consent of the Board of Directors of the Company and DFS Services LLC, issued a consent order to the Company and DFS Services LLC (the "2025 FRB Order"). The 2025 FDIC Order and the 2025 FRB Order, together, resolve these agencies' investigations of the Company, Discover Bank, and DFS Services LLC concerning the previously disclosed card product misclassification issue. Each of the orders requires changes to policies and procedures to address the card product misclassification issue and restitution to affected parties; that work is already underway. Together, the agencies assessed civil money penalties of $250 million. The full amount of the penalties was accrued as of September 30, 2024.

In addition, the Company and its subsidiaries have been named as defendants in various lawsuits, including a putative class action on behalf of shareholders and a shareholder derivative action. On March 31, 2025, the court dismissed the putative shareholder class action without prejudice. The Company is also cooperating with an SEC investigation into the card product misclassification matter. The Company believes that additional losses are probable as a result of these actions and such losses could be material but it is not able to make a reasonable estimate of the amount or range of such losses as of March 31, 2025.

14. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Accounting Standards Codification ("ASC") Topic 820, Fair Value Measurement, provides a three-level hierarchy for classifying the inputs to valuation techniques used to measure fair value of financial instruments based on whether the inputs are observable or unobservable. It also requires certain disclosures about those measurements. The three-level valuation hierarchy is as follows:

•Level 1: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.

•Level 2: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2.

•Level 3: Fair values determined by Level 3 inputs are those based on unobservable inputs and include situations where there is little, if any, market activity for the asset or liability being valued. In instances where the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy in which the measurements are classified is based on the lowest level input that is significant to the fair value measurement in its entirety. Accordingly, the Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category.

The Company evaluates the classification of each fair value measurement within the hierarchy at least quarterly.

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The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and involves consideration of factors specific to the asset or liability. Furthermore, certain techniques used to measure fair value involve some degree of judgment and, as a result, are not necessarily indicative of the amounts the Company would realize in a current market exchange.

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 March 31, 2025
Assets
Fair value - OCI
Other short-term investments	$	4,728	$	—	$	—	$	4,728

U.S. Treasury securities	$	14,146	$	—	$	—	$	14,146
Residential mortgage-backed securities - Agency	—		356		—		356
Available-for-sale investment securities	$	14,146	$	356	$	—	$	14,502

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

Fair value - Net income

Derivative financial instruments - fair value hedges(1)	$	—	$	2	$	—	$	2










Balance at December 31, 2024
Assets
Fair value - OCI
Other short-term investments	$	5,423	$	—	$	—	$	5,423

U.S. Treasury securities	$	13,988	$	—	$	—	$	13,988
Residential mortgage-backed securities - Agency	—		371		—		371
Available-for-sale investment securities	$	13,988	$	371	$	—	$	14,359

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






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

(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 Company's condensed consolidated statements of financial condition.

Other Short-Term Investments

Other short-term investments consist of U.S. Treasury bills with contractual maturities greater than 90 days but less than one year at the time of acquisition. The fair value estimates of these investments are classified as Level 1 based on quoted market prices for the same securities.

Available-for-Sale Investment Securities

Investment securities classified as available-for-sale consist of U.S. Treasury securities and 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 fair value estimates of RMBS are classified as Level 2 and are valued by

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maximizing the use of relevant observable inputs, including quoted prices for similar securities, benchmark yield curves and market-corroborated inputs.

The Company validates the fair value estimates provided by pricing services primarily by comparing to valuations obtained through other pricing sources. The Company evaluates pricing variances 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 March 31, 2025, amounts reported in RMBS reflect U.S. government agency obligations issued by Ginnie Mae, Fannie Mae and Freddie Mac with an aggregate par value of $366 million, a weighted-average coupon of 4.13% and a weighted-average remaining maturity of four years.

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 (or receipts) 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 foreign exchange forward contracts 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 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 of any changes to the valuation techniques performed by proprietary pricing models before implementation, working closely with the third-party valuation service and reviewing the service's control objectives at least annually. The Company corroborates the fair value of foreign exchange forward contracts through independent calculation of the fair value estimates.

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. For these assets, measurement at fair value in periods subsequent to the initial recognition of the assets may be applicable whenever one is tested for impairment. No impairments were recognized related to these assets during the three months ended March 31, 2025 and 2024.

