Document
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended March 31, 2019
o
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
 
36-2517428
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
2500 Lake Cook Road,
Riverwoods, Illinois 60015
 
(224) 405-0900
(Address of principal executive offices, including zip code)
 
(Registrant's telephone number, including area code)
 
 
 
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  x    No  o
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  x    No  o
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  x
Accelerated filer  o
Non-accelerated filer  o     
Smaller reporting company  o
 
Emerging growth company o
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. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  o    No  x
As of April 26, 2019, there were 323,728,882 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, 2019
TABLE OF CONTENTS
 
 
 
 
 
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.

Table of Contents

Part I.
FINANCIAL INFORMATION
Item 1.
Financial Statements
DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Financial Condition
 
March 31,
2019
 
December 31,
2018
 
(unaudited)
(dollars in millions,
except share amounts)
Assets
 
 
 
Cash and cash equivalents
$
15,169

 
$
13,299

Restricted cash
44

 
1,846

Other short-term investments
1,000

 
—

Investment securities (includes $5,000 and $3,133 at fair value at March 31, 2019 and December 31, 2018, respectively)
5,243

 
3,370

Loan receivables
 
 
 
Loan receivables
88,743

 
90,512

Allowance for loan losses
(3,134
)
 
(3,041
)
Net loan receivables
85,609

 
87,471

Premises and equipment, net
980

 
936

Goodwill
255

 
255

Intangible assets, net
160

 
161

Other assets
2,260

 
2,215

Total assets
$
110,720

 
$
109,553

Liabilities and Stockholders' Equity
 
 
 
Liabilities
 
 
 
Deposits
 
 
 
Interest-bearing deposit accounts
$
68,254

 
$
67,084

Non-interest bearing deposit accounts
662

 
675

Total deposits
68,916

 
67,759

Long-term borrowings
26,276

 
27,228

Accrued expenses and other liabilities
4,269

 
3,436

Total liabilities
99,461

 
98,423

Commitments, contingencies and guarantees (Notes 8, 11 and 12)

 

Stockholders' Equity
 
 
 
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 565,973,417 and 564,851,848 shares issued at March 31, 2019 and December 31, 2018, respectively
6

 
6

Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 5,700 shares issued and outstanding and aggregate liquidation preference of $570 at March 31, 2019 and December 31, 2018
563

 
563

Additional paid-in capital
4,148

 
4,130

Retained earnings
19,484

 
18,906

Accumulated other comprehensive loss
(136
)
 
(156
)
Treasury stock, at cost; 240,587,890 and 233,406,005 shares at March 31, 2019 and December 31, 2018, respectively
(12,806
)
 
(12,319
)
Total stockholders' equity
11,259

 
11,130

Total liabilities and stockholders' equity
$
110,720

 
$
109,553

 
 
 
 

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,
2019
 
December 31,
2018
 
(unaudited)
(dollars in millions)
Assets
 
 
 
Restricted cash
$
44

 
$
1,846

Loan receivables
$
31,539

 
$
33,424

Allowance for loan losses allocated to securitized loan receivables
$
(1,156
)
 
$
(1,150
)
Other assets
$
5

 
$
7

Liabilities
 
 
 
Long-term borrowings
$
15,351

 
$
16,917

Accrued expenses and other liabilities
$
18

 
$
18

 
 
 
 

See Notes to the Condensed Consolidated Financial Statements.
1

Table of Contents

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Income
 
For the Three Months Ended March 31,
 
2019
 
2018
 
 (unaudited)
(dollars in millions, except per share amounts)
Interest income
 
 
 
Credit card loans
$
2,362

 
$
2,090

Other loans
457

 
417

Investment securities
28

 
7

Other interest income
90

 
55

Total interest income
2,937

 
2,569

Interest expense
 
 
 
Deposits
386

 
262

Long-term borrowings
246

 
207

Total interest expense
632

 
469

Net interest income
2,305

 
2,100

Provision for loan losses
809

 
751

Net interest income after provision for loan losses
1,496

 
1,349

Other income
 
 
 
Discount and interchange revenue, net
231

 
254

Protection products revenue
49

 
53

Loan fee income
104

 
96

Transaction processing revenue
46

 
43

Other income
28

 
29

Total other income
458

 
475

Other expense
 
 
 
Employee compensation and benefits
425

 
405

Marketing and business development
195

 
185

Information processing and communications
99

 
82

Professional fees
167

 
155

Premises and equipment
28

 
26

Other expense
110

 
115

Total other expense
1,024

 
968

Income before income tax expense
930

 
856

Income tax expense
204

 
190

Net income
$
726

 
$
666

Net income allocated to common stockholders
$
705

 
$
646

Basic earnings per common share
$
2.15

 
$
1.82

Diluted earnings per common share
$
2.15

 
$
1.82

 
 
 
 

See Notes to the Condensed Consolidated Financial Statements.
2

Table of Contents

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Comprehensive Income
 
For the Three Months Ended March 31,
 
2019
 
2018
 
 (unaudited)
(dollars in millions)
Net income
$
726

 
$
666

Other comprehensive income, net of tax
 
 
 
Unrealized gains (losses) on available-for-sale investment securities, net of tax
31

 
(7
)
Unrealized (losses) gains on cash flow hedges, net of tax
(12
)
 
19

Unrealized pension and post-retirement plan gains, net of tax
1

 
1

Other comprehensive income
20

 
13

Comprehensive income
$
746

 
$
679

 
 
 
 

See Notes to the Condensed Consolidated Financial Statements.
3

Table of Contents

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Changes in Stockholders' Equity
 
 
 
 
 
 
 
 
 
Additional
Paid-in
Capital
 
Retained
Earnings
 
Accumulated Other Comprehensive Loss
 
Treasury
Stock
 
Total
Stockholders'
Equity
 
Preferred Stock
 
Common Stock
 
 
 
