Form 8-K Discover Financial Servi For: Jul 26

July 26, 2018 4:18 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): July 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 July 26, 2018, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended June 30, 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 information contained in this Item 2.02 of this Current Report on Form 8-K, including the exhibits, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be "filed" for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits




Exhibit No.		Description
99.1		Press Release of the Company dated July 26, 2018 containing financial information for the quarter ended June 30, 2018
99.2		Financial Data Supplement of the Company for the quarter and the six months ended June 30, 2018
99.3		Financial Results Presentation of the Company for the quarter ended June 30, 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: July 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 July 26, 2018 containing financial information for the quarter ended June 30, 2018
99.2		Financial Data Supplement of the Company for the quarter and the six months ended June 30, 2018
99.3		Financial Results Presentation of the Company for the quarter ended June 30, 2018

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS SECOND QUARTER NET INCOME OF $669 MILLION

OR $1.91 PER DILUTED SHARE

Riverwoods, IL, July 26, 2018 - Discover Financial Services (NYSE: DFS) today reported net income of $669 million or $1.91 per diluted share for the second quarter of 2018, as compared to $546 million or $1.40 per diluted share for the second quarter of 2017. The company’s return on equity for the second quarter of 2018 was 25%.

Second Quarter Highlights


•	Total loans grew $6.8 billion, or 9%, from the prior year to $84.8 billion.


•	Credit card loans grew $6.0 billion, or 10%, to $67.8 billion, and Discover card sales volume increased 9% from the prior year, to $35.1 billion.


•	Total net charge-off rate increased 40 basis points from the prior year to 3.11%. Excluding purchased credit-impaired ("PCI") loans, total net charge-off rate increased 39 basis points from the prior year to 3.18% and the total 30+ day delinquency rate increased 15 basis points from the prior year to 2.08%.


•	Consumer deposits grew $4.5 billion, or 12%, from the prior year to $42.3 billion.


•	Payment Services transaction dollar volume was $57.3 billion, up 14% from the prior year.

“Our investments in the Discover brand and in growth initiatives across our product set continued to drive outstanding returns this quarter. The direct impact of these initiatives was evident in our continued strong loan and revenue growth," said David Nelms, chairman and CEO of Discover. “Our new capital plan includes a 14% increase in our dividend which, combined with share repurchases, is expected to contribute to a robust level of capital return over the next year."

Segment Results:

Direct Banking

Direct Banking pretax income of $837 million in the quarter increased by $6 million from the prior year driven by higher net interest income, largely offset by an increase in the provision for loan losses and higher operating expenses.

Total loans ended the quarter at $84.8 billion, up 9% compared to the prior year. Credit card loans ended the quarter at $67.8 billion, up 10% from the prior year. Personal loans increased $349 million, or 5%, from the prior year. Private student loans increased $186 million, or 2%, year-over-year, and grew $666 million, or 10%, excluding purchased student loans.

Net interest income increased $191 million, or 10%, from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.21%, up 10 basis points from the prior year. Card yield was 12.88%, an increase of 22 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 34 basis points from the prior year, primarily as a result of higher market rates.

Other income decreased $10 million, or 2%, from the prior year, driven by higher promotional rewards cost.

The 30+ day delinquency rate for credit card loans was 2.16%, up 16 basis points from the prior year and down 17 basis points from the prior quarter. The credit card net charge-off rate for the second quarter was 3.34%, up 40 basis points from the prior year and 2 basis points from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 1.16%, up 1 basis point from the prior year. The personal loans net charge-off rate of 3.97% increased by 79 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.

Provision for loan losses of $742 million increased $103 million from the prior year due to higher net charge-offs, partially offset by a lower reserve build. The reserve build for the second quarter of 2018 was $93 million, compared to a reserve build of $119 million in the second quarter of 2017.

Expenses increased $72 million from the prior year as a result of higher employee compensation and marketing expenses. Employee compensation increased as a result of higher staffing levels and higher average salaries. Marketing expenses increased as a result of higher investment in new account acquisition and brand advertising.

Payment Services

Payment Services pretax income was $40 million in the quarter, up $4 million from the prior year, due to higher revenue driven by international growth.

Payment Services transaction dollar volume was $57.3 billion, up 14% versus the prior year. PULSE transaction dollar volume was up 14% year-over-year, which reflects the impact of new issuers on the network as well as strong growth from existing issuers. Diners Club volume increased 8% year-over-year driven by continued strength of newer franchise relationships. Network Partners volume increased by 33% from the prior year driven by AribaPay.

Share Repurchases

During the second quarter of 2018, the company repurchased approximately 7.6 million shares of common stock for $555 million. Shares of common stock outstanding declined by 2.0% from the prior quarter.

