Form 8-K Discover Financial Servi For: Apr 26

April 26, 2018 5:46 PM

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): April 26, 2018

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Commission File Number: 001-33378



Delaware		36-2517428
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015

(Address of principal executive offices, including zip code)

(224) 405-0900

(Registrant's telephone number, including area code)

N/A

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



o	Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 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

Item 2.02. Results of Operations and Financial Condition.

On April 26, 2018, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended March 31, 2018. Copies of the press release, financial data supplement and financial results presentation containing this information are attached hereto as exhibits and incorporated herein by reference.

The quotation immediately preceding the caption “Segment Results” included in Exhibit 99.1 (the “Excluded Quote”) and Exhibit 99.3 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section nor shall it be deemed to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act. The information included in Exhibit 99.1, other than in the Excluded Quote, and Exhibit 99.2 shall be deemed “filed” for purposes of the Exchange Act.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits




Exhibit No.		Description
99.1		Press Release of the Company dated April 26, 2018 containing financial information for the quarter ended March 31, 2018
99.2		Financial Data Supplement of the Company for the quarter ended March 31, 2018
99.3		Financial Results Presentation of the Company for the quarter ended March 31, 2018

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




	DISCOVER FINANCIAL SERVICES

Dated: April 26, 2018	By:	/s/ D. Christopher Greene
		Name: D. Christopher Greene
		Title: Vice President, Deputy General Counsel and Assistant Secretary

EXHIBIT INDEX




Exhibit No.		Description
99.1		Press Release of the Company dated April 26, 2018 containing financial information for the quarter ended March 31, 2018
99.2		Financial Data Supplement of the Company for the quarter ended March 31, 2018
99.3		Financial Results Presentation of the Company for the quarter ended March 31, 2018

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FIRST QUARTER NET INCOME OF $666 MILLION

OR $1.82 PER DILUTED SHARE

Riverwoods, IL, April 26, 2018 - Discover Financial Services (NYSE: DFS) today reported net income of $666 million or $1.82 per diluted share for the first quarter of 2018, as compared to $564 million or $1.43 per diluted share for the first quarter of 2017. The company’s return on equity for the first quarter of 2018 was 25%.

First Quarter Highlights


•	Total loans grew $6.9 billion (9%) from the prior year to $82.7 billion.


•	Credit card loans grew $5.8 billion (10%) to $65.6 billion, on Discover card sales volume of $30.9 billion.


•	Total net charge-off rate, excluding purchased credit-impaired ("PCI") loans, increased 48 basis points from the prior year to 3.17% and the total 30+ day delinquency rate excluding PCI loans increased 26 basis points from the prior year to 2.23%.


•	Consumer deposits grew $4.2 billion (11%) from the prior year to $41.3 billion.


•	Payment Services transaction dollar volume was $56.1 billion, up 19% from the prior year.

“Our performance this quarter was characterized by robust loan and revenue growth reflecting the strength of the Discover franchise as we continued to invest in product and service enhancements," said David Nelms, chairman and CEO of Discover. “I'm proud of our strong return on equity of 25%. In addition, this is the first full quarter reflecting the benefits of tax reform which, combined with share repurchases, led to a 27% year-over-year increase in earnings per share."

Segment Results:

Direct Banking

Direct Banking pretax income of $811 million in the quarter declined by $13 million from the prior year driven by an increase in the provision for loan losses and higher operating expenses, partially offset by higher revenue.

Total loans ended the quarter at $82.7 billion, up 9% compared to the prior year. Credit card loans ended the quarter at $65.6 billion, up 10% from the prior year. Personal loans increased $644 million (10%) from the prior year. Private student loans increased $234 million (3%) year-over-year, and grew $727 million (11%), excluding purchased student loans.

Net interest income increased $208 million (11%) from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.23%, up 16 basis points from the prior year. Card yield was 12.85%, an increase of 20 basis points from the prior year as a result of increases in the prime rate, partially offset by a change in portfolio mix and higher interest charge-offs. Interest expense as a percent of total loans increased 23 basis points from the prior year, primarily as a result of higher market rates.

Other income increased $19 million (5%) from the prior year, driven by higher discount and interchange revenue.

The delinquency rate for credit card loans 30+ days past due was 2.33%, up 27 basis points from the prior year and 5 basis points from the prior quarter. The credit card net charge-off rate for the first quarter was 3.32%, up 48 basis points from the prior year and 29 basis points from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 1.17%, up 34 basis points from the prior year. The personal loans net charge-off rate of 4.03% increased by 87 basis points from the prior year. Net charge-off rates were generally higher because of supply-driven credit normalization and the seasoning of loan growth from the last few years.

Provision for loan losses of $751 million increased $157 million from the prior year due to higher net charge-offs and a higher reserve build. The reserve build for the first quarter of 2018 was $116 million, compared to a reserve build of $107 million in the first quarter of 2017.

Expenses increased $83 million from the prior year as a result of higher employee compensation and marketing expenses. Additionally, we expanded investments to build financial literacy, support diversity and inclusion, and strengthen the communities in which we operate. Employee compensation increased as a result of higher staffing levels and higher average salaries. Marketing expenses increased as a result of higher account acquisition costs and brand advertising.

