Form 8-K Discover Financial Servi For: Jan 24

January 24, 2019 4:17 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): January 24, 2019

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 January 24, 2019, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended December 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 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 January 24, 2019 containing financial information for the quarter ended December 31, 2018
99.2		Financial Data Supplement of the Company for the quarter and the Twelve Months Ended December 31, 2018
99.3		Financial Results Presentation of the Company for the quarter ended December 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: January 24, 2019	By:	/s/ D. Christopher Greene
		Name: D. Christopher Greene
		Title: Vice President, Acting General Counsel and Secretary

EXHIBIT INDEX




Exhibit No.		Description
99.1		Press Release of the Company dated January 24, 2019 containing financial information for the quarter ended December 31, 2018
99.2		Financial Data Supplement of the Company for the quarter and the Twelve Months Ended December 31, 2018
99.3		Financial Results Presentation of the Company for the quarter ended December 31, 2018

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER NET INCOME OF $687 MILLION

OR $2.03 PER DILUTED SHARE



Fourth Quarter Results
	2018	2017	YOY Change
Total loans EOP (in billions)	$90.5	$84.2	7%
Total revenue net of interest expense (in millions)	$2,807	$2,614	7%
Total net charge-off rate	3.08%	2.85%	23 bps
Net income (in millions)	$687	$387	78%
Diluted EPS	$2.03	$0.99	105%

Riverwoods, IL, January 24, 2019 - Discover Financial Services (NYSE: DFS) today reported net income of $687 million or $2.03 per diluted share for the fourth quarter of 2018, as compared to $387 million or $0.99 per diluted share for the fourth quarter of 2017. The company’s return on equity for the fourth quarter of 2018 was 25%. Net income in the fourth quarter of 2017 included non-recurring charges of $189 million resulting from actions taken by the company in connection with the Tax Cuts and Jobs Act. These charges had the effect of reducing diluted earnings per share by $0.52 in 2017.

Commenting on the company's results, Roger Hochschild, CEO and president of Discover, said, “Our disciplined focus on delivering profitable growth continued to drive solid operating performance and strong returns in the fourth quarter. For the full year, our results were characterized by robust returns even as credit normalization continued, and our ongoing investments in technology and global merchant acceptance will enhance customer experience, scale, and overall performance. We believe these initiatives will set us up for continued growth and industry-leading returns going forward."

Segment Results:

Direct Banking

Direct Banking pretax income of $874 million increased by $4 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 $90.5 billion, up 7% compared to the prior year. Credit card loans ended the quarter at $72.9 billion, up 8% from the prior year. Personal loans increased $80 million, or 1%, from the prior year. Private student loans increased $205 million, or 2%, year-over-year, and grew $652 million, or 9%, excluding purchased student loans.

Net interest income increased $181 million, or 9%, from the prior year, driven by loan growth and net interest margin expansion. Net interest margin was 10.35%, up 7 basis points versus the prior year. Card yield was 13.20%, an increase of 41 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 61 basis points from the prior year, primarily as a result of higher market rates.

Other income increased $9 million, or 2%, from the prior year, driven by higher discount and interchange revenue.

The 30+ day delinquency rate for credit card loans was 2.43%, up 15 basis points from the prior year and 11 basis points from the prior quarter. The credit card net charge-off rate was 3.23%, up 20 basis points from the prior year and 9 basis points from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 1.05%, down 29 basis points from the prior year. The personal loans net charge-off rate of 4.49% 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 recent years' loan growth.

Provision for loan losses of $800 million increased $122 million from the prior year due to higher net charge-offs and a higher reserve build. The reserve build for the fourth quarter of 2018 was $120 million, compared to a reserve build of $94 million in the fourth quarter of 2017.

Expenses increased $64 million from the prior year due to incremental investments to enhance global merchant acceptance, marketing expenses and information processing. Marketing expenses increased as a result of higher investment in brand and digital marketing. Information processing increased due to investments in infrastructure and analytic capabilities.

Payment Services

Payment Services pretax income was $23 million in the quarter, down $6 million from the prior year, driven by higher expense investment to support business growth and infrastructure, partially offset by higher revenue driven by transaction volume growth.