 
 
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
 
 
(unaudited)
(dollars in millions, shares in thousands)
 
For the Three Months Ended March 31, 2018
Balance at December 31, 2017
6

 
$
563

 
563,498

 
$
6

 
$
4,042

 
$
16,687

 
$
(152
)
 
$
(10,254
)
 
$
10,892

Net income
—

 
—

 
—

 
—

 
—

 
666

 
—

 
—

 
666

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
13

 
—

 
13

Purchases of treasury stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(584
)
 
(584
)
Common stock issued under employee benefit plans
—

 
—

 
23

 
—

 
2

 
—

 
—

 
—

 
2

Common stock issued and stock-based compensation expense
—

 
—

 
989

 
—

 
24

 
—

 
—

 
—

 
24

Dividends — common stock
($0.35 per share)
—

 
—

 
—

 
—

 
—

 
(126
)
 
—

 
—

 
(126
)
Dividends — preferred stock
($2,750 per share)
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
(16
)
Balance at March 31, 2018
6

 
$
563

 
564,510

 
$
6

 
$
4,068

 
$
17,211

 
$
(139
)
 
$
(10,838
)
 
$
10,871

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2019
Balance at December 31, 2018
6

 
$
563

 
564,852

 
$
6

 
$
4,130

 
$
18,906

 
$
(156
)
 
$
(12,319
)
 
$
11,130

Net income
—

 
—

 
—

 
—

 
—

 
726

 
—

 
—

 
726

Other comprehensive income
—

 
—

 
—

 
—

 
—

 
—

 
20

 
—

 
20

Purchases of treasury stock
—

 
—

 
—

 
—

 
—

 
—

 
—

 
(487
)
 
(487
)
Common stock issued under employee benefit plans
—

 
—

 
27

 
—

 
2

 
—

 
—

 
—

 
2

Common stock issued and stock-based compensation expense
—

 
—

 
1,094

 
—

 
16

 
—

 
—

 
—

 
16

Dividends — common stock
($0.40 per share)
—

 
—

 
—

 
—

 
—

 
(132
)
 
—

 
—

 
(132
)
Dividends — preferred stock
($2,750 per share)
—

 
—

 
—

 
—

 
—

 
(16
)
 
—

 
—

 
(16
)
Balance at March 31, 2019
6

 
$
563

 
565,973

 
$
6

 
$
4,148

 
$
19,484

 
$
(136
)
 
$
(12,806
)
 
$
11,259

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 

See Notes to the Condensed Consolidated Financial Statements.
4

Table of Contents

DISCOVER FINANCIAL SERVICES
Condensed Consolidated Statements of Cash Flows
 
For the Three Months Ended March 31,
 
2019
 
2018
 
(unaudited)
(dollars in millions)
Cash flows from operating activities
 
 
 
Net income
$
726

 
$
666

Adjustments to reconcile net income to net cash provided by operating activities
 
 
 
Provision for loan losses
809

 
751

Depreciation and amortization
99

 
107

Amortization of deferred revenues and accretion of accretable yield on acquired loans
(101
)
 
(101
)
Net loss on investments and other assets
10

 
11

Other, net
(1
)
 
(96
)
Changes in assets and liabilities
 
 
 
(Increase) decrease in other assets
(29
)
 
251

Increase (decrease) in accrued expenses and other liabilities
822

 
(351
)
Net cash provided by operating activities
2,335

 
1,238

 
 
 
 
Cash flows from investing activities
 
 
 
Purchases of other short-term investments
(1,000
)
 
—

Maturities of available-for-sale investment securities
34

 
44

Purchases of available-for-sale investment securities
(1,856
)
 
—

Maturities of held-to-maturity investment securities
6

 
4

Purchases of held-to-maturity investment securities
(12
)
 
(33
)
Net principal repaid on loans originated for investment
1,148

 
959

Purchases of other investments
(6
)
 
—

Purchases of premises and equipment
(82
)
 
(58
)
Net cash (used for) provided by investing activities
(1,768
)
 
916

 
 
 
 
Cash flows from financing activities
 
 
 
Proceeds from issuance of securitized debt
1,241

 
1,666

Maturities and repayment of securitized debt
(2,860
)
 
(1,794
)
Proceeds from issuance of other long-term borrowings
596

 
822

Maturities and repayment of other long-term borrowings
(3
)
 
(751
)
Proceeds from issuance of common stock
2

 
2

Purchases of treasury stock
(487
)
 
(584
)
Net increase in deposits
1,146

 
2,338

Dividends paid on common and preferred stock
(134
)
 
(142
)
Net cash (used for) provided by financing activities
(499
)
 
1,557

Net increase in cash, cash equivalents and restricted cash
68

 
3,711

Cash, cash equivalents and restricted cash, at beginning of period
15,145

 
13,387

Cash, cash equivalents and restricted cash, at end of period
$
15,213

 
$
17,098

 
 
 
 
Reconciliation of cash, cash equivalents and restricted cash
 
 
 
Cash and cash equivalents
$
15,169

 
$
17,011

Restricted cash
44

 
87

Cash, cash equivalents and restricted cash, at end of period
$
15,213

 
$
17,098

 
 
 
 