Federal Reserve Response To 2018 Capital Plan

On June 28, 2018, Discover Financial Services announced that the Board of Governors of the Federal Reserve System notified Discover that it has no objections to the company's planned capital actions through June 30, 2019, which include an increase in the company's quarterly dividend from $0.35 to $0.40 per share of common stock and share repurchases of up to $1.85 billion during the four quarters ending June 30, 2019.

Conference Call and Webcast Information

The company will host a conference call to discuss its second quarter results on Thursday, July 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 Global Network, comprised of Discover Network, with millions of merchant 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, and “Management's Discussion & Analysis of Financial Condition and Results of Operations” in the company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, which are 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																				Six Months Ended
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017					Jun 30, 2018			Jun 30, 2017			2018 vs. 2017
EARNINGS SUMMARY
Interest Income		$2,636			$2,569			$2,556			$2,476			$2,338			$298		13	%		$5,205			$4,616			$589		13	%
Interest Expense	507			469			436			426			400			107			27	%	976			786			190			24	%
Net Interest Income	2,129			2,100			2,120			2,050			1,938			191			10	%	4,229			3,830			399			10	%
Discount/Interchange Revenue	724			646			717			675			666			58			9	%	1,370			1,262			108			9	%
Rewards Cost	461			392			434			417			388			73			19	%	853			751			102			14	%
Discount and Interchange Revenue, net	263			254			283			258			278			(15		)	(5	%)	517			511			6			1	%
Protection Products Revenue	50			53			54			55			56			(6		)	(11	%)	103			114			(11		)	(10	%)
Loan Fee Income	95			96			96			95			83			12			14	%	191			172			19			11	%
Transaction Processing Revenue	42			43			43			43			42			—			—	%	85			81			4			5	%
Other Income	24			29			18			24			22			2			9	%	53			50			3			6	%
Total Other Income	474			475			494			475			481			(7		)	(1	%)	949			928			21			2	%

Revenue Net of Interest Expense	2,603			2,575			2,614			2,525			2,419			184			8	%	5,178			4,758			420			9	%

Provision for Loan Losses	742			751			679			674			640			102			16	%	1,493			1,226			267			22	%

Employee Compensation and Benefits	400			405			411			371			367			33			9	%	805			730			75			10	%
Marketing and Business Development	224			185			213			203			192			32			17	%	409			360			49			14	%
Information Processing & Communications	86			82			80			78			77			9			12	%	168			157			11			7	%
Professional Fees	161			155			189			163			156			5			3	%	316			303			13			4	%
Premises and Equipment	24			26			26			25			23			1			4	%	50			48			2			4	%
Other Expense	89			115			117			108			97			(8		)	(8	%)	204			199			5			3	%
Total Other Expense	984			968			1,036			948			912			72			8	%	1,952			1,797			155			9	%

Income Before Income Taxes	877			856			899			903			867			10			1	%	1,733			1,735			(2		)	—	%
Tax Expense	208			190			512			301			321			(113		)	(35	%)	398			625			(227		)	(36	%)
Net Income		$669			$666			$387			$602			$546			$123		23	%		$1,335			$1,110			$225		20	%

Net Income Allocated to Common Stockholders		$663			$646			$359			$589			$532			$131		25	%		$1,309			$1,083			$226		21	%

Effective Tax Rate	23.7		%	22.2		%	57.0		%	33.3		%	37.1		%						23.0		%	36.0		%

Net Interest Margin	10.21		%	10.23		%	10.28		%	10.28		%	10.11		%	10			bps		10.22		%	10.09		%	13			bps
Operating Efficiency	37.8		%	37.6		%	39.7		%	37.5		%	37.7		%	10			bps		37.7		%	37.8		%	(10		)	bps
ROE	25		%	25		%	14		%	22		%	19		%						25		%	20		%
Capital Returned to Common Stockholders		$656			$684			$657			$667			$547			$109		20	%		$1,340			$1,167			$173		15	%
Payout Ratio	99		%	106		%	183		%	113		%	103		%						102		%	108		%	(600		)	bps

Ending Common Shares Outstanding	344			351			358			366			375			(31		)	(8	%)	344			375			(31		)	(8	%)
Weighted Average Common Shares Outstanding	348			355			362			371			379			(31		)	(8	%)	351			382			(31		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	348			355			362			371			379			(31		)	(8	%)	351			382			(31		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$1.91			$1.82			$0.99			$1.59			$1.41			$0.50		35	%		$3.73			$2.83			$0.90		32	%
Diluted EPS		$1.91			$1.82			$0.99			$1.59			$1.40			$0.51		36	%		$3.72			$2.83			$0.89		31	%
Common Stock Price (period end)		$70.41			$71.93			$76.92			$64.48			$62.19			$8.22		13	%		$70.41			$62.19			$8.22		13	%
Book Value per share		$31.66			$30.93			$30.43			$30.56			$30.01			$1.65		5	%		$31.66			$30.01			$1.65		5	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended														Six Months Ended
	Jun 30, 2018		Mar 31, 2018		Dec 31, 2017		Sep 30, 2017		Jun 30, 2017		Jun 30, 2018 vs. Jun 30, 2017				Jun 30, 2018		Jun 30, 2017		2018 vs. 2017
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$837		$811		$870		$867		$831		$6	1	%		$1,648		$1,655		($7	)	—	%
Payment Services	40		45		29		36		36		4		11	%	85		80		5			6	%
Total		$877		$856		$899		$903		$867		$10	1	%		$1,733		$1,735		($2	)	—	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	614		550		607		579		551		63		11	%	1,164		1,054		110			10	%
PULSE Network	1,055		989		1,029		996		961		94		10	%	2,044		1,831		213			12	%
Total	1,669		1,539		1,636		1,575		1,512		157		10	%	3,208		2,885		323			11	%