Payment Services transaction dollar volume was $60.5 billion, up 12% versus the prior year. PULSE transaction dollar volume was up 11% year-over-year, which reflects the impact of new issuers on the network as well as strong growth from existing issuers. Network Partners volume increased by 43% from the prior year driven by AribaPay.

Share Repurchases

During the fourth quarter of 2018, the company repurchased approximately 6.7 million shares of common stock for $466 million. Shares of common stock outstanding declined by 2.1% from the prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results on Thursday, January 24, 2019, 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 quarters ended March 31, 2018, June 30, 2018, and September 30, 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																				Twelve Months Ended
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017					Dec 31, 2018			Dec 31, 2017			2018 vs. 2017
EARNINGS SUMMARY
Interest Income		$2,907			$2,781			$2,636			$2,569			$2,556			$351		14	%		$10,893			$9,648			$1,245		13	%
Interest Expense	605			558			507			469			436			169			39	%	2,139			1,648			491			30	%
Net Interest Income	2,302			2,223			2,129			2,100			2,120			182			9	%	8,754			8,000			754			9	%
Discount/Interchange Revenue	752			753			724			646			717			35			5	%	2,875			2,654			221			8	%
Rewards Cost	475			473			461			392			434			41			9	%	1,801			1,602			199			12	%
Discount and Interchange Revenue, net	277			280			263			254			283			(6		)	(2	%)	1,074			1,052			22			2	%
Protection Products Revenue	50			51			50			53			54			(4		)	(7	%)	204			223			(19		)	(9	%)
Loan Fee Income	108			103			95			96			96			12			13	%	402			363			39			11	%
Transaction Processing Revenue	46			47			42			43			43			3			7	%	178			167			11			7	%
Other Income	24			20			24			29			18			6			33	%	97			92			5			5	%
Total Other Income	505			501			474			475			494			11			2	%	1,955			1,897			58			3	%

Revenue Net of Interest Expense	2,807			2,724			2,603			2,575			2,614			193			7	%	10,709			9,897			812			8	%

Provision for Loan Losses	800			742			742			751			679			121			18	%	3,035			2,579			456			18	%

Employee Compensation and Benefits	414			408			400			405			411			3			1	%	1,627			1,512			115			8	%
Marketing and Business Development	230			218			224			185			213			17			8	%	857			776			81			10	%
Information Processing & Communications	93			89			86			82			80			13			16	%	350			315			35			11	%
Professional Fees	190			166			161			155			189			1			1	%	672			655			17			3	%
Premises and Equipment	26			26			24			26			26			—			—	%	102			99			3			3	%
Other Expense	157			108			89			115			117			40			34	%	469			424			45			11	%
Total Other Expense	1,110			1,015			984			968			1,036			74			7	%	4,077			3,781			296			8	%

Income Before Income Taxes	897			967			877			856			899			(2		)	—	%	3,597			3,537			60			2	%
Tax Expense	210			247			208			190			512			(302		)	(59	%)	855			1,438			(583		)	(41	%)
Net Income		$687			$720			$669			$666			$387			$300		78	%		$2,742			$2,099			$643		31	%

Net Income Allocated to Common Stockholders		$681			$699			$663			$646			$359			$322		90	%		$2,689			$2,031			$658		32	%

Effective Tax Rate	23.5		%	25.5		%	23.7		%	22.2		%	57.0		%						23.8		%	40.7		%

Net Interest Margin	10.35		%	10.28		%	10.21		%	10.23		%	10.28		%	7			bps		10.27		%	10.19		%	8			bps
Operating Efficiency	39.6		%	37.2		%	37.8		%	37.6		%	39.7		%	(10		)	bps		38.1		%	38.2		%	(10		)	bps
ROE	25		%	26		%	25		%	25		%	14		%						25		%	18.6		%
Capital Returned to Common Stockholders		$578			$580			$656			$684			$657			($79	)	(12	%)		$2,498			$2,491			$7		—	%
Payout Ratio	85		%	83		%	99		%	106		%	183		%						93		%	123		%	(3,000		)	bps