See Notes to the Condensed Consolidated Financial Statements.
5

Table of Contents

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 direct banking and payment services company. The Company is a bank holding company under the Bank Holding Company Act of 1956 as well as a financial holding company under the Gramm-Leach-Bliley Act and therefore is subject to oversight, regulation and examination by the Board of Governors of the Federal Reserve System (the "Federal Reserve"). The Company provides direct banking products and services and payment services through its subsidiaries. The Company offers its customers credit card loans, private student loans, personal loans, home equity loans and deposit products. The Company also operates the Discover Network, the PULSE network ("PULSE") and Diners Club International ("Diners Club"). The Discover Network processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and internationally, as well as merchant acceptance throughout the 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 charge cards and/or provide card acceptance services.
The Company's business activities are managed in two segments, Direct Banking and Payment Services, based on the products and services provided. For a detailed description of the operations of each segment, as well as the allocation conventions used in business segment reporting, see Note 15: Segment Disclosures.
Basis of Presentation
The accompanying condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States ("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 which are necessary for a fair presentation of the 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 2018 audited consolidated financial statements filed with the Company's annual report on Form 10-K for the year ended December 31, 2018.
Recently Issued Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. This ASU replaces the incurred loss model with the current expected credit loss ("CECL") approach. For loans carried at amortized cost, the allowance for loan losses will be based on management's current estimate of all expected credit losses over the remaining contractual term of the loans. Upon the origination of a loan, the Company will have to record its estimate of all expected credit losses on that loan through an immediate charge to earnings. Updates to that estimate each period will be recorded through provision expense. The CECL estimate is to be based on historical experience, current conditions and reasonable and supportable forecasts.
The CECL approach is expected to increase the Company's allowance for loan losses as a result of: (1) recording reserves for expected losses, not simply those deemed to be already incurred, (2) extending the loss estimate period over the entire life of the loan and (3) reclassification of the credit loss component of the purchased credit-impaired ("PCI") loan portfolio out of loan carrying value and into the allowance for loan losses. The allowance for loan losses on all loans carried at amortized cost, including PCI loans and loans modified in a troubled debt restructuring ("TDR") will be measured under the CECL approach. Existing specialized measurement guidance for PCI loans, which the ASU refers to as purchased credit-deteriorated ("PCD"), and TDRs will be eliminated, although certain separate disclosure guidance will be retained. Measurement of credit impairment of available-for-sale debt securities will generally remain unchanged under the new rules, but any such impairment will be recorded through an allowance, rather than a direct write-down of the security.

6
Table of Contents

The ASU is effective for the Company on January 1, 2020. A cross-functional governance structure is in place to oversee the implementation of the standard. The Company is refining loss forecasting models and technological solutions, and advancing processes and controls in support of the new standard. Management continues to evaluate key accounting interpretations and the time period over which losses can be reasonably estimated. Upon adoption, the allowance for loan losses is expected to increase with an offsetting adjustment to retained earnings. Additionally, the carrying value of PCD loans will be increased through an offsetting addition to the allowance for loan losses. Adoption of the standard has the potential to materially impact stockholders' equity and regulatory capital as well as the Company's consolidated financial condition and results of operations. The extent of the impact upon adoption will likely depend on the characteristics of the Company's loan portfolio and economic conditions at that date, as well as forecasted conditions thereafter.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance requires lessees to capitalize most leases on their balance sheet whereas under previous GAAP, only leases previously identified as capital leases were recognized on the lessee's balance sheet. Leases previously identified as capital leases are generally identified as financing leases under the new guidance but otherwise their accounting treatment remains relatively unchanged. Leases previously identified as operating leases generally remain in that category under the new standard, but both a right-of-use asset and a liability for remaining lease payments are required to be recognized on the balance sheet for this type of lease. The manner in which expenses associated with all leases are reported on the income statement remains mostly unchanged. Lessor accounting also remains substantially unchanged by the new standard. The new guidance became effective for the Company on January 1, 2019 and, as permitted by the standard, management elected to recognize a cumulative-effect adjustment as of the effective date without adjusting comparative prior periods. Additionally, management elected the package of practical expedients to not reassess prior conclusions related to (1) contracts containing leases, (2) lease classification and (3) initial direct costs. Management also made an accounting policy election to exclude short-term leases of one year or less from the balance sheet. As a result of adoption, the Company recorded immaterial adjustments to other assets and accrued expenses and other liabilities to recognize operating lease right-of-use assets of $49 million and operating lease liabilities of $56 million, respectively. Leases are not material to the Company or its consolidated financial statements.
2.
Investments
The Company's other short-term investments and investment securities consist of the following (dollars in millions):
 
March 31,
2019
 
December 31,
2018
Certificates of deposit(1)
$
1,000

 
$
—

Total other short-term investments
$
1,000

 
$
—

 
 
 
 
U.S. Treasury securities(2)
$
4,482

 
$
2,586

Residential mortgage-backed securities - Agency(3)
761

 
784

Total investment securities
$
5,243

 
$
3,370

 
 
 
 
(1)
Includes certificates of deposit with maturity dates greater than 90 days but less than on year at the time of acquisition.
(2)
Includes $47 million and $42 million of U.S. Treasury securities pledged as swap collateral as of March 31, 2019 and December 31, 2018, respectively.
(3)
Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.

7
Table of Contents

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, 2019
 
 
 
 
 
 
 
Available-for-Sale Investment Securities(1)
 
 
 
 
 
 
 
U.S. Treasury securities
$
4,421

 
$
62

 
$
(1
)
 
$
4,482

Residential mortgage-backed securities - Agency
524

 
—

 
(6
)
 
518

Total available-for-sale investment securities
$
4,945

 
$
62

 
$
(7
)
 
$
5,000

Held-to-Maturity Investment Securities(2)
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency(3)
$
243

 
$
1

 
$
(2
)
 
$
242

Total held-to-maturity investment securities
$
243

 
$
1

 
$
(2
)
 
$
242

 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
Available-for-Sale Investment Securities(1)
 
 
 
 
 
 
 
U.S. Treasury securities
$
2,559

 
$
27

 
$
—

 
$
2,586

Residential mortgage-backed securities - Agency
559

 
—

 
(12
)
 
547

Total available-for-sale investment securities
$
3,118

 
$
27

 
$
(12
)
 