NETWORK VOLUME
PULSE Network		$44,308		$43,158		$42,386		$39,828		$38,848		$5,460	14	%		$87,466		$74,914		$12,552		17	%
Network Partners	4,602		4,553		3,280		3,811		3,461		1,141		33	%	9,155		7,122		2,033			29	%
Diners Club International¹	8,417		8,390		8,373		7,989		7,800		617		8	%	16,807		15,182		1,625			11	%
Total Payment Services	57,327		56,101		54,039		51,628		50,109		7,218		14	%	113,428		97,218		16,210			17	%
Discover Network - Proprietary	36,339		32,382		36,267		33,576		33,342		2,997		9	%	68,721		63,201		5,520			9	%
Total		$93,666		$88,483		$90,306		$85,204		$83,451		$10,215	12	%		$182,149		$160,419		$21,730		14	%


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
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$17,441			$18,641			$14,955			$16,155			$14,722			$2,719		18	%
Total Loan Receivables	84,789			82,744			84,248			80,443			77,997			6,792			9	%
Allowance for Loan Losses	(2,828		)	(2,736		)	(2,621		)	(2,531		)	(2,384		)	(444		)	(19	%)
Net Loan Receivables	81,961			80,008			81,627			77,912			75,613			6,348			8	%
Premises and Equipment, net	874			848			825			800			774			100			13	%
Goodwill and Intangible Assets, net	417			417			418			418			419			(2		)	—	%
Other Assets	2,058			2,053			2,262			2,323			2,229			(171		)	(8	%)
Total Assets		$102,751			$101,967			$100,087			$97,608			$93,757			$8,994		10	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$42,256			$41,321			$39,367			$38,703			$37,709			$4,547		12	%
Brokered Deposits and Other Deposits	19,427			19,809			19,397			17,432			15,155			4,272			28	%
Deposits	61,683			61,130			58,764			56,135			52,864			8,819			17	%
Borrowings	26,252			26,244			26,326			26,737			26,438			(186		)	(1	%)
Accrued Expenses and Other Liabilities	3,927			3,722			4,105			3,549			3,196			731			23	%
Total Liabilities	91,862			91,096			89,195			86,421			82,498			9,364			11	%
Total Equity	10,889			10,871			10,892			11,187			11,259			(370		)	(3	%)
Total Liabilities and Stockholders' Equity		$102,751			$101,967			$100,087			$97,608			$93,757			$8,994		10	%

LIQUIDITY
Liquidity Portfolio		$15,703			$17,550			$13,560			$13,906			$13,865		1,838			13	%
Undrawn Credit Facilities ¹	36,422			35,099			35,153			33,696			31,877			4,545			14	%
Total Liquidity		$52,125			$52,649			$48,713			$47,602			$45,742			$6,383		14	%


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
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017
BALANCE SHEET STATISTICS
Total Common Equity		$10,326			$10,308			$10,329			$10,627			$10,699			($373	)	(3	%)
Total Common Equity/Total Assets	10.1		%	10.1		%	10.3		%	10.9		%	11.4		%
Total Common Equity/Net Loans	12.6		%	12.9		%	12.7		%	13.6		%	14.2		%

Tangible Assets		$102,334			$101,550			$99,669			$97,190			$93,338			$8,996		10	%
Tangible Common Equity ¹		$9,909			$9,891			$9,911			$10,209			$10,280			($371	)	(4	%)
Tangible Common Equity/Tangible Assets ¹	9.7		%	9.7		%	9.9		%	10.5		%	11.0		%
Tangible Common Equity/Net Loans ¹	12.1		%	12.4		%	12.1		%	13.1		%	13.6		%
Tangible Common Equity per share¹		$28.82			$28.15			$27.69			$27.89			$27.40			$1.42		5	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	13.6		%	14.0		%	13.8		%	14.7		%	15.2		%
Tier 1 Risk Based Capital Ratio	12.3		%	12.5		%	12.3		%	13.2		%	13.7		%
Tier 1 Leverage Ratio	10.5		%	10.6		%	10.8		%	11.4		%	11.8		%
Common Equity Tier 1 Capital Ratio ²	11.6		%	11.9		%	11.6		%	12.5		%	13.0		%