Payment Services

Payment Services pretax income was $45 million in the quarter, up $1 million from the prior year, primarily driven by higher transaction processing and interchange revenue offset by a reserve release in the first quarter of 2017.

Payment Services transaction dollar volume was $56.1 billion, up 19% versus the prior year. PULSE transaction dollar volume was up 20% year-over-year primarily driven by merchant and acquirer routing decisions. Diners Club volume increased 14% year-over-year driven by continued strength of newer franchise relationships. Network Partners volume increased by 24% from the prior year driven by AribaPay.

Share Repurchases

During the first quarter of 2018, the company repurchased approximately 7.5 million shares of common stock for $584 million. Shares of common stock outstanding declined by 1.8% from the prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its first quarter results on Thursday, April 26, 2018, at 4:00 p.m. Central time. Interested parties can listen to the conference call via a live audio webcast at https://investorrelations.discover.com.

About Discover

Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America's cash rewards pioneer, and offers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business. It operates the Discover Network, with millions of retail and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in 190 countries and territories. For more information, visit www.discover.com/company.

Contacts:

Investors:

Craig Streem, 224-405-5923

[email protected]

Media:

Jon Drummond, 224-405-1888

[email protected]

A financial summary follows. Financial, statistical, and business related information, as well as information regarding business and segment trends, is included in the financial supplement filed as Exhibit 99.2 to the company's Current Report on Form 8-K filed today with the Securities and Exchange Commission (“SEC”). Both the earnings release and the financial supplement are available online at the SEC's website (http://www.sec.gov) and the company's website (https://investorrelations.discover.com).

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. These forward-looking statements speak only as of the date of this press release, and there is no undertaking to update or revise them as more information becomes available.

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

Additional factors that could cause the company's results to differ materially from those described in the forward-looking statements can be found under “Risk Factors,” “Business - Competition,” “Business - Supervision and Regulation” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's Annual Report on Form 10-K for the year ended December 31, 2017, which is filed with the SEC and available at the SEC's internet site (http://www.sec.gov).



DISCOVER FINANCIAL SERVICES																					Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
EARNINGS SUMMARY
Interest Income		$2,569			$2,556			$2,476			$2,338			$2,278			$291		13	%
Interest Expense	469			436			426			400			386			83			22	%
Net Interest Income	2,100			2,120			2,050			1,938			1,892			208			11	%
Discount/Interchange Revenue	646			717			675			666			596			50			8	%
Rewards Cost	392			434			417			388			363			29			8	%
Discount and Interchange Revenue, net	254			283			258			278			233			21			9	%
Protection Products Revenue	53			54			55			56			58			(5		)	(9	%)
Loan Fee Income	96			96			95			83			89			7			8	%
Transaction Processing Revenue	43			43			43			42			39			4			10	%
Other Income	29			18			24			22			28			1			4	%
Total Other Income	475			494			475			481			447			28			6	%

Revenue Net of Interest Expense	2,575			2,614			2,525			2,419			2,339			236			10	%

Provision for Loan Losses	751			679			674			640			586			165			28	%

Employee Compensation and Benefits	405			411			371			367			363			42			12	%
Marketing and Business Development	185			213			203			192			168			17			10	%
Information Processing & Communications	82			80			78			77			80			2			3	%
Professional Fees	155			189			163			156			147			8			5	%
Premises and Equipment	26			26			25			23			25			1			4	%
Other Expense	115			117			108			97			102			13			13	%
Total Other Expense	968			1,036			948			912			885			83			9	%

Income Before Income Taxes	856			899			903			867			868			(12		)	(1	%)
Tax Expense	190			512			301			321			304			(114		)	(38	%)
Net Income		$666			$387			$602			$546			$564			$102		18	%

Net Income Allocated to Common Stockholders		$646			$359			$589			$532			$551			$95		17	%

Effective Tax Rate	22.2		%	57.0		%	33.3		%	37.1		%	35.0		%

Net Interest Margin	10.23		%	10.28		%	10.28		%	10.11		%	10.07		%	16			bps
Operating Efficiency	37.6		%	39.7		%	37.5		%	37.7		%	37.9		%	(30		)	bps
ROE	25		%	14		%	22		%	19		%	20		%
Capital Returned to Common Stockholders		$684			$657			$667			$547			$620			$64		10	%
Payout Ratio	106		%	183		%	113		%	103		%	113		%

Ending Common Shares Outstanding	351			358			366			375			382			(31		)	(8	%)
Weighted Average Common Shares Outstanding	355			362			371			379			386			(31		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	355			362			371			379			386			(31		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$1.82			$0.99			$1.59			$1.41			$1.43			$0.39		27	%
Diluted EPS		$1.82			$0.99			$1.59			$1.40			$1.43			$0.39		27	%
Common Stock Price (period end)		$71.93			$76.92			$64.48			$62.19			$68.39			$3.54		5	%
Book Value per share		$30.93			$30.43			$30.56			$30.01			$29.46			$1.47		5	%