$
3,133

Held-to-Maturity Investment Securities(2)
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency(3) 
$
237

 
$
—

 
$
(4
)
 
$
233

Total held-to-maturity investment securities
$
237

 
$
—

 
$
(4
)
 
$
233

 
 
 
 
 
 
 
 
(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 that were classified as held-to-maturity as they were entered into as a part of the Company's community reinvestment initiatives.
The following table provides information about investment securities with aggregate gross unrealized losses and the length of time that individual investment securities have been in a continuous unrealized loss position (dollars in millions):
 
Number of Securities in a Loss Position
 
Less than 12 months
 
More than 12 months
 
 
Fair
Value
 
Unrealized
Losses
 
Fair
Value
 
Unrealized
Losses
At March 31, 2019
 
 
 
 
 
 
 
 
 
Available-for-Sale Investment Securities
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
1

 
$
125

 
$
(1
)
 
$
—

 
$
—

Residential mortgage-backed securities - Agency
29

 
$
—

 
$
—

 
$
457

 
$
(6
)
Held-to-Maturity Investment Securities
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency
78

 
$
6

 
$
—

 
$
125

 
$
(2
)
 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
Available-for-Sale Investment Securities
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency
31

 
$
110

 
$
(1
)
 
$
437

 
$
(11
)
Held-to-Maturity Investment Securities
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency
90

 
$
101

 
$
(1
)
 
$
83

 
$
(3
)
 
 
 
 
 
 
 
 
 
 
There were no losses related to other-than-temporary impairments and no proceeds from sales or recognized gains and losses on available-for-sale securities during the three months ended March 31, 2019 and 2018. See Note 7: Accumulated Other Comprehensive Income for unrealized gains and losses on available-for-sale securities during the three months ended March 31, 2019 and 2018.

8
Table of Contents

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, 2019
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
$
125

 
$
3,809

 
$
487

 
$
—

 
$
4,421

Residential mortgage-backed securities - Agency(1)
—

 
80

 
444

 
—

 
524

Total available-for-sale investment securities
$
125

 
$
3,889

 
$
931

 
$
—

 
$
4,945

Held-to-Maturity Investment Securities—Amortized Cost
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency(1)
$
—

 
$
—

 
$
—

 
$
243

 
$
243

Total held-to-maturity investment securities
$
—

 
$
—

 
$
—

 
$
243

 
$
243

Available-for-Sale Investment Securities—Fair Values
 
 
 
 
 
 
 
 
 
U.S. Treasury securities
$
125

 
$
3,860

 
$
497

 
$
—

 
$
4,482

Residential mortgage-backed securities - Agency(1)
—

 
79

 
439

 
—

 
518

Total available-for-sale investment securities
$
125

 
$
3,939

 
$
936

 
$
—

 
$
5,000

Held-to-Maturity Investment Securities—Fair Values
 
 
 
 
 
 
 
 
 
Residential mortgage-backed securities - Agency(1)
$
—

 
$
—

 
$
—

 
$
242

 
$
242

Total held-to-maturity investment securities
$
—

 
$
—

 
$
—

 
$
242

 
$
242

 
 
 
 
 
 
 
 
 
 
(1)
Maturities of residential mortgage-backed securities 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, as well as stimulate economic development in low to moderate income communities. These investments are accounted for using the equity method of accounting and are recorded within other assets. The related commitment for future investments is recorded in accrued expenses and other liabilities within the condensed consolidated statements of financial condition. The portion of each investment's operating results allocable to the Company reduces the carrying value of the investments and is recorded in other expense within the condensed consolidated statements of income. The Company further reduces the carrying value of the investments by recognizing any amounts that are in excess of future net tax benefits in other expense. The Company earns a return primarily through the receipt of tax credits allocated to the affordable housing projects and the community revitalization projects. These investments are not consolidated as the Company does not have a controlling financial interest in the entities. As of March 31, 2019 and December 31, 2018, the Company had outstanding investments in these entities of $284 million and $295 million, respectively, and related contingent liabilities of $43 million and $49 million, respectively. Of the above outstanding equity investments, the Company had $262 million and $271 million of investments related to affordable housing projects as of March 31, 2019 and December 31, 2018, respectively, which had $30 million related contingent liabilities.

9
Table of Contents

3.
Loan Receivables
The Company has three loan portfolio segments: credit card loans, other loans and PCI loans.
The Company's classes of receivables within the three portfolio segments are depicted in the following table (dollars in millions):
 
March 31,
2019
 
December 31,
2018
Credit card loans(1)
$
70,789

 
$
72,876

Other loans
 
 
 
Personal loans
7,428

 
7,454

Private student loans
8,071

 
7,728

Other
924

 
817

Total other loans
16,423

 
15,999

PCI loans(2)
1,531

 
1,637

Total loan receivables
88,743

 
90,512

Allowance for loan losses
(3,134
)
 
(3,041
)
Net loan receivables
$
85,609

 
$
87,471

 
 
 
 
(1)
Amounts include carrying values of $20.3 billion and $22.0 billion in underlying investors' interest in trust debt at March 31, 2019 and December 31, 2018, respectively, and $10.9 billion and $11.1 billion in seller's interest at March 31, 2019 and December 31, 2018, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.
(2)
Amounts include carrying values of $344 million and $363 million in loans pledged as collateral against the note issued from The Student Loan Corporation ("SLC") securitization trust at March 31, 2019 and December 31, 2018, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.

