Discover Financial Services - 10-Q filing on 2015-04-30

Fair Value Measurements and Disclosures (Tables)

3 Months Ended

Mar. 31, 2015

Schedule of Assets and Liabilities Measured at Fair Value on a Recurring Basis

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

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total
Balance at March 31, 2015
Assets
U.S. Treasury securities	$	607	$	—	$	—	$	607
U.S. government agency securities	628		—		—		628
Residential mortgage-backed securities - Agency	—		1,428		—		1,428
Available-for-sale investment securities	$	1,235	$	1,428	$	—	$	2,663

Mortgage loans held for sale	$	—	$	180	$	—	$	180

Interest rate lock commitments	$	—	$	—	$	14	$	14
Forward delivery contracts	—		4		—		4
Other derivative financial instruments	—		39		—		39
Derivative financial instruments	$	—	$	43	$	14	$	57

Liabilities
Forward delivery contracts	$	—	$	5	$	—	$	5
Other derivative financial instruments	—		50		—		50
Derivative financial instruments	$	—	$	55	$	—	$	55

Balance at December 31, 2014
Assets
U.S. Treasury securities	$	1,329	$	—	$	—	$	1,329
U.S. government agency securities	1,033		—		—		1,033
Residential mortgage-backed securities - Agency	—		1,485		—		1,485
Available-for-sale investment securities	$	2,362	$	1,485	$	—	$	3,847

Mortgage loans held for sale	$	—	$	122	$	—	$	122

Interest rate lock commitments	$	—	$	—	$	7	$	7
Forward delivery contracts	—		1		—		1
Other derivative financial instruments	—		35		—		35
Derivative financial instruments	$	—	$	36	$	7	$	43

Liabilities
Forward delivery contracts	$	—	$	3	$	—	$	3
Other derivative financial instruments	—		20		—		20
Derivative financial instruments	$	—	$	23	$	—	$	23

Schedule of Changes in Level 3 Assets and Liabilities Measured at Fair Value on a Recurring Basis

The following tables provide changes in the Company’s Level 3 assets and liabilities measured at fair value on a recurring basis (dollars in millions):

For the Three Months Ended March 31, 2015
	Balance at December 31, 2014		Transfers into Level 3	Transfers out of Level 3		Total Net Gain included in Earnings	Purchases	Sales		Settlements	Transfers of IRLCs to Closed Loans		Balance at March 31, 2015
Interest rate lock commitments	$	7	—	—		44	—	—		3	(40	)	$	14
Forward delivery contracts	$	—	—	(1	)	1	—	—		—	—		$	—


For the Three Months Ended March 31, 2014
	Balance at December 31, 2013		Transfers into Level 3	Transfers out of Level 3		Total Net Gain included in Earnings	Purchases	Sales		Settlements	Transfers of IRLCs to Closed Loans		Balance at March 31, 2014
Interest rate lock commitments	$	4	—	—		18	—	—		—	(17	)	$	5
Forward delivery contracts	$	—	—	(1	)	1	—	—		—	—		$	—
Mortgage loans held for sale	$	—	1	—		—	—	(1	)	—	—		$	—

Schedule of Significant Unobservable Inputs Related to Level 3 Assets and Liabilities

The following table presents information about significant unobservable inputs related to the Company's Level 3 financial assets and liabilities measured at fair value on a recurring and non-recurring basis (dollars in millions):

Fair Value

Valuation

Technique

Significant

Unobservable

Input

Ranges of Inputs

Weighted Average⁽¹⁾

At March 31, 2015

Low

High

Interest rate lock commitments

Quantitative risk models

Loan funding probability


(1)	Weighted averages are calculated using notional amounts for derivative instruments.

Schedule of Financial Instruments Measured at Other Than Fair Value

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

	Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Total		Carrying Value
Balance at March 31, 2015
Assets
U.S Treasury securities	$	1	$	—	$	—	$	1	$	1
States and political subdivisions of states	—		10		—		10		10
Residential mortgage-backed securities - Agency	—		106		—		106		104
Held-to-maturity investment securities	$	1	$	116	$	—	$	117	$	115

Cash and cash equivalents	$	11,814	$	—	$	—	$	11,814	$	11,814
Restricted cash	$	109	$	—	$	—	$	109	$	109
Net loan receivables⁽¹⁾	$	—	$	—	$	66,904	$	66,904	$	65,692
Accrued interest receivables	$	—	$	614	$	—	$	614	$	614

Liabilities
Deposits	$	—	$	46,624	$	—	$	46,624	$	46,427
Short-term borrowings	$	—	$	166	$	—	$	166	$	166
Long-term borrowings - owed to securitization investors	$	—	$	16,073	$	1,476	$	17,549	$	17,269
Other long-term borrowings	$	—	$	6,259	$	1	$	6,260	$	5,655
Accrued interest payables	$	—	$	139	$	—	$	139	$	139

Balance at December 31, 2014
Assets
U.S Treasury securities	$	1	$	—	$	—	$	1	$	1
States and political subdivisions of states	—		10		—		10		10
Residential mortgage-backed securities - Agency	—		93		—		93		91
Held-to-maturity investment securities	$	1	$	103	$	—	$	104	$	102

Cash and cash equivalents	$	7,284	$	—	$	—	$	7,284	$	7,284
Restricted cash	$	106	$	—	$	—	$	106	$	106
Net loan receivables⁽¹⁾	$	—	$	—	$	69,316	$	69,316	$	68,101
Accrued interest receivables	$	—	$	618	$	—	$	618	$	618

Liabilities
Deposits	$	—	$	46,242	$	—	$	46,242	$	46,089
Short-term borrowings	$	—	$	113	$	—	$	113	$	113
Long-term borrowings - owed to securitization investors	$	—	$	16,067	$	1,561	$	17,628	$	17,395
Other long-term borrowings	$	—	$	5,721	$	1	$	5,722	$	5,149
Accrued interest payables	$	—	$	132	$	—	$	132	$	132


(1)	Net loan receivables exclude mortgage loans held for sale that are measured at fair value on a recurring basis.