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017		Mar 31, 2018 vs. Mar 31, 2017
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$811		$870		$867		$831		$824		($13	)	(2	%)
Payment Services	45		29		36		36		44		1			2	%
Total		$856		$899		$903		$867		$868		($12	)	(1	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	550		607		579		551		503		47			9	%
PULSE Network	989		1,029		996		961		870		119			14	%
Total	1,539		1,636		1,575		1,512		1,373		166			12	%

NETWORK VOLUME
PULSE Network		$43,158		$42,386		$39,828		$38,848		$36,066		$7,092		20	%
Network Partners	4,553		3,280		3,811		3,461		3,661		892			24	%
Diners Club International¹	8,390		8,373		7,989		7,800		7,382		1,008			14	%
Total Payment Services	56,101		54,039		51,628		50,109		47,109		8,992			19	%
Discover Network - Proprietary	32,382		36,267		33,576		33,342		29,859		2,523			8	%
Total		$88,483		$90,306		$85,204		$83,451		$76,968		$11,515		15	%


¹ Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment
Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
BALANCE SHEET SUMMARY
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$18,641			$14,955			$16,155			$14,722			$17,981			$660		4	%
Total Loan Receivables	82,744			84,248			80,443			77,997			75,853			6,891			9	%
Allowance for Loan Losses	(2,736		)	(2,621		)	(2,531		)	(2,384		)	(2,264		)	(472		)	(21	%)
Net Loan Receivables	80,008			81,627			77,912			75,613			73,589			6,419			9	%
Premises and Equipment, net	848			825			800			774			750			98			13	%
Goodwill and Intangible Assets, net	417			418			418			419			420			(3		)	(1	%)
Other Assets	2,053			2,262			2,323			2,229			2,055			(2		)	NM
Total Assets		$101,967			$100,087			$97,608			$93,757			$94,795			$7,172		8	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$41,321			$39,367			$38,703			$37,709			$37,094			$4,227		11	%
Brokered Deposits and Other Deposits	19,809			19,397			17,432			15,155			16,428			3,381			21	%
Deposits	61,130			58,764			56,135			52,864			53,522			7,608			14	%
Borrowings	26,244			26,326			26,737			26,438			26,823			(579		)	(2	%)
Accrued Expenses and Other Liabilities	3,722			4,105			3,549			3,196			3,185			537			17	%
Total Liabilities	91,096			89,195			86,421			82,498			83,530			7,566			9	%
Total Equity	10,871			10,892			11,187			11,259			11,265			(394		)	(3	%)
Total Liabilities and Stockholders' Equity		$101,967			$100,087			$97,608			$93,757			$94,795			$7,172		8	%

LIQUIDITY
Liquidity Portfolio		$17,550			$13,560			$13,906			$13,865			$16,213		1,337			8	%
Undrawn Credit Facilities ¹	35,099			35,153			33,696			31,877			30,823			4,276			14	%
Total Liquidity		$52,649			$48,713			$47,602			$45,742			$47,036			$5,613		12	%


¹ Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
BALANCE SHEET STATISTICS
Total Common Equity		$10,308			$10,329			$10,627			$10,699			$10,705			($397	)	(4	%)
Total Common Equity/Total Assets	10.1		%	10.3		%	10.9		%	11.4		%	11.3		%
Total Common Equity/Net Loans	12.9		%	12.7		%	13.6		%	14.2		%	14.5		%

Tangible Assets		$101,550			$99,669			$97,190			$93,338			$94,375			$7,175		8	%
Tangible Common Equity ¹		$9,891			$9,911			$10,209			$10,280			$10,285			($394	)	(4	%)
Tangible Common Equity/Tangible Assets ¹	9.7		%	9.9		%	10.5		%	11.0		%	10.9		%
Tangible Common Equity/Net Loans ¹	12.4		%	12.1		%	13.1		%	13.6		%	14.0		%
Tangible Common Equity per share¹		$28.15			$27.69			$27.89			$27.40			$26.90			$1.25		5	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	14.0		%	13.8		%	14.7		%	15.2		%	15.7		%
Tier 1 Risk Based Capital Ratio	12.5		%	12.3		%	13.2		%	13.7		%	14.1		%
Tier 1 Leverage Ratio	10.6		%	10.8		%	11.4		%	11.8		%	11.8		%
Common Equity Tier 1 Capital Ratio	11.9		%	11.6		%	12.5		%	13.0		%	13.4		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	11.8		%	11.6		%	12.5		%	13.0		%	13.4		%

RATIO OF EARNINGS TO FIXED CHARGES
Ratio of Earnings to Fixed Charges ^{3, 4}	2.8			3.2			3.2			3.2			3.3

¹ Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP data schedule

²Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) is calculated using Basel III Fully Phased-in Common Equity Tier 1 Capital, a non-GAAP measure. The Company believes that the Common Equity Tier 1 Capital Ratio based on Fully Phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of Common Equity Tier 1 Capital and Risk Weighted Assets calculated under Fully Phased-in Basel III rules to Common Equity Tier 1 Capital and Risk Weighted Assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule

³Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense

4 The Ratio of Earnings to Fixed Charges is a year-to-date statistic. The periods reported reflect the three months ended March 31, 2018, the twelve months ended December 31, 2017, the nine months ended September 30, 2017, the six months ended June 30, 2017 and the three months ended March 31, 2017

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
AVERAGE BALANCES
Assets
Cash and Investment Securities		$15,058			$15,290			$14,547			$14,616			$15,424			($366	)	(2	%)
Restricted Cash	821			276			848			559			819			2			—	%
Credit Card Loans	65,983			64,791			62,647			60,700			60,122			5,861			10	%
Private Student Loans	9,432			9,158			8,986			9,020			9,197			235			3	%
Personal Loans	7,387			7,455			7,208			6,820			6,582			805			12	%
Other Loans	452			398			348			314			284			168			59	%
Total Loans	83,254			81,802			79,189			76,854			76,185			7,069			9	%
Total Interest Earning Assets	99,133			97,368			94,584			92,029			92,428			6,705			7	%
Allowance for Loan Losses	(2,615		)	(2,530		)	(2,379		)	(2,262		)	(2,166		)	(449		)	(21	%)
Other Assets	4,221			4,252			4,192			4,147			4,166			55			1	%
Total Assets		$100,739			$99,090			$96,397			$93,914			$94,428			$6,311		7	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$39,825			$38,807			$37,900			$36,956			$36,316			$3,509		10	%
Brokered Deposits and Other Deposits	19,638			18,244			16,192			15,600			16,242			3,396			21	%
Total Interest-bearing Deposits	59,463			57,051			54,092			52,556			52,558			6,905			13	%
Short-term Borrowings	1			2			1			2			1			—			—	%
Securitized Borrowings	16,180			16,676			17,206			16,141			16,960			(780		)	(5	%)
Other Long-term Borrowings	9,945			9,768			9,721			9,979			9,600			345			4	%
Total Interest-bearing Liabilities	85,589			83,497			81,020			78,678			79,119			6,470			8	%
Other Liabilities & Stockholders' Equity	15,150			15,593			15,377			15,236			15,309			(159		)	(1	%)
Total Liabilities and Stockholders' Equity		$100,739			$99,090			$96,397			$93,914			$94,428			$6,311		7	%

AVERAGE RATES
Assets
Cash and Investment Securities	1.57		%	1.34		%	1.31		%	1.12		%	0.90		%	67			bps
Restricted Cash	1.68		%	1.34		%	1.15		%	0.89		%	0.70		%	98			bps
Credit Card Loans	12.85		%	12.79		%	12.83		%	12.66		%	12.65		%	20			bps
Private Student Loans	7.89		%	7.69		%	7.56		%	7.45		%	7.29		%	60			bps
Personal Loans	12.43		%	12.27		%	12.33		%	12.22		%	12.18		%	25			bps
Other Loans	5.98		%	5.66		%	5.56		%	5.59		%	5.39		%	59			bps
Total Loans	12.21		%	12.14		%	12.15		%	11.98		%	11.94		%	27			bps
Total Interest Earning Assets	10.51		%	10.41		%	10.39		%	10.19		%	9.99		%	52			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.59		%	1.44		%	1.37		%	1.29		%	1.25		%	34			bps
Brokered Deposits and Other Deposits	2.19		%	2.12		%	2.12		%	2.07		%	1.98		%	21			bps
Total Interest-bearing Deposits	1.79		%	1.65		%	1.59		%	1.52		%	1.48		%	31			bps
Short-term Borrowings	1.75		%	1.31		%	1.33		%	1.06		%	0.67		%	108			bps
Securitized Borrowings	2.43		%	2.19		%	2.37		%	2.31		%	2.17		%	26			bps
Other Long-term Borrowings	4.49		%	4.30		%	4.30		%	4.36		%	4.38		%	11			bps
Total Interest-bearing Liabilities	2.22		%	2.07		%	2.08		%	2.04		%	1.98		%	24			bps

Net Interest Margin	10.23		%	10.28		%	10.28		%	10.11		%	10.07		%	16			bps
Net Yield on Interest-earning Assets	8.59		%	8.64		%	8.60		%	8.44		%	8.30		%	29			bps

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$82,744			$84,248			$80,443			$77,997			$75,853			$6,891	9	%
Average Loans ^{1, 2}		$83,254			$81,802			$79,189			$76,854			$76,185			$7,069	9	%