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

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

² At June 30, 2018, there was no difference between the Company's CET1 capital ratio calculated under Basel III transition rules and the Company's CET1 capital ratio calculated under Basel III fully phased-in rules

³ 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

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

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017
AVERAGE BALANCES
Assets
Cash and Investment Securities		$16,395			$15,058			$15,290			$14,547			$14,616			$1,779		12	%
Restricted Cash	466			821			276			848			559			(93		)	(17	%)
Credit Card Loans	66,594			65,983			64,791			62,647			60,700			5,894			10	%
Private Student Loans	9,219			9,432			9,158			8,986			9,020			199			2	%
Personal Loans	7,304			7,387			7,455			7,208			6,820			484			7	%
Other Loans	531			452			398			348			314			217			69	%
Total Loans	83,648			83,254			81,802			79,189			76,854			6,794			9	%
Total Interest Earning Assets	100,509			99,133			97,368			94,584			92,029			8,480			9	%
Allowance for Loan Losses	(2,731		)	(2,615		)	(2,530		)	(2,379		)	(2,262		)	(469		)	(21	%)
Other Assets	4,170			4,221			4,252			4,192			4,147			23			1	%
Total Assets		$101,948			$100,739			$99,090			$96,397			$93,914			$8,034		9	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$41,459			$39,825			$38,807			$37,900			$36,956			$4,503		12	%
Brokered Deposits and Other Deposits	19,166			19,638			18,244			16,192			15,600			3,566			23	%
Total Interest-bearing Deposits	60,625			59,463			57,051			54,092			52,556			8,069			15	%
Short-term Borrowings	1			1			2			1			2			(1		)	(50	%)
Securitized Borrowings	16,121			16,180			16,676			17,206			16,141			(20		)	—	%
Other Long-term Borrowings	9,866			9,945			9,768			9,721			9,979			(113		)	(1	%)
Total Interest-bearing Liabilities	86,613			85,589			83,497			81,020			78,678			7,935			10	%
Other Liabilities & Stockholders' Equity	15,335			15,150			15,593			15,377			15,236			99			1	%
Total Liabilities and Stockholders' Equity		$101,948			$100,739			$99,090			$96,397			$93,914			$8,034		9	%

AVERAGE RATES
Assets
Cash and Investment Securities	1.82		%	1.57		%	1.34		%	1.31		%	1.12		%	70			bps
Restricted Cash	1.85		%	1.68		%	1.34		%	1.15		%	0.89		%	96			bps
Credit Card Loans	12.88		%	12.85		%	12.79		%	12.83		%	12.66		%	22			bps
Private Student Loans	8.05		%	7.89		%	7.69		%	7.56		%	7.45		%	60			bps
Personal Loans	12.55		%	12.43		%	12.27		%	12.33		%	12.22		%	33			bps
Other Loans	6.02		%	5.98		%	5.66		%	5.56		%	5.59		%	43			bps
Total Loans	12.28		%	12.21		%	12.14		%	12.15		%	11.98		%	30			bps
Total Interest Earning Assets	10.52		%	10.51		%	10.41		%	10.39		%	10.19		%	33			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.71		%	1.59		%	1.44		%	1.37		%	1.29		%	42			bps
Brokered Deposits and Other Deposits	2.33		%	2.19		%	2.12		%	2.12		%	2.07		%	26			bps
Total Interest-bearing Deposits	1.90		%	1.79		%	1.65		%	1.59		%	1.52		%	38			bps
Short-term Borrowings	1.89		%	1.75		%	1.31		%	1.33		%	1.06		%	83			bps
Securitized Borrowings	2.67		%	2.43		%	2.19		%	2.37		%	2.31		%	36			bps
Other Long-term Borrowings	4.57		%	4.49		%	4.30		%	4.30		%	4.36		%	21			bps
Total Interest-bearing Liabilities	2.35		%	2.22		%	2.07		%	2.08		%	2.04		%	31			bps

Net Interest Margin	10.21		%	10.23		%	10.28		%	10.28		%	10.11		%	10			bps
Net Yield on Interest-earning Assets	8.50		%	8.59		%	8.64		%	8.60		%	8.44		%	6			bps

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Six Months Ended
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017					Jun 30, 2018			Jun 30, 2017			2018 vs. 2017
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$84,789			$82,744			$84,248			$80,443			$77,997			$6,792		9	%		$84,789			$77,997			$6,792		9	%
Average Loans ^{1, 2}		$83,648			$83,254			$81,802			$79,189			$76,854			$6,794		9	%		$83,452			$76,521			$6,931		9	%