10
Table of Contents

Credit Quality Indicators
The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in determining its allowance for loan losses.
Information related to the delinquent and non-accruing loans in the Company's loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading "— Purchased Credit-Impaired Loans" (dollars in millions):
  
30-89 Days
Delinquent
 
90 or
More Days
Delinquent
 
Total Past
Due
 
90 or
More Days
Delinquent
and
Accruing
 
Total
Non-accruing(1)
At March 31, 2019
 
 
 
 
 
 
 
 
 
Credit card loans(2)
$
840

 
$
891

 
$
1,731

 
$
801

 
$
252

Other loans
 
 
 
 


 
 
 
 
Personal loans(3)
80

 
32

 
112

 
30

 
11

Private student loans (excluding PCI)(4)
107

 
35

 
142

 
35

 
8

Other
2

 
1

 
3

 
—

 
19

Total other loans (excluding PCI)
189

 
68

 
257

 
65

 
38

Total loan receivables (excluding PCI)
$
1,029

 
$
959

 
$
1,988

 
$
866

 
$
290

 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
Credit card loans(2)
$
885

 
$
887

 
$
1,772

 
$
781

 
$
266

Other loans
 
 
 
 


 
 
 
 
Personal loans(3)
84

 
35

 
119

 
33

 
11

Private student loans (excluding PCI)(4)
117

 
38

 
155

 
37

 
8

Other
2

 
1

 
3

 
—

 
17

Total other loans (excluding PCI)
203

 
74

 
277

 
70

 
36

Total loan receivables (excluding PCI)
$
1,088

 
$
961

 
$
2,049

 
$
851

 
$
302

 
 
 
 
 
 
 
 
 
 
 
(1)
The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was $12 million and $9 million for the three months ended March 31, 2019 and 2018, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers' current balances and most recent interest rates.
(2)
Credit card loans that are 90 or more days delinquent and accruing interest include $134 million and $116 million of loans accounted for as TDRs at March 31, 2019 and December 31, 2018, respectively.
(3)
Personal loans that are 90 or more days delinquent and accruing interest include $6 million and $5 million of loans accounted for as TDRs at March 31, 2019 and December 31, 2018, respectively.
(4)
Private student loans that are 90 or more days delinquent and accruing interest include $8 million and $7 million of loans accounted for as TDRs at March 31, 2019 and December 31, 2018, respectively.




11
Table of Contents

Information related to the net charge-offs in the Company's loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading "— Purchased Credit-Impaired Loans" (dollars in millions):
 
For the Three Months Ended March 31,
 
2019
 
2018
  
Net
Charge-offs
 
Net 
Charge-off
Rate(1)
 
Net
Charge-offs
 
Net 
Charge-off
Rate(1)
Credit card loans
$
616

 
3.50
%
 
$
540

 
3.32
%
Other loans
 
 
 
 
 
 
 
Personal loans
84

 
4.53
%
 
73

 
4.03
%
Private student loans (excluding PCI)
15

 
0.79
%
 
22

 
1.17
%
Total other loans
99

 
2.45
%
 
95

 
2.52
%
Net charge-offs (excluding PCI)
$
715

 
3.31
%
 
$
635

 
3.17
%
Net charge-offs (including PCI)
$
715

 
3.25
%
 
$
635

 
3.09
%
 
 
 
 
 
 
 
 
(1)
Net charge-off rate represents net charge-off dollars (annualized) divided by average loans for the reporting period.
As part of credit risk management activities, on an ongoing basis, the Company reviews information related to the performance of a customer's account with the Company as well as information from credit bureaus, such as FICO or other credit scores, relating to the customer's broader credit performance. FICO scores are generally obtained at origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer behavior. Historically, the Company has noted that a significant portion of delinquent accounts have FICO scores below 660.
The following table provides the most recent FICO scores available for the Company’s customers as a percentage of each class of loan receivables:
 
Credit Risk Profile
by FICO Score
 
660 and 
Above
 
Less than 660
or No Score
At March 31, 2019
 
 
 
Credit card loans
80
%
 
20
%
Personal loans
94
%
 
6
%
Private student loans (excluding PCI)(1)
94
%
 
6
%
 
 
 
 
At December 31, 2018
 
 
 
Credit card loans
81
%
 
19
%
Personal loans
94
%
 
6
%
Private student loans (excluding PCI)(1)
94
%
 
6
%
 
 
 
 
(1)
PCI loans are discussed under the heading "— Purchased Credit-Impaired Loans."
For private student loans, additional credit risk management activities include monitoring the amount of loans in forbearance. Forbearance allows borrowers experiencing temporary financial difficulties and willing to make payments, the ability to temporarily suspend payments. Eligible borrowers have a lifetime cap on forbearance of 12 months. At March 31, 2019 and December 31, 2018, there were $49 million and $37 million, respectively, of private student loans, including those classified as PCI, in forbearance, representing 0.9% and 0.7%, respectively, of total student loans in repayment and forbearance.

12
Table of Contents

Allowance for Loan Losses
The following tables provide changes in the Company's allowance for loan losses (dollars in millions): 
 
For the Three Months Ended March 31, 2019
 
Credit Card
 
Personal Loans
 
Student Loans(1)
 
Other
 
Total
Balance at beginning of period
$
2,528

 
$
338

 
$
169

 
$
6

 
$
3,041

Additions
 
 
 
 
 
 
 
 
 
Provision for loan losses
710

 
84

 
15

 
—

 
809

Deductions
 
 
 
 
 
 
 
 
 
Charge-offs
(774
)
 
(94
)
 
(19
)
 
—

 
(887
)
Recoveries
158

 
10

 
4

 
—

 
172

Net charge-offs
(616
)
 
(84
)
 
(15
)
 
—

 
(715
)
Other(2)
—

 
—

 
(1
)
 
—

 
(1
)
Balance at end of period
$
2,622

 
$
338

 
$
168

 
$
6

 
$
3,134

 
 
 
 
 
 
 
 
 
 
 
For the Three Months Ended March 31, 2018
 
Credit Card
 
Personal Loans
 
Student Loans(1)
 