Interest Yield	12.21		%	12.14		%	12.15		%	11.98		%	11.94		%	27		bps
Gross Principal Charge-off Rate	3.74		%	3.45		%	3.26		%	3.36		%	3.25		%	49		bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.84		%	3.54		%	3.35		%	3.47		%	3.37		%	47		bps
Net Principal Charge-off Rate	3.09		%	2.85		%	2.63		%	2.71		%	2.60		%	49		bps
Net Principal Charge-off Rate excluding PCI Loans ³	3.17		%	2.92		%	2.71		%	2.79		%	2.69		%	48		bps
Delinquency Rate (30 or more days) excluding PCI Loans ³	2.23		%	2.20		%	2.05		%	1.93		%	1.97		%	26		bps
Delinquency Rate (90 or more days) excluding PCI Loans ³	1.06		%	0.99		%	0.91		%	0.88		%	0.92		%	14		bps
Gross Principal Charge-off Dollars		$769			$711			$651			$645			$611			$158	26	%
Net Principal Charge-off Dollars		$635			$583			$527			$520			$489			$146	30	%
Net Interest and Fee Charge-off Dollars		$136			$119			$107			$110			$106			$30	28	%
Loans Delinquent 30 or more days ³		$1,800			$1,806			$1,605			$1,457			$1,445			$355	25	%
Loans Delinquent 90 or more days ³		$855			$815			$709			$667			$675			$180	27	%

Allowance for Loan Loss (period end)		$2,736			$2,621			$2,531			$2,384			$2,264			$472	21	%
Reserve Change Build/ (Release) ⁴		$116			$96			$147			$120			$97			$19
Reserve Rate	3.31		%	3.11		%	3.15		%	3.06		%	2.98		%	33		bps
Reserve Rate Excluding PCI Loans ³	3.35		%	3.15		%	3.20		%	3.11		%	3.04		%	31		bps

CREDIT CARD LOANS
Ending Loans		$65,577			$67,291			$63,475			$61,797			$59,757			$5,820	10	%
Average Loans		$65,983			$64,791			$62,647			$60,700			$60,122			$5,861	10	%

Interest Yield	12.85		%	12.79		%	12.83		%	12.66		%	12.65		%	20		bps
Gross Principal Charge-off Rate	4.08		%	3.73		%	3.53		%	3.71		%	3.61		%	47		bps
Net Principal Charge-off Rate	3.32		%	3.03		%	2.80		%	2.94		%	2.84		%	48		bps
Delinquency Rate (30 or more days)	2.33		%	2.28		%	2.14		%	2.00		%	2.06		%	27		bps
Delinquency Rate (90 or more days)	1.18		%	1.12		%	1.02		%	0.98		%	1.03		%	15		bps
Gross Principal Charge-off Dollars		$663			$612			$555			$561			$535			$128	24	%
Net Principal Charge-off Dollars		$540			$496			$439			$445			$422			$118	28	%
Loans Delinquent 30 or more days		$1,529			$1,532			$1,359			$1,237			$1,233			$296	24	%
Loans Delinquent 90 or more days		$777			$751			$646			$603			$616			$161	26	%

Allowance for Loan Loss (period end)		$2,252			$2,147			$2,091			$1,980			$1,892			$360	19	%
Reserve Change Build/ (Release)		$105			$56			$111			$88			$102			$3
Reserve Rate	3.43		%	3.19		%	3.29		%	3.21		%	3.17		%	26		bps

Total Discover Card Volume		$34,327			$38,574			$35,581			$35,297			$32,406			$1,921	6	%
Discover Card Sales Volume		$30,850			$35,339			$32,161			$32,172			$29,134			$1,716	6	%
Rewards Rate	1.27		%	1.23		%	1.30		%	1.20		%	1.25		%	2		bps
¹ Total Loans includes Home Equity and other loans

² Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables

³ Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing

⁴ Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
PRIVATE STUDENT LOANS
Ending Loans (excluding PCI)		$7,416			$7,076			$6,998			$6,594			$6,689			$727		11	%
Ending PCI Loans ¹		$1,956			$2,084			$2,202			$2,322			$2,449			($493	)	(20	%)
Ending Loans		$9,372			$9,160			$9,200			$8,916			$9,138			$234		3	%

Interest Yield	7.89		%	7.69		%	7.56		%	7.45		%	7.29		%	60			bps
Net Principal Charge-off Rate	0.92		%	1.03		%	1.14		%	0.85		%	0.60		%	32			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.17		%	1.34		%	1.52		%	1.15		%	0.83		%	34			bps
Delinquency Rate (30 or more days) excluding PCI Loans ²	2.25		%	2.35		%	2.14		%	2.12		%	2.04		%	21			bps

Reserve Rate	1.82		%	1.77		%	1.77		%	1.78		%	1.70		%	12			bps
Reserve Rate excluding PCI Loans ²	1.93		%	1.89		%	1.89		%	1.91		%	1.80		%	13			bps

PERSONAL LOANS
Ending Loans		$7,307			$7,374			$7,397			$6,955			$6,663			$644		10	%

Interest Yield	12.43		%	12.27		%	12.33		%	12.22		%	12.18		%	25			bps
Net Principal Charge-off Rate	4.03		%	3.62		%	3.19		%	3.18		%	3.16		%	87			bps
Delinquency Rate (30 or more days)	1.37		%	1.40		%	1.27		%	1.14		%	1.12		%	25			bps