Interest Yield	12.28		%	12.21		%	12.14		%	12.15		%	11.98		%	30			bps		12.24		%	11.96		%	28			bps
Gross Principal Charge-off Rate	3.78		%	3.74		%	3.45		%	3.26		%	3.36		%	42			bps		3.76		%	3.31		%	45			bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.87		%	3.84		%	3.54		%	3.35		%	3.47		%	40			bps		3.85		%	3.42		%	43			bps
Net Principal Charge-off Rate	3.11		%	3.09		%	2.85		%	2.63		%	2.71		%	40			bps		3.10		%	2.65		%	45			bps
Net Principal Charge-off Rate excluding PCI Loans ³	3.18		%	3.17		%	2.92		%	2.71		%	2.79		%	39			bps		3.18		%	2.74		%	44			bps
Delinquency Rate (30 or more days) excluding PCI Loans ³	2.08		%	2.23		%	2.20		%	2.05		%	1.93		%	15			bps		2.08		%	1.93		%	15			bps
Delinquency Rate (90 or more days) excluding PCI Loans ³	0.99		%	1.06		%	0.99		%	0.91		%	0.88		%	11			bps		0.99		%	0.88		%	11			bps
Gross Principal Charge-off Dollars		$789			$769			$711			$651			$645			$144		22	%		$1,558			$1,256			$302		24	%
Net Principal Charge-off Dollars		$649			$635			$583			$527			$520			$129		25	%		$1,284			$1,009			$275		27	%
Net Interest and Fee Charge-off Dollars		$138			$136			$119			$107			$110			$28		25	%		$274			$216			$58		27	%
Loans Delinquent 30 or more days ³		$1,725			$1,800			$1,806			$1,605			$1,457			$268		18	%		$1,725			$1,457			$268		18	%
Loans Delinquent 90 or more days ³		$821			$855			$815			$709			$667			$154		23	%		$821			$667			$154		23	%

Allowance for Loan Loss (period end)		$2,828			$2,736			$2,621			$2,531			$2,384			$444		19	%		$2,828			$2,384			$444		19	%
Reserve Change Build/ (Release) ⁴		$93			$116			$96			$147			$120			($27	)				$209			$217			($8	)
Reserve Rate	3.34		%	3.31		%	3.11		%	3.15		%	3.06		%	28			bps		3.34		%	3.06		%	28			bps
Reserve Rate Excluding PCI Loans ³	3.38		%	3.35		%	3.15		%	3.20		%	3.11		%	27			bps		3.38		%	3.11		%	27			bps

CREDIT CARD LOANS
Ending Loans		$67,812			$65,577			$67,291			$63,475			$61,797			$6,015		10	%		$67,812			$61,797			$6,015		10	%
Average Loans		$66,594			$65,983			$64,791			$62,647			$60,700			$5,894		10	%		$66,290			$60,413			$5,877		10	%

Interest Yield	12.88		%	12.85		%	12.79		%	12.83		%	12.66		%	22			bps		12.87		%	12.66		%	21			bps
Gross Principal Charge-off Rate	4.12		%	4.08		%	3.73		%	3.53		%	3.71		%	41			bps		4.10		%	3.66		%	44			bps
Net Principal Charge-off Rate	3.34		%	3.32		%	3.03		%	2.80		%	2.94		%	40			bps		3.33		%	2.89		%	44			bps
Delinquency Rate (30 or more days)	2.16		%	2.33		%	2.28		%	2.14		%	2.00		%	16			bps		2.16		%	2.00		%	16			bps
Delinquency Rate (90 or more days)	1.09		%	1.18		%	1.12		%	1.02		%	0.98		%	11			bps		1.09		%	0.98		%	11			bps
Gross Principal Charge-off Dollars		$684			$663			$612			$555			$561			$123		22	%		$1,347			$1,096			$251		23	%
Net Principal Charge-off Dollars		$555			$540			$496			$439			$445			$110		25	%		$1,095			$867			$228		26	%
Loans Delinquent 30 or more days		$1,466			$1,529			$1,532			$1,359			$1,237			$229		19	%		$1,466			$1,237			$229		19	%
Loans Delinquent 90 or more days		$743			$777			$751			$646			$603			$140		23	%		$743			$603			$140		23	%

Allowance for Loan Loss (period end)		$2,334			$2,252			$2,147			$2,091			$1,980			$354		18	%		$2,334			$1,980			$354		18	%
Reserve Change Build/ (Release)		$82			$105			$56			$111			$88			($6	)				$187			$190			($3	)
Reserve Rate	3.44		%	3.43		%	3.19		%	3.29		%	3.21		%	23			bps		3.44		%	3.21		%	23			bps

