Payment Services transaction dollar volume for the segment was ~~$51.6~~$57.3 billion, up ~~16%~~14% from the prior ye~~ar.~~year.

We received a non-objection to our 2018 Comprehensive Capital Analysis and Review ("CCAR") submission from the Federal Reserve.

Outlook

We ~~plan on continuing to provide strong capital returns to shareholders through executing on our 2017 capital plan. We will~~ continue to ~~make material~~focus on deploying capital through disciplined and profitable organic loan growth and by executing against our 2018 capital plan, which includes our share repurchase program and recently increased quarterly common stock dividend. Our marketing strategy remains focused on expanding wallet share with existing customers and adding new accounts. We expect the reduction in income tax expense resulting from the Tax Cuts and Job Act ("TCJA") to continue to benefit us and allow for continued investments in ~~marketing~~business growth, technology, analytical capabilities, our employees and ~~remain focused on utilizing~~ our ~~rewards program to drive receivables growth. We expect this growth to result in higher interest income levels. Our~~community.

The total net charge-off rate is expected to ~~be higher~~increase in comparison to the prior year and we expect to add to the loan loss reserve to provide for the seasoning of recent loan growth and ~~increasing consumer leverage as a result of supply driven~~supply-driven credit normalization. ~~The announced redemption~~We expect net interest margin to increase slightly due to the impact of prime rate increases on our ~~preferred stock (see Note 16: Subsequent Events~~asset sensitive balance sheet and an expected shift in portfolio mix, which may be partially offset by higher deposit rates.

In our payments segment, we will continue to ~~our condensed consolidated financial statements) will result~~pursue new ways to drive volume growth in ~~a reduction to earnings per share in the fourth quarter.~~

2018. We continue to leverage our network to support our card-issuing ~~business. In our payments segment, we continue to pursue new ways to grow volume~~business and we expect ~~competition~~the payments industry to remain ~~intense.~~competitive.

Regulatory Environment and Developments

~~In recent years, federal banking~~Following the financial crisis of 2007-2008, regulators ~~have~~proposed and implemented ~~and continue to propose and finalize~~ new regulations and supervisory guidance, including under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act")~~. Regulators have also~~, and increased their examination and enforcement ~~action~~ activities. In February 2017, an executive order was signed identifying principles by which the current administration would regulate the U.S financial system, including making regulation appropriately tailored and efficient. The ~~Dodd-Frank Act creates a framework for~~executive order also directed the Treasury Secretary to identify laws, regulations, guidance and other government policies, among other things, that are inconsistent with those principles. Since June 2017, the Treasury Department has issued multiple reports that have recommended significant changes to many of the rules and regulations implemented in response to the financial crisis of 2007-2008.

Since 2016, Congress has addressed regulation of ~~large systemically significant~~the financial ~~firms,~~services sector in several other ways. For example, it exercised its authority under the Congressional Review Act to reject recently promulgated regulations, including ~~Discover, through~~ a ~~variety~~regulation adopted by the Bureau of ~~measures, including increased capital~~Consumer Financial Protection (the "Bureau") that limited pre-dispute arbitration agreements.

On May 24, 2018, the President signed into law a package of legislative reforms titled the “Economic Growth, Regulatory Relief, and ~~liquidity requirements~~Consumer Protection Act”, which are intended to promote economic growth, provide tailored regulatory relief for smaller and ~~limits on leverage and enhanced supervisory authority. The Dodd-Frank Act contains comprehensive provisions governing the practices and oversight of~~less complex financial institutions, ~~as well as~~and enhance consumer protections. Among other participants in the financial markets. We expect regulators to continue taking formal enforcement actions against financial institutions in addition to addressing concerns through non-public supervisory actions or findings. Whileprovisions, the new ~~Congress~~law raises the asset threshold for designating a bank holding company as “systemically important” from $50 billion to $250 billion. The new law became effective immediately for bank holding companies with assets less than

$100 billion and ~~Administration have expressed support~~will become effective 18 months from its enactment for ~~Dodd-Frank modifications that could reduce regulatory burdens through a variety~~banks with assets of ~~channels including executive action, rulemaking and legislation, prospects for the enactment of significant changes are uncertain.~~

~~The impact~~$100 billion or more. Upon effectiveness of the ~~evolving~~new law, bank holding companies with assets less than $250 billion will no longer automatically be subject to regulatory ~~environment on our business and operations depends upon~~requirements that establish enhanced prudential standards pursuant to the Dodd-Frank Act. This change could impact a number of ~~factors,~~regulations currently applicable to Discover, including requirements to conduct company-run stress tests, submit holding company resolution plans, and implement heightened liquidity risk management requirements. The extent of relief afforded to Discover under the legislation will depend on how it is implemented by the regulatory agencies. For bank holding companies with assets of $100 billion or more, the Federal Reserve will be required to conduct supervisory ~~priorities and actions, our actions, those of our competitors and other marketplace participants,~~stress tests to assess capital adequacy on a “periodic” basis and the ~~behavior~~Federal Reserve will have authority to selectively apply “enhanced prudential standards” by rule or order to such firms if deemed necessary to prevent or mitigate systemic risks or promote safety and soundness after consideration of ~~consumers. Regulatory developments, enforcement actions, findings~~the companies’ activities, size, and ~~ratings could affect supervisory priorities, actions,~~risk profile. It is anticipated that the Federal Reserve and rule-making, as well as negatively impact our business strategies, require us to limit or change our business practices, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for services, limit our ability to pursue certain business opportunities and obtain related required regulatory approvals, or change how we compensate certain of our employees. For example, in 2016,other federal banking regulators ~~issued a proposed rulemaking on incentive compensation which is prescriptive~~will issue further guidance in ~~nature and would require an extensive restructuring~~the coming months to clarify their approaches to implementing the Act’s requirements. Another provision of ~~incentive compensation practices for certain employees, including our executives. Any changes~~the law authorizes the Social Security Administration to ~~our business or compensation structure arising out~~share information with financial institutions to help detect the unauthorized use of ~~this rule could impact our ability~~Social Security numbers to ~~attract, hire or retain certain personnel.~~open fraudulent accounts. The timing and substance of the final rule are unknown. In September 2017, the Board of Governors of the Federal Reserve System (the "Federal Reserve") issued two proposals, one that would establish supervisory expectations for the

board of directors of bank holding companies and another that establishes a new rating system for the evaluation of large financial institutions. Comments on each of these proposals are due on November 30, 2017. The timing and substanceimpact of any ~~final rules~~information sharing program is unknown.

While advancing regulatory relief initiatives, policymakers at the federal and state levels are ~~unknown. For more information~~increasingly focused on ~~recent matters affecting Discover, see Note 12: Litigation~~measures to enhance data security and Regulatory Matters to our condensed consolidated financial statements. Regulatory developments, enforcement actions, findings and ratings could also have an impact on our strategies, the value of our assets, or otherwise adversely affect our businesses.