Reserve Rate	4.12		%	4.08		%	3.63		%	3.38		%	3.10		%	102			bps


¹ Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables

² Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing

Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
SEGMENT RESULTS
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Mar 31, 2018 vs. Mar 31, 2017
DIRECT BANKING
Interest Income		$2,569			$2,556			$2,476			$2,338			$2,278			$291		13	%
Interest Expense	469			436			426			400			386			83			22	%
Net Interest Income	2,100			2,120			2,050			1,938			1,892			208			11	%
Other Income	394			423			401			408			375			19			5	%
Revenue Net of Interest Expense	2,494			2,543			2,451			2,346			2,267			227			10	%
Provision for Loan Losses	751			678			675			639			594			157			26	%
Total Other Expense	932			995			909			876			849			83			10	%
Income Before Income Taxes		$811			$870			$867			$831			$824			($13	)	(2	%)

Net Interest Margin	10.23		%	10.28		%	10.28		%	10.11		%	10.07		%	16			bps
Pretax Return on Loan Receivables	3.95		%	4.22		%	4.35		%	4.34		%	4.39		%	(44		)	bps

Allowance for Loan Loss (period end)		$2,728			$2,613			$2,525			$2,377			$2,258			$470		21	%
Reserve Change Build/ (Release) ¹		$116			$94			$148			$119			$107			$9

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM
Other Income	81			71			74			73			72			9			13	%
Revenue Net of Interest Expense	81			71			74			73			72			9			13	%
Provision for Loan Losses	—			1			(1		)	1			(8		)	8			NM
Total Other Expense	36			41			39			36			36			—			—	%
Income Before Income Taxes		$45			$29			$36			$36			$44			$1		2	%


¹ Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses

Note: See Glossary of Financial Terms for definitions of financial terms

DISCOVER FINANCIAL SERVICES

GLOSSARY OF FINANCIAL TERMS

Book Value per share represents total equity divided by ending common shares outstanding

Capital Returned to Common Stockholders represents common stock dividends declared plus treasury share repurchases minus common stock issued under employee benefit plans and stock based compensation

Common Equity Tier 1 Capital Ratio (Basel III transition) represents common equity tier 1 capital divided by risk weighted assets calculated under Basel III rules subject to transition provisions

Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) represents fully phased-in common equity tier 1 capital divided by risk weighted assets under fully phased-in Basel III rules. The Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule

Delinquency Rate (Over 30 Days) represents loans delinquent over thirty days divided by ending loans (total or respective loans, as appropriate)

Delinquency Rate (Over 90 Days) represents loans delinquent over ninety days divided by ending loans (total or respective loans, as appropriate)

Discover Card Sales Volume represents Discover card activity related to net sales

Discover Card Volume represents Discover card activity related to net sales, balance transfers, cash advances and other activity

Discover Network Proprietary Volume represents gross proprietary sales volume on the Discover Network

Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding

Effective Tax Rate represents tax expense divided by income before income taxes

Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period

Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period

Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments

Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities

Net Interest Margin represents net interest income (annualized) divided by average total loans for the period.

Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period

Operating Efficiency represents total other expense divided by revenue net of interest expense

Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders

Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period

Proprietary Network Volume represents gross proprietary sales volume on the Discover Network

Ratio of Earnings to Fixed Charges is a year-to-date statistic and represents income before income tax expense and fixed charges divided by fixed charges for the reporting period. Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense for the reporting period

Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. Under Basel III, for a Bank Holding Company to be considered "well-capitalized," total risk-based and tier 1 risk-based capital ratios of 10% and 6% respectively must be maintained. Under Basel III, to meet the regulatory minimum a Bank Holding Company must maintain total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 8%, 6%, 4%, and 4.5% respectively. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III

Reserve Rate represents the allowance for loan losses divided by total loans

Return on Equity represents net income (annualized) divided by average total equity for the reporting period

Rewards Rate represents rewards cost divided by Discover Card sales volume

Tangible Assets represents total assets less goodwill and intangibles

Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP data schedule

Tangible Common Equity/Net Loans, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end)

Tangible Common Equity per Share, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding

Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles

Total Volume represents the transaction dollar volume from the PULSE network, Network Partners, Diners Club and proprietary Discover Network

Undrawn Credit Facilities represents asset-backed conduit funding facilities and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio)



DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017
GAAP Total Common Equity		$10,308			$10,329			$10,627			$10,699			$10,705
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(162		)	(163		)	(163		)	(164		)	(165		)
Tangible Common Equity ¹		$9,891			$9,911			$10,209			$10,280			$10,285

Common Equity Tier 1 Capital (Basel III Transition)		$10,081			$10,114			$10,419			$10,492			$10,501
Adjustments Related To Capital Components During Transition ²	(27		)	(27		)	(25		)	(25		)	(26		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)		$10,054			$10,087			$10,394			$10,467			$10,475

Common Equity Tier 1 Capital Ratio (Basel III Transition)	11.9		%	11.6		%	12.5		%	13.0		%	13.4		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ³	11.8		%	11.6		%	12.5		%	13.0		%	13.4		%

GAAP Book Value Per Share		$30.93			$30.43			$30.56			$30.01			$29.46
Less: Goodwill	(0.72		)	(0.72		)	(0.69		)	(0.68		)	(0.67		)
Less: Intangibles	(0.46		)	(0.45		)	(0.45		)	(0.44		)	(0.43		)
Less: Preferred Stock	(1.60		)	(1.57		)	(1.53		)	(1.49		)	(1.46		)
Tangible Common Equity Per Share		$28.15			$27.69			$27.89			$27.40			$26.90