Total Discover Card Volume		$38,430			$34,327			$38,574			$35,581			$35,297			$3,133		9	%		$72,757			$67,703			$5,054		7	%
Discover Card Sales Volume		$35,077			$30,850			$35,339			$32,161			$32,172			$2,905		9	%		$65,927			$61,306			$4,621		8	%
Rewards Rate	1.31		%	1.27		%	1.23		%	1.30		%	1.20		%	11			bps		1.29		%	1.22		%	7			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																				Six Months Ended
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017					Jun 30, 2018			Jun 30, 2017			2018 vs. 2017
PRIVATE STUDENT LOANS
Ending Loans (excluding PCI)		$7,260			$7,416			$7,076			$6,998			$6,594			$666		10	%		$7,260			$6,594			$666		10	%
Ending PCI Loans ¹	1,842			1,956			2,084			2,202			2,322			(480		)	(21	%)	1,842			2,322			(480		)	(21	%)
Ending Loans		$9,102			$9,372			$9,160			$9,200			$8,916			$186		2	%		$9,102			$8,916			$186		2	%

Interest Yield	8.05		%	7.89		%	7.69		%	7.56		%	7.45		%	60			bps		7.97		%	7.37		%	60			bps
Net Principal Charge-off Rate	0.92		%	0.92		%	1.03		%	1.14		%	0.85		%	7			bps		0.92		%	0.72		%	20			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.16		%	1.17		%	1.34		%	1.52		%	1.15		%	1			bps		1.17		%	0.99		%	18			bps
Delinquency Rate (30 or more days) excluding PCI Loans ²	2.10		%	2.25		%	2.35		%	2.14		%	2.12		%	(2		)	bps		2.10		%	2.12		%	(2		)	bps

Reserve Rate	1.87		%	1.82		%	1.77		%	1.77		%	1.78		%	9			bps		1.87		%	1.78		%	9			bps
Reserve Rate excluding PCI Loans ²	1.97		%	1.93		%	1.89		%	1.89		%	1.91		%	6			bps		1.97		%	1.91		%	6			bps

PERSONAL LOANS
Ending Loans		$7,304			$7,307			$7,374			$7,397			$6,955			$349		5	%		$7,304			$6,955			$349		5	%

Interest Yield	12.55		%	12.43		%	12.27		%	12.33		%	12.22		%	33			bps		12.49		%	12.20		%	29			bps
Net Principal Charge-off Rate	3.97		%	4.03		%	3.62		%	3.19		%	3.18		%	79			bps		4.00		%	3.17		%	83			bps
Delinquency Rate (30 or more days)	1.42		%	1.37		%	1.40		%	1.27		%	1.14		%	28			bps		1.42		%	1.14		%	28			bps

Reserve Rate	4.29		%	4.12		%	4.08		%	3.63		%	3.38		%	91			bps		4.29		%	3.38		%	91			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																				Six Months Ended
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Jun 30, 2018 vs. Jun 30, 2017					Jun 30, 2018			Jun 30, 2017			2018 vs. 2017
DIRECT BANKING
Interest Income		$2,636			$2,569			$2,556			$2,476			$2,338			$298		13	%		$5,205			$4,616			$589		13	%
Interest Expense	507			469			436			426			400			107			27	%	976			786			190			24	%
Net Interest Income	2,129			2,100			2,120			2,050			1,938			191			10	%	4,229			3,830			399			10	%
Other Income	398			394			423			401			408			(10		)	(2	%)	792			783			9			1	%
Revenue Net of Interest Expense	2,527			2,494			2,543			2,451			2,346			181			8	%	5,021			4,613			408			9	%
Provision for Loan Losses	742			751			678			675			639			103			16	%	1,493			1,233			260			21	%
Total Other Expense	948			932			995			909			876			72			8	%	1,880			1,725			155			9	%
Income Before Income Taxes		$837			$811			$870			$867			$831			$6		1	%		$1,648			$1,655			($7	)	—	%

Net Interest Margin	10.21		%	10.23		%	10.28		%	10.28		%	10.11		%	10			bps		10.22		%	10.09		%	13			bps
Pretax Return on Loan Receivables	4.01		%	3.95		%	4.22		%	4.35		%	4.34		%	(33		)	bps		3.98		%	4.36		%	(38		)	bps

Allowance for Loan Loss (period end)		$2,821			$2,728			$2,613			$2,525			$2,377			$444		19	%		$2,821			$2,377			$444		19	%
Reserve Change Build/ (Release) ¹		$93			$116			$94			$148			$119			($26	)				$209			$226			($17	)

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	76			81			71			74			73			3			4	%	157			145			12			8	%
Revenue Net of Interest Expense	76			81			71			74			73			3			4	%	157			145			12			8	%
Provision for Loan Losses	—			—			1			(1		)	1			(1		)	(100	%)	—			(7		)	7			(100	%)
Total Other Expense	36			36			41			39			36			—			—	%	72			72			—			—	%
Income Before Income Taxes		$40			$45			$29			$36			$36			$4		11	%		$85			$80			$5		6	%