Asdata breach incident response capabilities as a result of ~~the~~ growing cybersecurity ~~threat~~threats and the number of incidents involving unauthorized access to consumer information, including the September 2017 disclosure of a large data breach at a national credit reporting agency, banking regulators and policymakers at the federal and state levels are increasingly focused on measures to enhance data security and incident response capabilities. The Federal Financial Institutions Examination Council has revised examiner guidance for evaluating the adequacy of a financial institution's information security program and associated risk management practices. In addition, in October 2016, federal banking regulators issued an advanced notice of proposed rulemaking that provides for enhanced cyber risk management standards to increase the operational resilience of large financial services firms and reduce the systemic impact of a cybersecurity event. The timing and final form of any final rule is uncertain at this time. Legislationagency. Regulations at various levels of government ~~has also~~have been proposed to address security breach notification and data security ~~standards.~~standards and several states have recently issued regulations for certain firms operating within their jurisdiction. On June 28, 2018, the Governor of California signed the California Consumer Privacy Act (“CCPA”) into law. The CCPA provides California residents with a broad set of additional privacy rights and remedies modeled in part on the European Union's General Data Protection Regulation. While the CCPA goes into effect on January 1, 2020, it may be amended before then. While it is too early to know their full impact, these developments could ultimately result in the imposition of requirements on Discover and other card issuers or networks that could increase costs or adversely affect the competitiveness of our credit card or debit card products. ~~In addition, the size and scope~~

The impact of the ~~2017 national credit reporting agency breach may result in the financial services industry shifting to new means identifying and authenticating consumers.~~

~~Compliance expenditures have increased significantly for Discover and other financial services firms, and we expect them to continue to increase as regulators remain focused~~evolving regulatory environment on controls and operational processes. We may face additional compliance and regulatory risk to the extent that we enter into new business arrangements with third-party service providers, alternative payment providers or other industry participants. The additional expense, time and resources needed to comply with ongoing regulatory requirements may adversely impact our business and ~~results~~operations depends upon a number of ~~operations.~~factors, including supervisory priorities and actions, our actions, actions of our competitors and other marketplace participants, and the behavior of consumers. For more information on how the regulatory environment, enforcement actions, findings and ratings could also have an impact on our strategies, the value of our assets, or otherwise adversely affect our business see “Risk Factors — Economic and Regulatory Environment” of our annual report on Form 10-K for the year ended December 31, 2017. For more information on recent matters affecting us, see Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements.

Consumer Financial Services

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

The ~~CFPB~~Bureau's interim director recently issued a ~~final rule~~5-year strategic plan to ensure that ~~will significantly limit~~all consumers have access to markets for consumer financial products and services, that laws are implemented and enforced consistently to make markets for consumer financial products and services fair, transparent and competitive, and that the ~~use~~agency fosters efficient and effective processes and the security of ~~pre-dispute arbitration agreements~~resources and ~~class action waivers. For more information, see Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements.~~

information. In addition, the CFPB publishes regular Complaint Reports and Supervisory Highlights about specific products, services and practices. The CFPB also maintains an online consumer complaint portal that shows the naturefurtherance of each ~~consumer's complaint and the financial services provider's responses, such as whether the requested relief was provided. The complaint portal allows consumers' narratives~~ of ~~their complaints to be included, although~~these areas, the Bureau ~~does not verify~~has issued formal requests for information on various topics. It is unclear when a new director will be confirmed and whether this director will continue the ~~accuracy of~~interim director's priorities or goals. Notwithstanding any changes in the ~~narratives. On July 29, 2016~~Bureau's leadership, the ~~CFPB proposed~~Bureau is required by statute to ~~replace the dispute function on the portal, whereby the customer can dispute a company’s response~~undertake certain actions. For example, pursuant to the ~~complaint, with a survey that will allow~~Credit Card Accountability Responsibility and Disclosure Act of 2009, the customer to provide feedback on the financial services provider's handling of the complaint. The CFPB seeks to implement this survey in 2017. In addition to conducting regular examinations of regulated financial services providers the CFPB regularly collects account-level information about certain financial products (e.g. credit cards) from Discover and other large financial services providers. The CFPB's analysis of complaint and account-level data, together with its supervisory examinations, can inform future decisions about its regulatory and examination priorities and influence consumers' decisions about doing business with financial services providers.

~~Credit Cards~~

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

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

~~Private Student Loans~~

There continues to be legislative and regulatory focus on the private student loan market, including by ~~the CFPB, the Federal Deposit Insurance Corporation (the "FDIC") and~~ some state legislatures and state attorneys general. ~~This~~Recent areas of regulatory focus have included servicing, payments and collection

practices, which has resulted in an increase in supervisory examinations of Discover related to private student loans. ~~On July 22, 2015,~~Legislative focus on student loans has resulted in the ~~CFPB and Discover entered into a consent order pertaining to certain~~enactment of student loan servicing ~~practices~~laws in several states, and consideration of ~~Discover Bank, The Student Loan Corporation and Discover Products, Inc. See Note 12: Litigation and Regulatory Matters to our condensed consolidated financial statements for more information.~~

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

~~Mortgage Lending~~

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

Payment Networks

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

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

There are ~~additional~~ initiatives in Europe that may have an impact on our ~~Diners Club~~ business, including revisions to the Payment Services Directive ("PSD2") and the new General Data Protection Regulation ("GDPR"). ~~The PSD2 was published in the Official Journal of the EU in December 2015.~~ Each European Union member state ~~will~~was required to transpose the PSD2 into its national law ~~and in~~by January ~~2018 the PSD2 will enter into force.~~13, 2018. Among other terms, the PSD2 includes provisions

that ~~once transposed into local law~~ will regulate surcharging and network access requirements, which may result in differential surcharging of Diners Club cards and may impact Diners Club licensing arrangements in ~~Europe.~~Europe and may impact our Diners Club business. The ~~European Parliament's Civil Liberties, Justice and Home Affairs Committee approved the final draft of the~~ GDPR ~~in December 2015. The final GDPR was published in the Official Journal of the European Union on May 4, 2016. Organizations have two years to prepare before the legislation comes~~came into force on May 25, 2018. ~~We are preparing~~The GDPR includes, among other things, a requirement for ~~implementation~~prompt notice of data breaches and requires companies processing personal data of individuals residing in the EU, regardless of the ~~GDPR.~~

~~The Chinese State Council previously announced that foreign payments companies would be able~~location of the company, to ~~participate~~comply with EU privacy and data protection rules. We have a program in ~~the Chinese domestic market and be eligible~~place to ~~apply for a license to operate a Bank Card Clearing Institution ("BCCI") in China. In June 2016 the People’s Bank of China ("PBOC"), in conjunction~~comply with the China Banking Regulatory Commission, promulgated the Administrative Measures on BCCIs. On June 30, 2017, the PBOC published the implementation guidelines. We are analyzing any potential impact on our business and preparing for implementation.GDPR's requirements.