¹ Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles. A reconciliation of TCE to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use TCE and definitions may vary, so users of this information are advised to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the Company

² Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion

³ Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) is calculated using Common Equity Tier 1 Capital (Basel III Fully Phased-in), a non-GAAP measure, divided by Risk Weighted Assets (Basel III Fully Phased-in)

Note: See Glossary of Financial Terms for definitions of financial terms

The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as well as information regarding business and segment trends, see the earnings release and financial supplement included as exhibits to the Company’s Current Report on Form 8-K filed today and available on the Company’s website (www.discover.com) and the SEC’s website (www.sec.gov). The information provided herein includes certain non-GAAP financial measures. The reconciliations of such measures to the comparable GAAP figures are included at the end of this presentation, which is available on the Company’s website and the SEC’s website. The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business – Competition," "Business – Supervision and Regulation" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017, which is filed with the SEC and available at the SEC's website (www.sec.gov). The Company does not undertake to update or revise forward-looking statements as more information becomes available. Notice 2

• Net income of $666MM, diluted EPS of $1.82 and 25% return on equity • Credit normalization continued as a result of secular growth of consumer credit as well as our organic growth; credit environment remains constructive • Total loan growth of 9% led by a 10% gain in credit card loans • Continued to drive positive operating leverage led by 10% revenue growth, while investing for growth and new capabilities • Payment Services network volume continues to show strong growth (up 19%) • Returned $684MM of capital through dividends and share repurchases 1Q18 Highlights(1) 3 Note(s) (1) All comparisons stated on a year-over-year basis

Note(s) 1. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company’s performance; see appendix for a reconciliation • Diluted EPS of $1.82, up 27% • Revenue net of interest expense of $2.6Bn, up 10%, driven by higher net interest income • Provision for loan losses increased $165MM (28%) on higher net charge-offs and a larger reserve build • Expenses rose 9%, primarily driven by investments to support growth and new capabilities • Income tax expense includes $15MM of non-recurring benefits, primarily related to resolution of certain tax matters 1Q18 Summary Financial Results B / (W) ($MM, except per share data) 1Q18 1Q17 $ Δ % Δ Revenue Net of Interest Expense $2,575 $2,339 $236 10% Net Principal Charge-off 635 489 (146) (30%) Reserve Change build/(release) 116 97 (19) (20%) Provision for Loan Losses 751 586 (165) (28%) Operating Expense 968 885 (83) (9%) Direct Banking 811 824 (13) (2%) Payment Services 45 44 1 2% Total Pre-Tax Income 856 868 (12) (1%) Income Tax Expense 190 304 114 38% Net Income $666 $564 $102 18% ROE 25% 20% Diluted EPS $1.82 $1.43 $0.39 27% Pre-Tax, Pre-Provision Income (1) $1,607 $1,454 $153 11% 4 Highlights

Payment Services 1Q17 1Q18 $75.9 $59.8 $9.1 $6.7 $82.7 $65.6 $9.4 $7.3 +9% +10% +3% +10% Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment Total Network Volume up 15% YOY 1Q17 1Q18 $29.9 $36.1 $7.4 $3.7 $32.4 $43.2 $8.4 $4.6 Total Card Student Personal +8% +20% +14% +24% Proprietary PULSE Network PartnersDiners (1) 1Q18 Loan and Volume Growth 5 Ending Loans ($Bn) Volume ($Bn)

Highlights Note(s) 1. Rewards cost divided by Discover card sales volume • Loan growth and margin expansion drove 11% increase in net interest income • Net discount and interchange revenue increased $21MM driven by a 6% increase in card sales volume • Rewards rate increased 2 bps YOY due to mix shift towards the Discover it® product 1Q18 Revenue Detail B / (W) ($MM) 1Q18 1Q17 $ Δ % Δ Interest Income $2,569 $2,278 $291 13% Interest Expense 469 386 (83) (22%) Net Interest Income 2,100 1,892 208 11% Discount/Interchange Revenue 646 596 50 8% Rewards Cost 392 363 (29) (8%) Net Discount/Interchange Revenue 254 233 21 9% Protection Products Revenue 53 58 (5) (9%) Loan Fee Income 96 89 7 8% Transaction Processing Revenue 43 39 4 10% Other Income 29 28 1 4% Total Non-Interest Income 475 447 28 6% Revenue Net of Interest Expense $2,575 $2,339 $236 10% Direct Banking $2,494 $2,267 $227 10% Payment Services 81 72 9 13% Revenue Net of Interest Expense $2,575 $2,339 $236 10% Change ($MM) 1Q18 1Q17 QOQ YOY Discover Card Sales Volume $30,850 $29,134 (13%) 6% Rewards Rate (1) 1.27% 1.25% 4 bps 2 bps 6