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 (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective loans, as appropriate)

Delinquency Rate (90 or more days) represents loans delinquent ninety days or more 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
	Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Sep 30, 2017			Jun 30, 2017
GAAP Total Common Equity		$10,326			$10,308			$10,329			$10,627			$10,699
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(162		)	(162		)	(163		)	(163		)	(164		)
Tangible Common Equity ¹		$9,909			$9,891			$9,911			$10,209			$10,280

GAAP Book Value Per Share		$31.66			$30.93			$30.43			$30.56			$30.01
Less: Goodwill	(0.73		)	(0.72		)	(0.72		)	(0.69		)	(0.68		)
Less: Intangibles	(0.47		)	(0.46		)	(0.45		)	(0.45		)	(0.44		)
Less: Preferred Stock	(1.64		)	(1.60		)	(1.57		)	(1.53		)	(1.49		)
Tangible Common Equity Per Share		$28.82			$28.15			$27.69			$27.89			$27.40

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

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

Notice 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, and "Management’s Discussion & Analysis of Financial Condition and Results of Operations" in the company's Quarterly Report on Form 10- Q for the quarter ended March 31, 2018, which are 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. 2

2Q18 Highlights(1) • Net income of $669MM, diluted EPS of $1.91; return on equity of 25% • Total loan growth of 9% led by a 10% increase in credit card loans; revenue growth of 8% • Strong credit performance as a result of disciplined underwriting and investments in credit risk management initiatives, even as normalization continued; credit environment remains constructive • Payment Services continues to drive strong network volume growth (up 14%) • Returned $656MM of capital through dividends and share repurchases and received a non-objection from the Federal Reserve for 2018-2019 capital plan Note(s) (1) All comparisons stated on a year-over-year basis 3

2Q18 Summary Financial Results Highlights B / (W) ($MM, except per share data) 2Q18 2Q17 $ Δ % Δ Revenue Net of Interest Expense $2,603 $2,419 $184 8% • Diluted EPS of $1.91, up 36% Net Principal Charge-off 649 520 (129) (25%) • Revenue net of interest expense of Reserve Change build/(release) 93 120 27 23% $2.6Bn, up 8%, driven by higher net Provision for Loan Losses 742 640 (102) (16%) interest income Operating Expense 984 912 (72) (8%) • Provision for loan losses increased Direct Banking 837 831 6 1% $102MM, or 16%, on higher net Payment Services 40 36 4 11% charge-offs, partially offset by a Total Pre-Tax Income 877 867 10 1% lower reserve build Income Tax Expense 208 321 113 35% • Expenses rose 8%, primarily driven Net Income $669 $546 $123 23% by investments to support growth and new capabilities ROE 25% 19% Diluted EPS $1.91 $1.40 $0.51 36% Pre-Tax, Pre-Provision Income (1) $1,619 $1,507 $112 7% 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 4

2Q18 Loan and Volume Growth Ending Loans ($Bn) Volume ($Bn) Payment Services Total Card Student Personal (1) Network Proprietary PULSE Diners Partners +9% +10% +2% +5% +9% +14% +8% +33% $84.8 $78.0 $67.8 $61.8 $44.3 $38.8 $36.3 $33.3 $8.4 $8.9 $9.1 $7.0 $7.3 $7.8 $3.5 $4.6 2Q17 2Q18 2Q17 2Q18 Total Network Volume up 12% YOY 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 5

2Q18 Revenue Detail B / (W) Highlights ($MM) 2Q18 2Q17 $ Δ % Δ Interest Income $2,636 $2,338 $298 13% • Loan growth and margin expansion Interest Expense 507 400 (107) (27%) drove 10% increase in net interest Net Interest Income 2,129 1,938 191 10% income Discount/Interchange Revenue 724 666 58 9% • Net discount and interchange Rewards Cost 461 388 (73) (19%) Net Discount/Interchange Revenue 263 278 (15) (5%) revenue decreased $15MM driven Protection Products Revenue 50 56 (6) (11%) by higher promotional rewards cost Loan Fee Income 95 83 12 14% Transaction Processing Revenue 42 42 0 —% • Rewards rate increased 11 bps Other Income 24 22 2 9% YOY due to greater customer Total Non-Interest Income 474 481 (7) (1%) engagement in rotating 5% categories Revenue Net of Interest Expense $2,603 $2,419 $184 8% Direct Banking $2,527 $2,346 $181 8% Payment Services 76 73 3 4% Revenue Net of Interest Expense $2,603 $2,419 $184 8% Change ($MM) 2Q18 2Q17 QOQ YOY Discover Card Sales Volume $35,077 $32,172 14% 9% Rewards Rate (1) 1.31% 1.20% 4 bps 11 bps Note(s) 1. Rewards cost divided by Discover card sales volume 6