Ending Common Shares Outstanding	331			338			344			351			358			(27		)	(8	%)	331			358			(27		)	(8	%)
Weighted Average Common Shares Outstanding	335			341			348			355			362			(27		)	(7	%)	344			374			(30		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	335			342			348			355			362			(27		)	(7	%)	345			374			(29		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$2.04			$2.05			$1.91			$1.82			$0.99			$1.05		106	%		$7.81			$5.43			$2.38		44	%
Diluted EPS		$2.03			$2.05			$1.91			$1.82			$0.99			$1.04		105	%		$7.79			$5.42			$2.37		44	%
Common Stock Price (period end)		$58.98			$76.45			$70.41			$71.93			$76.92			($17.94	)	(23	%)		$58.98			$76.92			($17.94	)	(23	%)
Book Value per share		$33.58			$32.60			$31.66			$30.93			$30.43			$3.15		10	%		$33.58			$30.43			$3.15		10	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended															Twelve Months Ended
	Dec 31, 2018		Sep 30, 2018		Jun 30, 2018		Mar 31, 2018		Dec 31, 2017		Dec 31, 2018 vs. Dec 31, 2017					Dec 31, 2018		Dec 31, 2017		2018 vs. 2017
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$874		$923		$837		$811		$870		$4		—	%		$3,445		$3,392		$53	2	%
Payment Services	23		44		40		45		29		(6		)	(21	%)	152		145		7		5	%
Total		$897		$967		$877		$856		$899		($2	)	0	%		$3,597		$3,537		$60	2	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	663		642		614		550		607		56			9	%	2,469		2,240		229		10	%
PULSE Network	1,169		1,151		1,055		989		1,029		140			14	%	4,364		3,856		508		13	%
Total	1,832		1,793		1,669		1,539		1,636		196			12	%	6,833		6,096		737		12	%

NETWORK VOLUME
PULSE Network		$47,082		$45,244		$44,308		$43,158		$42,386		$4,696		11	%		$179,792		$157,128		$22,664	14	%
Network Partners	4,680		5,113		4,602		4,553		3,280		1,400			43	%	18,948		14,213		4,735		33	%
Diners Club International¹	8,700		8,370		8,417		8,390		8,373		327			4	%	33,877		31,544		2,333		7	%
Total Payment Services	60,462		58,727		57,327		56,101		54,039		6,423			12	%	232,617		202,885		29,732		15	%
Discover Network - Proprietary	38,502		36,642		36,339		32,382		36,267		2,235			6	%	143,865		133,044		10,821		8	%
Total		$98,964		$95,369		$93,666		$88,483		$90,306		$8,658		10	%		$376,482		$335,929		$40,553	12	%


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
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$18,515			$18,410			$17,441			$18,641			$14,955			$3,560		24	%
Total Loan Receivables	90,512			86,894			84,789			82,744			84,248			6,264			7	%
Allowance for Loan Losses	(3,041		)	(2,927		)	(2,828		)	(2,736		)	(2,621		)	(420		)	(16	%)
Net Loan Receivables	87,471			83,967			81,961			80,008			81,627			5,844			7	%
Premises and Equipment, net	936			896			874			848			825			111			13	%
Goodwill and Intangible Assets, net	416			417			417			417			418			(2		)	—	%
Other Assets	2,215			2,152			2,058			2,053			2,262			(47		)	(2	%)
Total Assets		$109,553			$105,842			$102,751			$101,967			$100,087			$9,466		9	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$44,669			$43,411			$42,256			$41,321			$39,367			$5,302		13	%
Brokered Deposits and Other Deposits	23,090			20,263			19,427			19,809			19,397			3,693			19	%
Deposits	67,759			63,674			61,683			61,130			58,764			8,995			15	%
Borrowings	27,228			26,998			26,252			26,244			26,326			902			3	%
Accrued Expenses and Other Liabilities	3,436			4,154			3,927			3,722			4,105			(669		)	(16	%)
Total Liabilities	98,423			94,826			91,862			91,096			89,195			9,228			10	%
Total Equity	11,130			11,016			10,889			10,871			10,892			238			2	%
Total Liabilities and Stockholders' Equity		$109,553			$105,842			$102,751			$101,967			$100,087			$9,466		9	%