~~Capital, Liquidity and Funding~~Banking

Capital

Discover Financial Services and Discover Bank are subject to regulatory capital requirements that became effective January 1, 2015 under final rules issued by the Federal Reserve and the ~~FDIC~~Federal Deposit Insurance Corporation ("FDIC") to implement the provisions under the Basel Committee’s December 2010 framework (referred to as “Basel III”). The final capital rules ("Basel III rules") require minimum risk-based capital and leverage ratios and define what constitutes capital for purposes of calculating those ratios. In addition, the Basel III rules establish a capital conservation buffer ("CCB") above the regulatory minimum capital requirements, which must consist entirely of Common Equity Tier 1 ("CET1") capital and result in higher required minimum ratios by ~~up to~~at least 2.5%. The new ~~capital conservation buffer~~CCB requirement became effective on January 1, 2016; however, the buffer threshold amounts are subject to a gradual phase-in period. In ~~2016,~~2017, the highest ~~capital conservation buffer~~CCB threshold was ~~0.625%~~1.25%, which has risen to ~~1.25%~~1.875% for the ~~2017~~2018 calendar year. The full 2.5% buffer requirement will not be fully phased-in until January 2019. A banking organization is subject to limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls below any of the minimum capital requirements, taking into account the applicable ~~capital conservation buffer~~CCB thresholds. Based on our current capital composition and levels and business plans, we are and expect to continue to be in compliance with the requirements for the foreseeable future. For additional information, see "— Liquidity and Capital Resources — Capital."

Federal banking regulators jointly issued a proposed rule onin September ~~27,~~ 2017 that would simplify the treatment of certain assets and deductions for institutions that are not subject to the advanced approaches capital rule. Among other things, the proposed rule would increase or adjust the deduction thresholds for certain mortgage servicing assets, deferred tax assets, investments in the capital of unconsolidated financial institutions, and minority ~~interest.~~interests. As proposed, the new rules would apply to Discover Financial Services and its subsidiary banks. ~~We are in~~While the ~~process of assessing the potential impact of~~banking agencies consider comments on the proposed rule, ~~changes.~~the agencies adopted a rule in November 2017, that provides interim relief to non-advanced approaches banking organizations, such as Discover, by extending the regulatory capital transition periods effective in 2017 for certain items, including regulatory capital deductions, risk weights, and certain minority interest limitations.

In December 2017, the Basel Committee adopted various standards meant to finalize remaining elements of the Basel III reforms first introduced in 2010. Among the new standards are revisions to the standardized approach for credit risk,

which establishes standardized risk weightings used to measure credit risk for purposes of calculating regulatory capital requirements. The new revisions include a provision that would, for the first time, require banking organizations to include a percentage of “unconditionally cancellable commitments” in risk-weighted asset calculations. If this change were to be adopted in the United States by the domestic federal banking agencies and made applicable to all "Standardized Approach" banking organizations such as Discover, it could require credit card issuers to substantially increase the amount of capital they hold against unused credit card lines. The federal banking agencies have publicly indicated support for the new Basel standards but stated that the standards were “designed for internationally active banks” and that any changes to the regulatory capital rules in the United States “will be made through the standard notice-and-comment rulemaking process.”

On April 10, 2018, the Federal Reserve issued a notice of proposed rulemaking that would significantly revise the regulatory capital and stress testing frameworks for mid-sized bank holding companies such as Discover Financial Services. The proposal is intended to make regulatory capital requirements more forward-looking, risk-sensitive, and firm-specific by linking them to the annual CCAR stress testing and capital plan review process. The timing and substance of any final rulemaking is uncertain at this time, however the notice indicates the Federal Reserve intends to adopt a final rule that would be effective on December 31, 2018.

On April 17, 2018, federal banking agencies issued a joint proposal that would, among other things, give bank holding companies and banks, including Discover and its bank subsidiaries, the option to phase in the regulatory capital impacts of implementing the current expected credit loss ("CECL") approach over a three-year transition period. Recognition would be on a straight-line basis (i.e., 25% in year one, 50% in year two, 75% in year three and 100% thereafter). The timing and substance of any final rulemaking is uncertain at this time. For more information on CECL and how it may affect Discover, see Note 1: Background and Basis of Presentation to our condensed consolidated financial statements.

Liquidity

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

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

InFunding

On April ~~2016,~~3, 2018, the ~~federal banking agencies issued a notice~~Federal Reserve Bank of ~~proposed rulemaking to implement, within the United States, the long-term liquidity standards previously issued at the international level~~New York began publication of three new reference rates based on overnight repurchase agreement transactions secured by ~~the Basel Committee on Banking~~

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

~~Funding~~

~~On July 27, 2017, the UK Financial Conduct Authority announced that it would no longer encourage or compel banks to continue to contribute quotes and maintain the~~replacement for London Interbank Offered Rate ("LIBOR"), which will no longer be maintained after ~~2021. LIBOR is commonly used as a benchmark to determine interest rates for~~2021, in certain ~~financial products and instruments. We are analyzing the potential impact on our business.~~contracts.

Segments

We manage our business activities 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 our business segment reporting, see Note 15: Segment Disclosures to our condensed consolidated financial statements.

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

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

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

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Direct Banking
Interest income
Credit card	$	2,139	$	1,916	$	4,229	$	3,792
Private student loans	150		127		297		251
PCI student loans	35		41		72		82
Personal loans	229		207		455		405
Other	83		47		152		86
Total interest income	2,636		2,338		5,205		4,616
Interest expense	507		400		976		786
Net interest income	2,129		1,938		4,229		3,830
Provision for loan losses	742		639		1,493		1,233
Other income	398		408		792		783
Other expense	948		876		1,880		1,725
Income before income tax expense	837		831		1,648		1,655
Payment Services
Provision for loan losses	—		1		—		(7		)
Other income	76		73		157		145
Other expense	36		36		72		72
Income before income tax expense	40		36		85		80
Total income before income tax expense	$	877	$	867	$	1,733	$	1,735

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

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Network Transaction Volume
PULSE Network	$	44,308	$	38,848	$	87,466	$	74,914
Network Partners	4,602		3,461		9,155		7,122
Diners Club⁽¹⁾	8,417		7,800		16,807		15,182
Total Payment Services	57,327		50,109		113,428		97,218
Discover Network—Proprietary⁽²⁾	36,339		33,342		68,721		63,201
Total Volume	$	93,666	$	83,451	$	182,149	$	160,419
Transactions Processed on Networks
Discover Network	614		551		1,164		1,054
PULSE Network	1,055		961		2,044		1,831
Total	1,669		1,512		3,208		2,885
Credit Card Volume
Discover Card Volume⁽³⁾	$	38,430	$	35,297	$	72,757	$	67,703
Discover Card Sales Volume⁽⁴⁾	$	35,077	$	32,172	$	65,927	$	61,306


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


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


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


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

Direct Banking

Our Direct Banking segment reported pretax income of ~~$867~~$837 million and ~~$2.5~~$1.6 billion for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively,~~2018 as compared to pretax income of ~~$931~~$831 million and ~~$2.7~~$1.7 billion for the three and ~~nine~~six months ended ~~September~~June 30, ~~2016, respectively.~~2017.