2Q18 Net Interest Margin 2Q18 2Q17 Highlights Average Average ($MM) Balance Rate Balance Rate • Net interest margin on loans Credit Card $66,594 12.88% $60,700 12.66% increased 10 bps driven by higher Private Student 9,219 8.05% 9,020 7.45% loan yields, partially offset by higher Personal 7,304 12.55% 6,820 12.22% Other 531 6.02% 314 5.59% funding costs Total Loans 83,648 12.28% 76,854 11.98% Other Interest-Earning Assets 16,861 1.81% 15,175 1.10% • Credit card yield increased 22 bps as Total Interest-Earning Assets $100,509 10.52% $92,029 10.19% increases in the prime rate were partially offset by portfolio mix and Direct to Consumer and Affinity $41,459 1.71% $36,956 1.29% Brokered Deposits and Other 19,166 2.33% 15,600 2.07% higher interest charge-offs Interest Bearing Deposits 60,625 1.90% 52,556 1.52% Borrowings 25,988 3.39% 26,122 3.09% • Average consumer deposits grew Total Interest-Bearing Liabilities $86,613 2.35% $78,678 2.04% 12% and composed 48% of total average funding Change (%) 2Q18 QOQ YOY • Funding costs on interest-bearing Total Interest Yield on Loans 12.28% 7bps 30bps liabilities increased 31 bps, driven by NIM on Loans 10.21% -2bps 10bps NIM on Interest-Earning Assets 8.50% -9bps 6bps higher market rates partially offset by favorable shifts in funding mix 7

2Q18 Operating Expense Detail B / (W) Highlights ($MM) 2Q18 2Q17 $ Δ % Δ Employee Compensation and Benefits $400 $367 ($33) (9%) • Employee compensation and Marketing and Business Development 224 192 (32) (17%) benefits up 9%, primarily on higher Information Processing & Communications 86 77 (9) (12%) staffing levels, as well as higher Professional Fees 161 156 (5) (3%) average salaries Premises and Equipment 24 23 (1) (4%) Other Expense 89 97 8 8% Total Operating Expense $984 $912 ($72) (8%) • Marketing up 17% as a result of higher investment in new account Direct Banking 948 876 ($72) (8%) acquisition and brand advertising Payment Services 36 36 0 —% Total Operating Expense $984 $912 ($72) (8%) • Information processing up 12% due to investments in Operating Efficiency(1) 37.8% 37.7% (10) bps infrastructure and analytic capabilities Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense 8

Credit Performance Trends Total Company Loans Credit Card Loans 3.32 3.34 3.09 3.11 2.85 2.84 2.94 3.03 2.60 2.71 2.63 2.80 2.31 2.34 2.39 2.47 2.11 2.18 2.02 2.17 2.20 2.23 2.14 2.28 2.33 2.16 1.97 1.97 1.93 2.05 2.08 1.87 2.04 2.06 2.00 1.64 1.60 1.79 1.68 1.63 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) Private Student Loans Personal Loans 4.03 3.97 3.62 3.16 3.18 3.19 2.63 2.70 2.35 2.45 2.38 2.22 2.12 2.14 2.25 2.10 1.92 1.88 1.87 2.04 1.40 1.37 1.42 1.14 1.12 1.12 1.14 1.27 1.00 0.85 1.03 0.92 0.92 0.97 1.02 0.98 0.56 0.74 0.70 0.60 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) 9

Capital Trends 14.3 13.9 13.4 13.2 13.0 12.5 11.9 11.6 11.6 123 120 118 109 104 108 99 99 94 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 Common Equity Tier 1 (CET1) Capital Ratio(1) (%) Payout Ratio(2) (%) 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 10

2Q18 Financial Summary Balance Sheet Credit and Capital Profitability • Total loans grew 9% • Total NCO rate of 3.11%, • Net income of $669MM ($6.8Bn) YOY up 40 bps YOY and diluted EPS of $1.91 • Driven by supply- • Credit card loans grew induced credit • Revenue growth of 8% on 10% ($6.0Bn) YOY as normalization and loan higher net interest income sales volume increased seasoning 9% • NIM of 10.21%, up 10 bps • Capital return YOY • Average consumer • Raised quarterly deposits grew 12% common dividend • Strong return on equity at ($4.5Bn) YOY, while $0.05 to $0.40/share 25% deposit rates increased 42 • Planned gross share bps repurchases of $1.85Bn • CET1 capital ratio(1) of 11.6% down 140 bps YOY Note(s) 1. Basel III Transition 11

Appendix Reconciliation of GAAP to Non-GAAP Data (unaudited, $MM) 2Q18 2Q17 Provision for loan losses $742 $640 Income before income taxes 877 867 Pre-tax, pre-provision income(1) $1,619 $1,507 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 12

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Form 8-K Discover Financial Servi For: Jul 26

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