Other
 
Total
Balance at beginning of period
$
2,147

 
$
301

 
$
162

 
$
11

 
$
2,621

Additions
 
 
 
 
 
 
 
 
 
Provision for loan losses
645

 
73

 
31

 
2

 
751

Deductions
 
 
 
 
 
 
 
 
 
Charge-offs
(663
)
 
(81
)
 
(25
)
 
—

 
(769
)
Recoveries
123

 
8

 
3

 
—

 
134

Net charge-offs
(540
)
 
(73
)
 
(22
)
 
—

 
(635
)
Other(2)
—

 
—

 
(1
)
 
—

 
(1
)
Balance at end of period
$
2,252

 
$
301

 
$
170

 
$
13

 
$
2,736

 
 
 
 
 
 
 
 
 
 
(1)
Includes both PCI and non-PCI private student loans.
(2)
Net change in reserves on PCI pools having no remaining non-accretable difference.
Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the preceding table. Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars in millions): 
 
For the Three Months Ended March 31,
 
2019
 
2018
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)
$
127

 
$
109

Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)
$
31

 
$
27

 
 
 
 

13
Table of Contents

The following tables provide additional detail of the Company's allowance for loan losses and recorded investment in its loan portfolio by impairment methodology (dollars in millions):
 
Credit Card
 
Personal
Loans
 
Student
Loans(1)
 
Other
Loans
 
Total
At March 31, 2019
 
 
 
 
 
 
 
 
 
Allowance for loans evaluated for impairment as
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment in accordance with
ASC 450-20
$
2,251

 
$
286

 
$
119

 
$
4

 
$
2,660

Evaluated for impairment in accordance with
ASC 310-10-35(2)(3)
371

 
52

 
25

 
2

 
450

Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
—

 
—

 
24

 
—

 
24

Total allowance for loan losses
$
2,622

 
$
338

 
$
168

 
$
6

 
$
3,134

Recorded investment in loans evaluated for impairment as
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment in accordance with
ASC 450-20
$
68,234

 
$
7,262

 
$
7,867

 
$
866

 
$
84,229

Evaluated for impairment in accordance with
ASC 310-10-35(2)(3)
2,555

 
166

 
204

 
58

 
2,983

Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
—

 
—

 
1,531

 
—

 
1,531

Total recorded investment
$
70,789

 
$
7,428

 
$
9,602

 
$
924

 
$
88,743

 
 
 
 
 
 
 
 
 
 
At December 31, 2018
 
 
 
 
 
 
 
 
 
Allowance for loans evaluated for impairment as
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment in accordance with
ASC 450-20
$
2,229

 
$
292

 
$
121

 
$
4

 
$
2,646

Evaluated for impairment in accordance with
ASC 310-10-35(2)(3)
299

 
46

 
23

 
2

 
370

Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
—

 
—

 
25

 
—

 
25

Total allowance for loan losses
$
2,528

 
$
338

 
$
169

 
$
6

 
$
3,041

Recorded investment in loans evaluated for impairment as
 
 
 
 
 
 
 
 
 
Collectively evaluated for impairment in accordance with
ASC 450-20
$
70,628

 
$
7,302

 
$
7,546

 
$
761

 
$
86,237

Evaluated for impairment in accordance with
ASC 310-10-35(2)(3)
2,248

 
152

 
182

 
56

 
2,638

Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30
—

 
—

 
1,637

 
—

 
1,637

Total recorded investment
$
72,876

 
$
7,454

 
$
9,365

 
$
817

 
$
90,512

 
 
 
 
 
 
 
 
 
 
(1)
Includes both PCI and non-PCI private student loans.
(2)
Loan receivables evaluated for impairment in accordance with Accounting Standards Codification ("ASC") 310-10-35 include credit card loans, personal loans and student loans collectively evaluated for impairment in accordance with ASC Subtopic 310-40, Receivables, which consists of modified loans accounted for as TDRs. Other loans are individually evaluated for impairment and generally do not represent TDRs.
(3)
The unpaid principal balance of credit card loans was $2.3 billion and $2.0 billion at March 31, 2019 and December 31, 2018, respectively. All loans accounted for as TDRs have a related allowance for loan losses.

14
Table of Contents

Troubled Debt Restructurings
The Company has internal loan modification programs that provide relief to credit card, personal loan and student loan borrowers who may be experiencing financial hardship. The Company continually evaluates new programs to determine which of them meet the definition of a TDR. The internal loan modification programs include both temporary and permanent programs, which vary by product. External loan modification programs are also available for credit card and personal loans. Temporary and permanent modifications on credit card and personal loans, as well as temporary modifications on student loans and certain grants of student loan forbearance, result in the loans being considered individually impaired. In addition, loans that defaulted or graduated from modification programs or forbearance are considered to be individually impaired.
For credit card customers, the Company offers temporary hardship programs consisting of an interest rate reduction and in some cases a reduced minimum payment, both lasting for a period no longer than 12 months. The permanent modification program involves changing the structure of the loan to a fixed payment loan with a maturity no longer than 60 months and reducing the interest rate on the loan. The permanent modification program does not normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee assessments. The Company also makes permanent loan modifications for customers who request financial assistance through external sources, such as a consumer credit counseling agency program. These loans typically receive a reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include waiver of unpaid principal, interest or fees. Modified credit card loans that are deemed to meet the definition of TDRs include loans in both temporary and permanent programs.
For personal loan customers, in certain situations the Company offers various payment programs, including temporary and permanent programs. The temporary programs normally consist of a reduction of the minimum payment for a period of no longer than 12 months with the option of a final balloon payment required at the end of the loan term or an extension of the maturity date with the total term not exceeding nine years. Further, in certain circumstances the interest rate on the loan is reduced. The permanent programs involve changing the terms of the loan in order to pay off the outstanding balance over a longer term and also in certain circumstances reducing the interest rate on the loan. Similar to the temporary programs, the total term may not exceed nine years. The Company also allows permanent loan modifications for customers who request financial assistance through external sources, similar to the credit card customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling agency. Personal loans included in temporary and permanent programs are accounted for as TDRs.
At March 31, 2019, there was $5.4 billion of private student loans in repayment, which includes both PCI and non-PCI loans. To assist student loan borrowers who are experiencing temporary financial difficulties but are willing to resume making payments, the Company may offer hardship forbearance or programs that include payment deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A non-PCI modified loan typically meets the definition of a TDR based on the cumulative length of the concession period and an evaluation of the credit quality of the borrower based on FICO scores.
Borrower performance after using payment programs or forbearance is monitored and the Company believes the programs help to prevent defaults and are useful in assisting customers experiencing financial difficulties. The Company plans to continue to use payment programs and forbearance and, as a result, expects to have additional loans classified as TDRs in the future.