Net interest margin increased for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the same periods in ~~2016~~2017 primarily driven by higher yields on credit card loans, partially offset by higher funding ~~costs. The increase in yields on credit card loans was primarily due to prime rate increases and a~~costs, both of which were the result of higher ~~portion of revolving card receivables, partially offset by higher promotional balances in the card portfolio and higher interest charge-offs.~~market rates. Interest income increased during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the same periods in ~~2016~~2017 due to loan growth and yield ~~expansion.~~expansion resulting from prime rate increases. Interest expense increased during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the same periods in ~~2016~~2017 primarily due to ~~a larger funding base,~~ higher market rates and a ~~change in~~larger funding ~~mix.~~base.

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, the provision for loan losses increased as compared to the same periods in ~~2016~~2017 primarily due to higher levels of ~~charge-offs combined with a larger reserve build.~~net charge-offs. For a detailed discussion on provision for loan losses, see "— Loan Quality — Provision and Allowance for Loan Losses."

Total other income ~~remained flat~~decreased in the three months ended ~~September~~June 30, ~~2017~~2018 and ~~decreased~~increased in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018, respectively, as compared to the same periods in ~~2016.~~2017. During the ~~nine~~three and six months ended ~~September~~June 30, ~~2017,~~2018, the ~~decrease~~change was primarily due ~~primarily~~ to higher ~~promotional rewards offset by the increase in~~ discount and interchange revenue ~~both of which were primarily the result of~~driven by higher sales ~~volume. The~~volume, which was more than offset by higher promotional rewards in the second quarter of 2018. In addition, the increase in loan fee income was driven primarily ~~due to~~by an increase in late fees.

Total other expense increased in the three and ~~nine~~six months ended ~~September~~June 30, ~~2017~~2018 as compared to the same periods in ~~2016. During the three and nine months ended September 30, 2017, the~~2017. The increase was primarily driven by ~~an increase in~~higher employee compensation and benefits, and ~~professional fees offset by a decrease in information processing~~marketing and ~~communications.~~business development. The increase in employee compensation and benefits was ~~primarily driven by the impact of added~~due to additional headcount for ~~regulatory~~business growth and ~~compliance needs and~~technological capabilities, as well as higher average salaries. The increase in ~~professional fees~~marketing and business development was driven primarily by ~~investments in technology~~higher brand advertising and infrastructure as well as higher spend in collection efforts in 2017, offset by the completion of a look back project related to anti-money laundering remediation in 2016. The decrease in information processingacquisition costs targeting loan and ~~communications was primarily the result of infrastructure efficiencies.~~

deposit growth.

Discover card sales volume was ~~$32.2~~$35.1 billion and ~~$93.5~~$65.9 billion for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, which was an increase of ~~4.8%~~9.0% and ~~5.1%~~7.5%, respectively, as compared to the same periods in ~~2016.~~2017. This volume growth was primarily driven by an increase in ~~consumer spending.~~active cardmembers.

Payment Services

Our Payment Services segment reported pretax income of ~~$36~~$40 million and ~~$116~~$85 million for the three and ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2018, respectively, as compared to pretax income of ~~$30~~$36 million and ~~$92~~$80 million for the same periods in ~~2016.~~2017. The increase ~~in segment pretax income~~ was primarily ~~driven by an increase in transaction processing revenue~~ due to higher ~~point-of-sale transactions.~~other income driven by higher volume.

Downturns in the global economy or negative impacts in foreign currency may adversely affect our financial condition or results of operations in our Payment Services segment. We continue to work with our Diners Club licensees with regard to their ability to maintain financing sufficient to support business operations. We may continue to provide additional support in the future, including loans, facilitating transfer of ownership, or acquiring assets or licensees, which may cause us to incur losses. The licensees that we currently consider to be of concern accounted for approximately ~~3% and~~ 4% of Diners Club revenues during the three and ~~nine~~six months ended ~~September~~June 30, ~~2017, respectively.~~2018.

Critical Accounting Estimates

In preparing our condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States ("GAAP"), management must make judgments and use estimates and assumptions about the effects of matters that are uncertain. For estimates that involve a high degree of judgment and subjectivity, it is possible that different estimates could reasonably be derived for the same period. For estimates that are particularly sensitive to changes in economic or market conditions, significant changes to the estimated amount from period to period are also possible. Management believes the current assumptions and other considerations used to estimate amounts reflected in our condensed consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and other considerations used in estimating amounts in our condensed consolidated financial statements, the resulting changes could have a material effect on our consolidated results of operations and, in certain cases, could have a material effect on our consolidated financial condition. Management has identified the estimates related to our allowance for loan losses, the evaluation of goodwill and other non-amortizable intangible assets for potential impairment and the accrual of income taxes ~~and estimates of future cash flows associated with PCI loans~~

as critical accounting estimates. These critical accounting estimates are discussed in greater detail in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017. That discussion can be found within “Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations” under the heading “—~~Operations — Critical Accounting Estimates.” There have not been any material changes in the methods used to formulate these critical accounting estimates from those discussed in our annual report on Form 10-K for the year ended December 31, ~~2016.~~2017.

Earnings Summary

The following table outlines changes in our condensed consolidated statements of income (dollars in millions):
	For the Three Months Ended September 30,				2017 vs. 2016 Increase (Decrease)					For the Nine Months Ended September 30,				2017 vs. 2016 Increase (Decrease)					For the Three Months Ended June 30,				2018 vs. 2017 Increase (Decrease)					For the Six Months Ended June 30,				2018 vs. 2017 Increase (Decrease)
	2017		2016		$			%		2017		2016		$			%		2018		2017		$			%		2018		2017		$			%
Interest income	$	2,476	$	2,184	$	292		13	%	$	7,092	$	6,358	$	734		12	%	$	2,636	$	2,338	$	298		13	%	$	5,205	$	4,616	$	589		13	%
Interest expense	426		359		67			19	%	1,212		1,032		180			17	%	507		400		107			27	%	976		786		190			24	%
Net interest income	2,050		1,825		225			12	%	5,880		5,326		554			10	%	2,129		1,938		191			10	%	4,229		3,830		399			10	%
Provision for loan losses	674		445		229			51	%	1,900		1,281		619			48	%	742		640		102			16	%	1,493		1,226		267			22	%
Net interest income after provision for loan losses	1,376		1,380		(4		)	—	%	3,980		4,045		(65		)	(2	)%	1,387		1,298		89			7	%	2,736		2,604		132			5	%
Other income	475		476		(1		)	—	%	1,403		1,415		(12		)	(1	)%	474		481		(7		)	(1	)%	949		928		21			2	%
Other expense	948		895		53			6	%	2,745		2,687		58			2	%	984		912		72			8	%	1,952		1,797		155			9	%
Income before income tax expense	903		961		(58		)	(6	)%	2,638		2,773		(135		)	(5	)%	877		867		10			1	%	1,733		1,735		(2		)	—	%
Income tax expense	301		322		(21		)	(7	)%	926		943		(17		)	(2	)%	208		321		(113		)	(35	)%	398		625		(227		)	(36	)%
Net income	$	602	$	639	$	(37	)	(6	)%	$	1,712	$	1,830	$	(118	)	(6	)%	$	669	$	546	$	123		23	%	$	1,335	$	1,110	$	225		20	%