Highlights • Net interest margin on loans increased 16 bps on higher loan yields, partially offset by higher funding costs • Credit card yield increased 20 bps as increases in the prime rate were partially offset by portfolio mix and higher interest charge-offs • Average consumer deposits grew 10% and composed 47% of total average funding • Funding costs on interest-bearing liabilities increased 24 bps, driven by higher market rates partially offset by maturities of higher-cost debt and favorable shifts in funding mix 1Q18 Net Interest Margin 1Q18 1Q17 ($MM) Average Balance Rate Average Balance Rate Credit Card $65,983 12.85% $60,122 12.65% Private Student 9,432 7.89% 9,197 7.29% Personal 7,387 12.43% 6,582 12.18% Other 452 5.98% 284 5.39% Total Loans 83,254 12.21% 76,185 11.94% Other Interest-Earning Assets 15,879 1.58% 16,243 0.89% Total Interest-Earning Assets $99,133 10.51% $92,428 9.99% Direct to Consumer and Affinity $39,825 1.59% $36,316 1.25% Brokered Deposits and Other 19,638 2.19% 16,242 1.98% Interest Bearing Deposits 59,463 1.79% 52,558 1.48% Borrowings 26,126 3.21% 26,561 2.97% Total Interest-Bearing Liabilities $85,589 2.22% $79,119 1.98% Change (%) 1Q18 QOQ YOY Total Interest Yield 12.21% 7bps 27bps NIM on Loans 10.23% -5bps 16bps NIM on Interest-Earning Assets 8.59% -5bps 29bps 7

Highlights Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense • Employee compensation and benefits up 12%, primarily on higher staffing levels, as well as higher average salaries • Marketing up 10% as a result of higher account acquisition costs and brand advertising • Other expense up 13% primarily due to incremental investment in philanthropic initiatives • Operating efficiency improved 30 bps on strong revenue growth with disciplined expense growth 1Q18 Operating Expense Detail B / (W) ($MM) 1Q18 1Q17 $ Δ % Δ Employee Compensation and Benefits $405 $363 ($42) (12%) Marketing and Business Development 185 168 (17) (10%) Information Processing & Communications 82 80 (2) (3%) Professional Fees 155 147 (8) (5%) Premises and Equipment 26 25 (1) (4%) Other Expense 115 102 (13) (13%) Total Operating Expense $968 $885 ($83) (9%) Direct Banking 932 849 ($83) (10%) Payment Services 36 36 0 —% Total Operating Expense $968 $885 ($83) (9%) Operating Efficiency(1) 37.6% 37.9% 30 bps 8

Total Company Loans Credit Card Loans Private Student Loans Personal Loans NCO rate (%) 30+ day DQ rate ex-PCI (%) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2.02 2.11 2.18 2.02 2.31 2.60 2.71 2.63 2.85 3.09 1.67 1.64 1.60 1.79 1.97 1.97 1.93 2.05 2.20 2.23 NCO rate (%) 30+ day DQ rate (%) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2.18 2.34 2.39 2.17 2.47 2.84 2.94 2.80 3.03 3.32 1.72 1.68 1.63 1.87 2.04 2.06 2.00 2.14 2.28 2.33 NCO rate (%) 30+ day DQ rate (%) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2.28 2.45 2.38 2.63 2.70 3.16 3.18 3.19 3.62 4.03 0.89 0.97 1.02 0.98 1.12 1.12 1.14 1.27 1.40 1.37 NCO rate (%) 30+ day DQ rate ex-PCI (%) 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 0.82 0.56 0.74 0.70 1.00 0.60 0.85 1.14 1.03 0.92 1.91 1.92 1.88 1.87 2.22 2.04 2.12 2.14 2.35 2.25 Credit Performance Trends 9

1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 95 94 99 99 104 108 109 123 120 14.3 14.3 13.9 13.2 13.4 13.0 12.5 11.6 11.9 Capital Trends Note(s) 1. Common Equity Tier 1 Capital Ratio (Basel III Transition) 2. Payout Ratio is displayed on a trailing twelve month basis. This represents the trailing twelve months’ Capital Return to Common Stockholders divided by the trailing twelve months’ Net Income Allocated to Common Stockholders Common Equity Tier 1 (CET1) Capital Ratio(1) (%) Payout Ratio(2) (%) 10

• Total loans grew 9% ($6.9Bn) YOY with strong contributions from all primary lending products • Credit card loans grew 10% ($5.8Bn) YOY as sales volume increased 6% • Average consumer deposits grew 10% ($3.5Bn) YOY, while deposit rates increased 34 bps 1Q18 Financial Summary 11 • Total NCO rate of 3.09%, up 49 bps YOY • Driven by supply- induced credit normalization and loan seasoning • Capital plan execution • Repurchased 7.5MM shares of common stock for $584MM • CET1 capital ratio(1) of 11.9% down 150 bps YOY • Net income of $666MM and diluted EPS of $1.82 • Revenue growth of 10% on higher net interest income • NIM of 10.23%, up 16 bps YOY • Efficiency ratio improved 30 bps YOY to 38% • Strong return on equity at 25% Note(s) 1. Basel III Transition Balance Sheet Credit and Capital Profitability

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