15
Table of Contents

Additional information about modified loans classified as TDRs is shown below (dollars in millions):
 
Average recorded investment in loans
 
Interest income recognized during period loans were impaired(1)
 
Gross interest income that would have been recorded with original terms(2)
For the Three Months Ended March 31, 2019
 
 
 
 
 
Credit card loans(3)
$
2,406

 
$
70

 
$
45

Personal loans
$
159

 
$
4

 
$
2

Private student loans
$
192

 
$
4

 
$
—

 
 
 
 
 
 
For the Three Months Ended March 31, 2018
 
 
 
 
 
Credit card loans(3)
$
1,413

 
$
34

 
$
26

Personal loans
$
117

 
$
3

 
$
1

Private student loans
$
142

 
$
3

 
$
—

 
 
 
 
 
 
(1)
The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.
(2)
The Company does not separately track the amount of additional gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.
(3)
Includes credit card loans that were modified in TDRs, but are no longer enrolled in a TDR program due to noncompliance with the terms of the modification or due to successful completion of a program after which charging privileges may be reinstated based on customer-level evaluation. The average balance of credit card loans that were no longer enrolled in a TDR program was $681 million and $399 million, respectively, for the three months ended March 31, 2019 and 2018.
In order to evaluate the primary financial effects that resulted from credit card loans entering into a loan modification program during the three months ended March 31, 2019 and 2018, the Company quantified the amount by which interest and fees were reduced during the periods. During the three months ended March 31, 2019 and 2018, the Company forgave approximately $17 million and $12 million, respectively, of interest and fees as a result of accounts entering into a credit card loan modification program.
The following table provides information on loans that entered a loan modification program during the period (dollars in millions):
 
For the Three Months Ended March 31,
 
2019
 
2018
 
Number of Accounts
 
Balances
 
Number of Accounts
 
Balances
Accounts that entered a loan modification program during the period
 
 
 
 
 
 
 
Credit card loans
92,356

 
$
592

 
60,055

 
$
380

Personal loans
2,600

 
$
35

 
2,128

 
$
29

Private student loans
1,576

 
$
31

 
906

 
$
16

 
 
 
 
 
 
 
 

16
Table of Contents

The following table presents the carrying value of loans that experienced a payment default during the period that had been modified in a TDR during the 15 months preceding the end of each period (dollars in millions):
 
For the Three Months Ended March 31,
 
2019
 
2018
 
Number of Accounts
 
Aggregated Outstanding Balances Upon Default
 
Number of Accounts
 
Aggregated Outstanding Balances Upon Default
Troubled debt restructurings that subsequently defaulted
 
 
 
 
 
 
 
Credit card loans(1)(2)
15,652

 
$
90

 
8,814

 
$
47

Personal loans(2)
848

 
$
13

 
575

 
$
8

Private student loans(3)
280

 
$
5

 
271

 
$
5

 
 
 
 
 
 
 
 
(1)
Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked in most cases.
(2)
For credit card loans and personal loans, a customer defaults from a modification program after two consecutive missed payments. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.
(3)
For student loans, defaults have been defined as loans that are 60 or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.
Of the account balances that defaulted as shown above for the three months ended March 31, 2019 and 2018, approximately 39% and 37%, respectively, of the total balances were charged off at the end of the month in which they defaulted. For accounts that have defaulted from a loan modification program and have not been subsequently charged off, the balances are included in the allowance for loan loss analysis discussed above under "— Allowance for Loan Losses."
Purchased Credit-Impaired Loans
Purchased loans with evidence of credit deterioration since origination for which it is probable that not all contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. The private student loans acquired in the SLC transaction, as well as the additional acquired private student loan portfolio comprise the Company's only PCI loans at March 31, 2019 and December 31, 2018. Total PCI student loans had an outstanding balance of $1.6 billion and $1.7 billion, including accrued interest, and a related carrying amount of $1.5 billion and $1.6 billion as of March 31, 2019 and December 31, 2018, respectively.
The following table provides changes in accretable yield for the acquired loans during each period (dollars in millions):
 
For the Three Months Ended March 31,
 
2019
 
2018
Balance at beginning of period
$
548

 
$
669

Accretion into interest income
(32
)
 
(36
)
Other changes in expected cash flows
22

 
—

Balance at end of period
$
538

 
$
633

 
 
 
 
Periodically, the Company updates the estimate of cash flows expected to be collected based on management's latest expectations of future net credit losses, borrower prepayments and certain other assumptions that affect cash flows. No provision expense was recorded during the three months ended March 31, 2019 and 2018. The allowance for PCI loan losses at March 31, 2019 and December 31, 2018 was $24 million and $25 million, respectively. For the three months ended March 31, 2019, the increase in accretable yield was primarily driven by increases in rates on variable rate loans. For the three months ended March 31, 2018, there were no changes in cash flow assumptions. Changes to accretable yield are recognized prospectively as an adjustment to yield over the remaining life of the pools.
At March 31, 2019, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which include loans not yet in repayment) were 2.75% and 0.71%, respectively. At December 31, 2018, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student loans (which include loans not yet in repayment) were 2.93% and 0.78%, respectively. These rates include private student loans that are greater than 120 days delinquent that are covered by an indemnification agreement or insurance arrangements through which the Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans was 0.25% and 0.99% for the three months ended March 31, 2019 and 2018, respectively.