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)



Large accelerated filer x	Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)	Smaller reporting company o
	Emerging growth company o



Part I	FINANCIAL INFORMATION
Item 1.	Financial Statements	1
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	4549
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	6972
Item 4.	Controls and Procedures	7074
Part II	OTHER INFORMATION
Item 1.	Legal Proceedings	7175
Item 1A.	Risk Factors	7175
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	7175
Item 3.	Defaults Upon Senior Securities	7175
Item 4.	Mine Safety Disclosures	7175
Item 5.	Other Information	7175
Item 6.	Exhibits	7175


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(unaudited) (dollars in millions, except share amounts)						(unaudited) (dollars in millions, except share amounts)
Assets
Cash and cash equivalents	$	13,249		$	11,914		$	15,289		$	13,306
Restricted cash	1,279			95			630			81
Investment securities (includes $1,449 and $1,605 at fair value at September 30, 2017 and December 31, 2016, respectively)	1,627			1,757
Investment securities (includes $1,296 and $1,395 at fair value at June 30, 2018 and December 31, 2017, respectively)							1,522			1,568
Loan receivables
Loan receivables	80,443			77,254			84,789			84,248
Allowance for loan losses	(2,531		)	(2,167		)	(2,828		)	(2,621		)
Net loan receivables	77,912			75,087			81,961			81,627
Premises and equipment, net	800			734			874			825
Goodwill	255			255			255			255
Intangible assets, net	163			166			162			163
Other assets	2,323			2,300			2,058			2,262
Total assets	$	97,608		$	92,308		$	102,751		$	100,087
Liabilities and Stockholders’ Equity
Deposits
Deposits:
Interest-bearing deposit accounts	$	55,583		$	51,461		$	61,068		$	58,165
Non-interest bearing deposit accounts	552			531			615			599
Total deposits	56,135			51,992			61,683			58,764
Long-term borrowings	26,737			25,443			26,252			26,326
Accrued expenses and other liabilities	3,549			3,550			3,927			4,105
Total liabilities	86,421			80,985			91,862			89,195
Commitments, contingencies and guarantees (Notes 8, 11 and 12)
Stockholders’ Equity:
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 563,475,745 and 562,414,040 shares issued at September 30, 2017 and December 31, 2016, respectively	6			5
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 575,000 shares issued and outstanding and aggregate liquidation preference of $575 at September 30, 2017 and December 31, 2016	560			560
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 564,557,895 and 563,497,702 shares issued at June 30, 2018 and December 31, 2017, 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 June 30, 2018 and December 31, 2017							563			563
Additional paid-in capital	4,016			3,962			4,089			4,042
Retained earnings	16,452			15,130			17,787			16,687
Accumulated other comprehensive loss	(148		)	(161		)	(162		)	(152		)
Treasury stock, at cost; 197,432,811 and 173,648,023 shares at September 30, 2017 and December 31, 2016, respectively	(9,699		)	(8,173		)
Treasury stock, at cost; 220,657,224 and 205,577,507 shares at June 30, 2018 and December 31, 2017, respectively							(11,394		)	(10,254		)
Total stockholders’ equity	11,187			11,323			10,889			10,892
Total liabilities and stockholders’ equity	$	97,608		$	92,308		$	102,751		$	100,087


	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
	(unaudited) (dollars in millions)						(unaudited) (dollars in millions)
Assets
Restricted cash	$	1,279		$	95		$	630		$	81
Loan receivables	$	30,689		$	33,016		$	30,151		$	31,781
Allowance for loan losses allocated to securitized loan receivables	$	(990	)	$	(955	)	$	(1,020	)	$	(998	)
Other assets	$	6		$	4		$	6		$	5
Liabilities
Long-term borrowings	$	16,979		$	16,411		$	16,365		$	16,536
Accrued expenses and other liabilities	$	15		$	15		$	17		$	16



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended ~~September~~June 30, ~~2017~~2018



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


							Additional Paid-in Capital			Retained Earnings				Accumulated Other Comprehensive Loss				Treasury Stock				Total Stockholders’ Equity												Additional Paid-in Capital		Retained Earnings			Accumulated Other Comprehensive Loss			Treasury Stock			Total Stockholders’ Equity
	Preferred Stock			Common Stock									Preferred Stock												Common Stock
	Shares	Amount		Shares	Amount								Shares								Amount					Shares			Amount
	(unaudited) (dollars in millions, shares in thousands)
Balance at December 31, 2015	575	$	560	560,679	$	5			$	3,885			$				13,250				$			(160	)		$	(6,265	)	$	11,275
Net income	—	—		—	—				—				1,830				—				—				1,830
Other comprehensive loss	—	—		—	—		—			—					(5		)		—				(5		)
Purchases of treasury stock	—	—		—	—		—			—				—				(1,430		)		(1,430		)
Common stock issued under employee benefit plans	—	—		66	—		3			—				—				—				3
Common stock issued and stock-based compensation expense	—	—		1,646	—		58			—				—				—				58
Dividends — common stock	—	—		—	—		—			(356		)		—				—				(356		)
Dividends — preferred stock	—	—		—	—		—			(28		)		—				—				(28		)
Balance at September 30, 2016	575	$	560	562,391	$	5	$	3,946		$	14,696			$	(165	)		$	(7,695	)		$	11,347
																									(unaudited) (dollars in millions, shares in thousands)
Balance at December 31, 2016	575	$	560	562,414	$	5	$	3,962		$	15,130			$	(161	)		$	(8,173	)		$	11,323		575			$	560		562,414	$	5	$	3,962	$	15,130		$	(161	)	$	(8,173	)	$	11,323
Net income	—	—		—	—		—			1,712				—				—				1,712			—			—			—	—		—		1,110			—			—			1,110
Other comprehensive income	—	—		—	—		—			—				13				—				13			—			—			—	—		—		—			11			—			11
Purchases of treasury stock	—	—		—	—		—			—				—				(1,526		)		(1,526		)	—			—			—	—		—		—			—			(970		)	(970		)
Common stock issued under employee benefit plans	—	—		63	—		4			—				—				—				4			—			—			40	—		3		—			—			—			3
Common stock issued and stock-based compensation expense	—	—		999	1		50			—				—				—				51			—			—			988	1		32		—			—			—			33
Dividends — common stock	—	—		—	—		—			(362		)		—				—				(362		)	—			—			—	—		—		(232		)	—			—			(232		)
Dividends — preferred stock	—	—		—	—		—			(28		)		—				—				(28		)	—			—			—	—		—		(19		)	—			—			(19		)
Balance at September 30, 2017	575	$	560	563,476	$	6	$	4,016		$	16,452			$	(148	)		$	(9,699	)		$	11,187
Balance at June 30, 2017																									575			$	560		563,442	$	6	$	3,997	$	15,989		$	(150	)	$	(9,143	)	$	11,259