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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):


Balance at March 31, 2025	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	$	—	$	253	$	—	$	253	$	273
Held-to-maturity investment securities	$	—	$	253	$	—	$	253	$	273

Net loan receivables	$	—	$	—	$	116,614	$	116,614	$	109,295

Carrying value approximates fair value(1)
Cash and cash equivalents	$	11,865	$	—	$	—	$	11,865	$	11,865
Restricted cash	$	970	$	—	$	—	$	970	$	970
Accrued interest receivables(2)	$	—	$	970	$	—	$	970	$	970

Liabilities
Amortized cost
Time deposits(3)	$	—	$	41,112	$	—	$	41,112	$	40,910


Long-term borrowings - owed to securitization investors	$	—	$	7,223	$	—	$	7,223	$	7,237
Other long-term borrowings	—		7,442		—		7,442		7,301
Long-term borrowings	$	—	$	14,665	$	—	$	14,665	$	14,538

Carrying value approximates fair value(1)
Accrued interest payables(2)	$	—	$	302	$	—	$	302	$	302


Balance at December 31, 2024
Assets
Amortized cost
Residential mortgage-backed securities - Agency	$	—	$	247	$	—	$	247	$	271
Held-to-maturity investment securities	$	—	$	247	$	—	$	247	$	271

Net loan receivables	$	—	$	—	$	120,422	$	120,422	$	112,795

Carrying value approximates fair value(1)
Cash and cash equivalents	$	8,474	$	—	$	—	$	8,474	$	8,474
Restricted cash	$	25	$	—	$	—	$	25	$	25
Accrued interest receivables(2)	$	—	$	998	$	—	$	998	$	998

Liabilities
Amortized cost
Time deposits(3)	$	—	$	42,228	$	—	$	42,228	$	41,950


Long-term borrowings - owed to securitization investors	$	—	$	8,456	$	—	$	8,456	$	8,475
Other long-term borrowings	—		7,891		—		7,891		7,778
Long-term borrowings	$	—	$	16,347	$	—	$	16,347	$	16,253

Carrying value approximates fair value(1)
Accrued interest payables(2)	$	—	$	315	$	—	$	315	$	315

(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 and accrued expenses and other liabilities, respectively, in the Company's condensed consolidated statements of financial condition.

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

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15. 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 exposure to 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 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 before engaging in any transaction with the Company. The Company regularly monitors counterparties to ensure compliance with the 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 14: Fair Value Measurements for a description of the valuation methodologies used 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.

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 on interest-earning assets and funding instruments. These interest rate swaps qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging ("ASC 815"). At March 31, 2025 and December 31, 2024, the Company's outstanding cash flow hedges primarily relate to interest receipts from credit card receivables and had an initial maximum period of five years.

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. Amounts reported in AOCI related to derivatives at March 31, 2025, will be reclassified to interest income and interest expense as interest receipts and payments are accrued on the Company's then outstanding credit card receivables and certain floating-rate debt, respectively. During the next 12 months, the Company estimates it will reclassify $2 million into pretax earnings related to its cash flow hedges.

Fair Value Hedges

The Company is exposed to changes in the fair value of its fixed-rate debt obligations due to changes in interest rates. The Company uses interest rate swaps to manage its exposure to changes in the fair value of certain fixed-rate long-term borrowings, including securitized debt and bank notes, and deposits attributable to changes in the respective benchmark rates. These interest rate swaps qualify as fair value hedges in accordance with ASC 815. Changes in the fair values of both (i) the derivatives and (ii) the hedged long-term borrowings and deposits attributable to the interest-rate risk being hedged are recorded in interest expense and generally provide substantial offset to one another.

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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

Cash variation margin payments on derivatives cleared through 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.

Derivatives Activity

The following table summarizes the fair value (including accrued interest) and outstanding notional amounts of derivative instruments and related collateral balances (dollars in millions):


	March 31, 2025							December 31, 2024
	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	$	19,250	21	$	2	$	—	$	17,750	$	1	$	1
Interest rate swaps—fair value hedge	$	14,621	18	2		—		$	15,371	—		—
Derivatives not designated as hedges
Foreign exchange forward contracts(1)	$	27	4	—		—		$	28	—		—

Total gross derivative assets/liabilities(2)				4		—				1		1
Less: collateral held/posted(3)				—		—				—		(1)
Total net derivative assets/liabilities				$	4	$	—			$	1	$	—

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