17
Table of Contents

4.
Credit Card and Student 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 of the Company's annual report on Form 10-K for the year ended December 31, 2018.
Credit Card Securitization Activities
The Company accesses the term asset securitization market through the Discover Card Master Trust I ("DCMT") and the 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 in long-term borrowings.
The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with the most senior class generally receiving a triple-A rating. In order to 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. The subordinated classes are held by wholly-owned subsidiaries of Discover Bank. The Company is exposed to credit-related risk of loss associated with trust assets as of the balance sheet date through the retention of these subordinated interests. The estimated probable incurred loss is included in the allowance for loan losses estimate.
The Company's retained interests in the assets of the trusts, consisting of investments in DCENT notes held by subsidiaries of Discover Bank, constitute intercompany positions, which 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 trusts' creditors. Further, the transferred credit card loan receivables are owned by the trust and are not available to third-party creditors of the Company. The trusts have ownership of cash balances, the amounts of which are reported in restricted cash. With the exception of the seller's interest in trust receivables, the Company's interests in trust assets are generally subordinate to the interests of third-party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that are allocated to the investors in the trusts' debt. 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,
2019
 
December 31,
2018
Restricted cash
$
31

 
$
1,834

 
 
 
 
Investors' interests held by third-party investors
15,200

 
16,800

Investors' interests held by wholly-owned subsidiaries of Discover Bank
5,062

 
5,211

Seller's interest
10,933

 
11,050

Loan receivables(1)
31,195

 
33,061

Allowance for loan losses allocated to securitized loan receivables(1)
(1,156
)
 
(1,150
)
Net loan receivables
30,039

 
31,911

Other
5

 
7

Carrying value of assets of consolidated variable interest entities
$
30,075

 
$
33,752

 
 
 
 
(1)
The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company's balance sheet in accordance with GAAP.
The debt securities issued by the consolidated trusts are subject to credit, payment and interest rate risks on the transferred credit card loan receivables. To protect investors in the securities, there are certain features or triggering events that could 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, 2019, no economic or other early amortization events have occurred.

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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.
Student Loan Securitization Activities
Student loan trust receivables underlying third-party investors' interests are recorded in PCI loans and the related debt issued by the trusts is reported in long-term borrowings. The assets of the trusts are restricted from being sold or pledged as collateral for other borrowings and the cash flows from these restricted assets may be used only to pay obligations of the trusts. With the exception of the trusts' restricted assets, the trusts and investors have no recourse to the Company's other assets or the Company's general credit for a shortage in cash flows.
Currently there is one trust from which issued securities remain outstanding to investors. Principal payments on the long-term secured borrowings are made as cash is collected on the underlying loans that are used as collateral on the secured borrowings. The Company does not have access to cash collected by the securitization trust until cash is released in accordance with the trust indenture agreement. Similar to the credit card securitizations, the Company continues to own and service the accounts that generate the student loan receivables held by the trust and receives servicing fees from the trust based on a percentage of the principal balance outstanding. Although the servicing fee income offsets the fee expense related to the trust and thus is eliminated in consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead to a termination of the servicing rights and the loss of future servicing income, net of related expenses.
Under terms of the trust arrangement, the Company has the option, but not the obligation, to provide financial support to the trust, but has never provided such support. A substantial portion of the credit risk associated with the securitized loans has been transferred to a third party under an indemnification arrangement.
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,
2019
 
December 31,
2018
Restricted cash
$
13

 
$
12

Student loan receivables
344

 
363

Carrying value of assets of consolidated variable interest entities
$
357

 
$
375

 
 
 
 

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5.
Deposits
The Company offers its deposit products to customers through two channels: (i) through direct marketing, internet origination and affinity relationships ("direct-to-consumer deposits"); and (ii) indirectly through contractual arrangements with securities brokerage firms ("brokered deposits"). Direct-to-consumer deposits include online savings accounts, certificates of deposit, money market accounts, IRA certificates of deposit and checking accounts, while brokered deposits include certificates of deposit and sweep accounts.
The following table provides a summary of interest-bearing deposit accounts (dollars in millions):
 
March 31,
2019
 
December 31,
2018
Certificates of deposit in amounts less than $100,000
$
26,523

 
$
27,947

Certificates of deposit in amounts $100,000 or greater(1)
7,242

 
6,841

Savings deposits, including money market deposit accounts
34,489

 
32,296

Total interest-bearing deposits
$
68,254

 
$
67,084

 
 
 
 
(1)
Includes $1.8 billion and $1.7 billion in certificates of deposit equal to or greater than $250,000, the Federal Deposit Insurance Corporation ("FDIC") insurance limit, as of March 31, 2019 and December 31, 2018, respectively.
The following table summarizes certificates of deposit in amounts of $100,000 or greater by contractual maturity (dollars in millions):
 
March 31, 2019
Three months or less
$
1,077

Over three months through six months
1,209

Over six months through twelve months
2,723

Over twelve months
2,233

Total
$
7,242

 
 
The following table summarizes certificates of deposit maturing over the remainder of this year, over each of the next four years, and thereafter (dollars in millions):
 
March 31, 2019
2019
$
11,340

2020
9,629

2021
5,434

2022
2,928

2023
1,845

Thereafter
2,589

Total
$
33,765

 
 

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