Balance at December 31, 2017																									6			$	563		563,498	$	6	$	4,042	$	16,687		$	(152	)	$	(10,254	)	$	10,892
Cumulative effect of ASU No. 2018-02 adoption																									—			—			—	—		—		29			(29		)	—			—
Net income																									—			—			—	—		—		1,335			—			—			1,335
Other comprehensive income																									—			—			—	—		—		—			19			—			19
Purchases of treasury stock																									—			—			—	—		—		—			—			(1,140		)	(1,140		)
Common stock issued under employee benefit plans																									—			—			45	—		3		—			—			—			3
Common stock issued and stock-based compensation expense																									—			—			1,015	—		44		—			—			—			44
Dividends — common stock																									—			—			—	—		—		(248		)	—			—			(248		)
Dividends — preferred stock																									—			—			—	—		—		(16		)	—			—			(16		)
Balance at June 30, 2018																									6			$	563		564,558	$	6	$	4,089	$	17,787		$	(162	)	$	(11,394	)	$	10,889

The Company’s investment securities consist of the following (dollars in millions):
	September 30, 2017		December 31, 2016		June 30, 2018		December 31, 2017
U.S. Treasury securities⁽¹⁾	$	673	$	674	$	674	$	672
States and political subdivisions of states	1		2		—		1
Residential mortgage-backed securities - Agency⁽²⁾	953		1,081		848		895
Total investment securities	$	1,627	$	1,757	$	1,522	$	1,568


(1)	Includes $32 million and ~~$73~~$48 million of U.S. Treasury securities pledged as swap collateral as of ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.


(2)	Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity investment securities are as follows (dollars in millions):
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value		Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Fair Value
At September 30, 2017
At June 30, 2018
Available-for-Sale Investment Securities⁽¹⁾
U.S. Treasury securities										$	675	$	—	$	(1	)	$	674
Residential mortgage-backed securities - Agency										639		—		(17		)	622
Total available-for-sale investment securities										$	1,314	$	—	$	(18	)	$	1,296
Held-to-Maturity Investment Securities⁽²⁾
Residential mortgage-backed securities - Agency⁽³⁾										$	226	$	—	$	(4	)	$	222
Total held-to-maturity investment securities										$	226	$	—	$	(4	)	$	222

At December 31, 2017
Available-for-Sale Investment Securities⁽¹⁾
U.S. Treasury securities	$	676	$	—	$	(3	)	$	673	$	675	$	—	$	(3	)	$	672
Residential mortgage-backed securities - Agency	776		3		(3		)	776		728		1		(6		)	723
Total available-for-sale investment securities	$	1,452	$	3	$	(6	)	$	1,449	$	1,403	$	1	$	(9	)	$	1,395
Held-to-Maturity Investment Securities⁽²⁾
States and political subdivisions of states	$	1	$	—	$	—		$	1	$	1	$	—	$	—		$	1
Residential mortgage-backed securities - Agency⁽³⁾	177		2		—			179		172		1		(1		)	172
Total held-to-maturity investment securities	$	178	$	2	$	—		$	180	$	173	$	1	$	(1	)	$	173

At December 31, 2016
Available-for-Sale Investment Securities⁽¹⁾
U.S. Treasury securities	$	676	$	—	$	(2	)	$	674
Residential mortgage-backed securities - Agency	934		2		(5		)	931
Total available-for-sale investment securities	$	1,610	$	2	$	(7	)	$	1,605
Held-to-Maturity Investment Securities⁽²⁾
States and political subdivisions of states	$	2	$	—	$	—		$	2
Residential mortgage-backed securities - Agency⁽³⁾	150		1		(1		)	150
Total held-to-maturity investment securities	$	152	$	1	$	(1	)	$	152


(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					Number of Securities in a Loss Position	Less than 12 months					More than 12 months
	Number of Securities in a Loss Position	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses			Number of Securities in a Loss Position	Fair Value		Unrealized Losses			Fair Value		Unrealized Losses
At September 30, 2017
Available-for-Sale Investment Securities
U.S. Treasury securities	1	$	673	$	(3	)	$	—	$	—
Residential mortgage-backed securities - Agency	14	$	245	$	(2	)	$	80	$	(1	)

At December 31, 2016
At June 30, 2018
Available-for-Sale Investment Securities
U.S. Treasury securities	1	$	674	$	(2	)	$	—	$	—		1	$	—	$	—		$	674	$	(1	)
Residential mortgage-backed securities - Agency	19	$	586	$	(5	)	$	—	$	—		31	$	509	$	(12	)	$	113	$	(5	)
Held-to-Maturity Investment Securities
Residential mortgage-backed securities - Agency	31	$	61	$	(1	)	$	—	$	—		85	$	126	$	(2	)	$	52	$	(2	)

At December 31, 2017
Available-for-Sale Investment Securities
U.S. Treasury securities												1	$	—	$	—		$	672	$	(3	)
Residential mortgage-backed securities - Agency												27	$	457	$	(3	)	$	132	$	(3	)
Held-to-Maturity Investment Securities
Residential mortgage-backed securities - Agency												45	$	56	$	—		$	38	$	(1	)


2.	Investments


3.	Loan Receivables

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⁾		30-89 Days Delinquent		90 or More Days Delinquent		Total Past Due		90 or More Days Delinquent and Accruing		Total Non-accruing⁽¹⁾
At September 30, 2017
At June 30, 2018
Credit card loans⁽²⁾	$	713	$	646	$	1,359	$	584	$	204	$	723	$	743	$	1,466	$	681	$	204
Other loans
Personal loans⁽³⁾	68		26		94		25		11		74		30		104		29		11
Private student loans (excluding PCI)⁽⁴⁾	114		36		150		36		—		106		46		152		45		10
Other	1		1		2		—		10		1		2		3		—		19
Total other loans (excluding PCI)	183		63		246		61		21		181		78		259		74		40
Total loan receivables (excluding PCI)	$	896	$	709	$	1,605	$	645	$	225	$	904	$	821	$	1,725	$	755	$	244

At December 31, 2016
At December 31, 2017
Credit card loans⁽²⁾	$	655	$	597	$	1,252	$	544	$	189	$	781	$	751	$	1,532	$	693	$	203
Other loans
Personal loans⁽³⁾	55		19		74		18		8		73		30		103		28		10
Private student loans (excluding PCI)⁽⁴⁾	106		35		141		35		—		134		33		167		33		2
Other	1		1		2		—		19		3		1		4		—		18
Total other loans (excluding PCI)	162		55		217		53		27		210		64		274		61		30
Total loan receivables (excluding PCI)	$	817	$	652	$	1,469	$	597	$	216	$	991	$	815	$	1,806	$	754	$	233

Information related to the net charge-offs in the Company's loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading "— Purchased Credit-Impaired Loans" (dollars in millions):
	For the Three Months Ended September 30,								For the Three Months Ended June 30,
	2017				2016				2018				2017
	Net Charge-offs		Net Charge-off Rate⁽¹⁾		Net Charge-offs		Net Charge-off Rate⁽¹⁾		Net Charge-offs		Net Charge-off Rate⁽¹⁾		Net Charge-offs		Net Charge-off Rate⁽¹⁾
Credit card loans	$	439	2.80	%	$	314	2.17	%	$	555	3.34	%	$	445	2.94	%
Other loans
Personal loans	58		3.19	%	41		2.63	%	72		3.97	%	54		3.18	%
Private student loans (excluding PCI)	30		1.52	%	15		1.02	%	21		1.16	%	20		1.15	%
Other	—		—	%	—		—	%	1		0.34	%	1		0.30	%
Total other loans	88		2.33	%	56		1.79	%	94		2.48	%	75		2.14	%
Net charge-offs (excluding PCI)	$	527	2.71	%	$	370	2.10	%	$	649	3.18	%	$	520	2.79	%
Net charge-offs (including PCI)	$	527	2.63	%	$	370	2.02	%	$	649	3.11	%	$	520	2.71	%

	For the Nine Months Ended September 30,								For the Six Months Ended June 30,
	2017				2016				2018				2017
	Net Charge-off Dollars		Net Charge-off Rate⁽¹⁾		Net Charge-off Dollars		Net Charge-off Rate⁽¹⁾		Net Charge-off Dollars		Net Charge-off Rate⁽¹⁾		Net Charge-off Dollars		Net Charge-off Rate⁽¹⁾
Credit card loans	$	1,306	2.86	%	$	974	2.30	%	$	1,095	3.33	%	$	867	2.89	%
Other loans
Personal loans	163		3.18	%	108		2.49	%	145		4.00	%	105		3.17	%
Private student loans (excluding PCI)	64		1.17	%	44		0.99	%	43		1.17	%	34		0.99	%
Other	3		1.09	%	—		—	%	1		0.23	%	3		1.79	%
Total other loans	230		2.16	%	152		1.69	%	189		2.50	%	142		2.08	%
Net charge-offs (excluding PCI)	$	1,536	2.73	%	$	1,126	2.19	%	$	1,284	3.18	%	$	1,009	2.74	%
Net charge-offs (including PCI)	$	1,536	2.65	%	$	1,126	2.10	%	$	1,284	3.10	%	$	1,009	2.65	%

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

	One Year or Less		After One Year Through Five Years		After Five Years Through Ten Years		After Ten Years		Total
At June 30, 2018
Available-for-Sale Investment Securities—Amortized Cost
U.S. Treasury securities	$	675	$	—	$	—	$	—	$	675
Residential mortgage-backed securities - Agency⁽¹⁾	—		90		498		51		639
Total available-for-sale investment securities	$	675	$	90	$	498	$	51	$	1,314
Held-to-Maturity Investment Securities—Amortized Cost
Residential mortgage-backed securities - Agency⁽¹⁾	$	—	$	—	$	—	$	226	$	226
Total held-to-maturity investment securities	$	—	$	—	$	—	$	226	$	226
Available-for-Sale Investment Securities—Fair Values
U.S. Treasury securities	$	674	$	—	$	—	$	—	$	674
Residential mortgage-backed securities - Agency⁽¹⁾	—		88		484		50		622
Total available-for-sale investment securities	$	674	$	88	$	484	$	50	$	1,296
Held-to-Maturity Investment Securities—Fair Values
Residential mortgage-backed securities - Agency⁽¹⁾	$	—	$	—	$	—	$	222	$	222
Total held-to-maturity investment securities	$	—	$	—	$	—	$	222	$	222


(1)	Maturities of residential mortgage-backed securities are reflective of the contractual maturities of the investment.

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

	September 30, 2017			December 31, 2016			June 30, 2018			December 31, 2017
Loan receivables
Credit card loans⁽¹⁾	$	63,475		$	61,522		$	67,812		$	67,291
Other loans
Personal loans	7,397			6,481			7,304			7,374
Private student loans	6,998			6,393			7,260			7,076
Other	371			274			571			423
Total other loans	14,766			13,148			15,135			14,873
PCI loans⁽²⁾	2,202			2,584			1,842			2,084
Total loan receivables	80,443			77,254			84,789			84,248
Allowance for loan losses	(2,531		)	(2,167		)	(2,828		)	(2,621		)
Net loan receivables	$	77,912		$	75,087		$	81,961		$	81,627


(2)	Amounts include carrying values of $~~0.8 billion~~669 million and ~~$1.4 billion of~~$762 million in loans pledged as collateral against the notes issued from the Student Loan Corporation ("SLC") securitization trusts at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively. See Note 4: Credit Card and Student Loan Securitization Activities for additional information.


(2)	Credit card loans that are 90 or more days delinquent and accruing interest include $6385 million and ~~$58~~$72 million of loans accounted for as ~~troubled debt restructurings~~TDRs at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016,~~2017, respectively.


(3)	Personal loans that are 90 or more days delinquent and accruing interest include $45 million ~~and $2 million~~ of loans accounted for as ~~troubled debt restructurings~~TDRs at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016, respectively.~~2017.


(4)	Private student loans that are 90 or more days delinquent and accruing interest include $47 million and $3$5 million of loans accounted for as ~~troubled debt restructurings~~TDRs at ~~September~~June 30, ~~2017~~2018 and December 31, ~~2016.~~2017, respectively.


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

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				Credit Risk Profile by FICO Score
	660 and Above		Less than 660 or No Score		660 and Above		Less than 660 or No Score
At September 30, 2017
At June 30, 2018
Credit card loans	81	%	19	%	82	%	18	%
Personal loans	95	%	5	%	95	%	5	%
Private student loans (excluding PCI)⁽¹⁾	96	%	4	%	94	%	6	%

At December 31, 2016
At December 31, 2017
Credit card loans	82	%	18	%	82	%	18	%
Personal loans	96	%	4	%	95	%	5	%
Private student loans (excluding PCI)⁽¹⁾	95	%	5	%	95	%	5	%


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

The following tables provide changes in the Company’s allowance for loan losses (dollars in millions):
	For the Three Months Ended September 30, 2017															For the Three Months Ended June 30, 2018
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total			Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,980		$	235		$	159		$	10		$	2,384		$	2,252		$	301		$	170		$	13		$	2,736
Additions
Provision for loan losses	550			91			34			(1		)	674			637			84			22			(1		)	742
Deductions
Charge-offs	(555		)	(64		)	(32		)	—			(651		)	(684		)	(80		)	(24		)	(1		)	(789		)
Recoveries	116			6			2			—			124			129			8			3			—			140
Net charge-offs	(439		)	(58		)	(30		)	—			(527		)	(555		)	(72		)	(21		)	(1		)	(649		)
Other⁽²⁾																—			—			(1		)	—			(1		)
Balance at end of period	$	2,091		$	268		$	163		$	9		$	2,531		$	2,334		$	313		$	170		$	11		$	2,828

	For the Three Months Ended September 30, 2016															For the Three Months Ended June 30, 2017
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total			Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,603		$	176		$	151		$	19		$	1,949		$	1,892		$	207		$	156		$	9		$	2,264
Additions
Provision for loan losses	372			51			21			1			445			533			82			23			2			640
Deductions
Charge-offs	(425		)	(46		)	(17		)	—			(488		)	(561		)	(61		)	(22		)	(1		)	(645		)
Recoveries	111			5			2			—			118			116			7			2			—			125
Net charge-offs	(314		)	(41		)	(15		)	—			(370		)	(445		)	(54		)	(20		)	(1		)	(520		)
Balance at end of period	$	1,661		$	186		$	157		$	20		$	2,024		$	1,980		$	235		$	159		$	10		$	2,384

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

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

(1) Includes both PCI and non-PCI private student loans.																(1) Includes both PCI and non-PCI private student loans.
(2) Net change in reserves on PCI pools having no remaining non-accretable difference.																(2) Net change in reserves on PCI pools having no remaining non-accretable difference.

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

	For the Six Months Ended June 30, 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	1,282			157			53			1			1,493
Deductions
Charge-offs	(1,347		)	(161		)	(49		)	(1		)	(1,558		)
Recoveries	252			16			6			—			274
Net charge-offs	(1,095		)	(145		)	(43		)	(1		)	(1,284		)
Other⁽²⁾	—			—			(2		)	—			(2		)
Balance at end of period	$	2,334		$	313		$	170		$	11		$	2,828

	For the Six Months Ended June 30, 2017
	Credit Card			Personal Loans			Student Loans⁽¹⁾			Other			Total
Balance at beginning of period	$	1,790		$	200		$	158		$	19		$	2,167
Additions
Provision for loan losses	1,057			140			35			(6		)	1,226
Deductions
Charge-offs	(1,096		)	(118		)	(39		)	(3		)	(1,256		)
Recoveries	229			13			5			—			247
Net charge-offs	(867		)	(105		)	(34		)	(3		)	(1,009		)
Balance at end of period	$	1,980		$	235		$	159		$	10		$	2,384


(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 June 30,				For the Six Months Ended June 30,
	2018		2017		2018		2017
Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of interest income)	$	110	$	87	$	219	$	171
Fees accrued subsequently charged off, net of recoveries (recorded as a reduction to other income)	$	28	$	23	$	55	$	45

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		Credit Card		Personal Loans		Student Loans⁽¹⁾		Other Loans		Total
At September 30, 2017
At June 30, 2018
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	1,889	$	241	$	112	$	3	$	2,245	$	2,074	$	276	$	121	$	4	$	2,475
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	202		27		20		6		255		260		37		22		7		326
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		31		—		31		—		—		27		—		27
Total allowance for loan losses	$	2,091	$	268	$	163	$	9	$	2,531	$	2,334	$	313	$	170	$	11	$	2,828
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	62,295	$	7,298	$	6,872	$	324	$	76,789	$	66,114	$	7,174	$	7,099	$	516	$	80,903
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	1,180		99		126		47		1,452		1,698		130		161		55		2,044
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		2,202		—		2,202		—		—		1,842		—		1,842
Total recorded investment	$	63,475	$	7,397	$	9,200	$	371	$	80,443	$	67,812	$	7,304	$	9,102	$	571	$	84,789

At December 31, 2016
At December 31, 2017
Allowance for loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	1,623	$	179	$	105	$	3	$	1,910	$	1,921	$	269	$	112	$	4	$	2,306
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	167		21		18		16		222		226		32		21		7		286
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		35		—		35		—		—		29		—		29
Total allowance for loan losses	$	1,790	$	200	$	158	$	19	$	2,167	$	2,147	$	301	$	162	$	11	$	2,621
Recorded investment in loans evaluated for impairment as
Collectively evaluated for impairment in accordance with ASC 450-20	$	60,437	$	6,400	$	6,307	$	219	$	73,363	$	65,975	$	7,263	$	6,939	$	370	$	80,547
Evaluated for impairment in accordance with ASC 310-10-35⁽²⁾⁽³⁾	1,085		81		86		55		1,307		1,316		111		137		53		1,617
Acquired with deteriorated credit quality, evaluated in accordance with ASC 310-30	—		—		2,584		—		2,584		—		—		2,084		—		2,084
Total recorded investment	$	61,522	$	6,481	$	8,977	$	274	$	77,254	$	67,291	$	7,374	$	9,160	$	423	$	84,248

Additional information about modified loans classified as troubled debt restructurings is shown below (dollars in millions):
Additional information about modified loans classified as TDRs is shown below (dollars in millions):							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⁾		Average recorded investment in loans		Interest income recognized during period loans were impaired⁽¹⁾		Gross interest income that would have been recorded with original terms⁽²⁾
For the Three Months Ended September 30, 2017
For the Three Months Ended June 30, 2018
Credit card loans⁽³⁾	$	1,165	$	28	$	22	$	1,604	$	41	$	32
Personal loans	$	96	$	2	$	1	$	125	$	3	$	2
Private student loans	$	120	$	3	$	—	$	153	$	3	$	—

For the Three Months Ended September 30, 2016
For the Three Months Ended June 30, 2017
Credit card loans⁽³⁾	$	1,030	$	23	$	18	$	1,137	$	25	$	22
Personal loans	$	74	$	2	$	1	$	90	$	3	$	1
Private student loans	$	63	$	1	$	—	$	107	$	1	$	—

For the Nine Months Ended September 30, 2017
For the Six Months Ended June 30, 2018
Credit card loans⁽³⁾	$	1,137	$	78	$	64	$	1,507	$	75	$	58
Personal loans	$	90	$	7	$	3	$	120	$	6	$	3
Private student loans	$	107	$	6	$	—	$	147	$	6	$	—

For the Nine Months Ended September 30, 2016
For the Six Months Ended June 30, 2017
Credit card loans⁽³⁾	$	1,023	$	65	$	57	$	1,122	$	50	$	42
Personal loans	$	71	$	6	$	2	$	87	$	5	$	2
Private student loans	$	57	$	3	$	—	$	101	$	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.

The following table presents the carrying value of loans that experienced a payment default during the period that had been modified in a troubled debt restructuring during the 15 months preceding the end of each period (dollars in millions):
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):							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 September 30,						For the Three Months Ended June 30,
	2017			2016			2018			2017
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
Troubled debt restructurings that subsequently defaulted
TDRs that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾	8,955	$	48	6,797	$	36	8,970	$	49	8,049	$	43
Personal loans⁽²⁾	463	$	6	277	$	3	637	$	8	341	$	4
Private student loans⁽³⁾	298	$	5	197	$	3	204	$	3	184	$	3

	For the Nine Months Ended September 30,						For the Six Months Ended June 30,
	2017			2016			2018			2017
	Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default		Number of Accounts	Aggregated Outstanding Balances Upon Default
Troubled debt restructurings that subsequently defaulted
TDRs that subsequently defaulted
Credit card loans⁽¹⁾⁽²⁾	25,170	$	135	15,877	$	84	17,784	$	96	16,215	$	87
Personal loans⁽²⁾	1,296	$	16	711	$	8	1,212	$	16	648	$	8
Private student loans⁽³⁾	667	$	11	571	$	9	475	$	8	369	$	6


(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.