LIQUIDITY
Liquidity Portfolio		$15,923			$16,370			$15,703			$17,550			$13,560		2,363			17	%
Undrawn Credit Facilities ¹	36,986			36,257			36,422			35,099			35,153			1,833			5	%
Total Liquidity		$52,909			$52,627			$52,125			$52,649			$48,713			$4,196		9	%


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
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017
BALANCE SHEET STATISTICS
Total Common Equity		$10,567			$10,453			$10,326			$10,308			$10,329			$238	2	%
Total Common Equity/Total Assets	9.6		%	9.9		%	10.1		%	10.1		%	10.3		%
Total Common Equity/Net Loans	12.1		%	12.4		%	12.6		%	12.9		%	12.7		%

Tangible Assets		$109,137			$105,425			$102,334			$101,550			$99,669			$9,468	9	%
Tangible Common Equity ¹		$10,151			$10,036			$9,909			$9,891			$9,911			$240	2	%
Tangible Common Equity/Tangible Assets ¹	9.3		%	9.5		%	9.7		%	9.7		%	9.9		%
Tangible Common Equity/Net Loans ¹	11.6		%	12.0		%	12.1		%	12.4		%	12.1		%
Tangible Common Equity per share¹		$30.63			$29.70			$28.82			$28.15			$27.69			$2.94	11	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	13.5		%	13.9		%	13.6		%	14.0		%	13.8		%
Tier 1 Risk Based Capital Ratio	11.7		%	12.1		%	12.3		%	12.5		%	12.3		%
Tier 1 Leverage Ratio	10.1		%	10.4		%	10.5		%	10.6		%	10.8		%
Common Equity Tier 1 Capital Ratio ²	11.1		%	11.4		%	11.6		%	11.9		%	11.6		%

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 December 31, 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





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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017
AVERAGE BALANCES
Assets
Cash and Investment Securities		$17,660			$16,474			$16,395			$15,058			$15,290			$2,370		16	%
Restricted Cash	609			638			466			821			276			333			121	%
Credit Card Loans	70,563			68,613			66,594			65,983			64,791			5,772			9	%
Private Student Loans	9,344			9,158			9,219			9,432			9,158			186			2	%
Personal Loans	7,540			7,460			7,304			7,387			7,455			85			1	%
Other Loans	760			624			531			452			398			362			91	%
Total Loans	88,207			85,855			83,648			83,254			81,802			6,405			8	%
Total Interest Earning Assets	106,476			102,967			100,509			99,133			97,368			9,108			9	%
Allowance for Loan Losses	(2,924		)	(2,827		)	(2,731		)	(2,615		)	(2,530		)	(394		)	(16	%)
Other Assets	4,520			4,377			4,170			4,221			4,252			268			6	%
Total Assets		$108,072			$104,517			$101,948			$100,739			$99,090			$8,982		9	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$43,514			$42,498			$41,459			$39,825			$38,807			$4,707		12	%
Brokered Deposits and Other Deposits	21,574			19,939			19,166			19,638			18,244			3,330			18	%
Total Interest-bearing Deposits	65,088			62,437			60,625			59,463			57,051			8,037			14	%
Short-term Borrowings	2			3			1			1			2			—			—	%
Securitized Borrowings	16,427			16,141			16,121			16,180			16,676			(249		)	(1	%)
Other Long-term Borrowings	10,756			10,351			9,866			9,945			9,768			988			10	%
Total Interest-bearing Liabilities	92,273			88,932			86,613			85,589			83,497			8,776			11	%
Other Liabilities & Stockholders' Equity	15,799			15,585			15,335			15,150			15,593			206			1	%
Total Liabilities and Stockholders' Equity		$108,072			$104,517			$101,948			$100,739			$99,090			$8,982		9	%

AVERAGE RATES
Assets
Cash and Investment Securities	2.35		%	2.01		%	1.82		%	1.57		%	1.34		%	101			bps
Restricted Cash	2.28		%	1.92		%	1.85		%	1.68		%	1.34		%	94			bps
Credit Card Loans	13.20		%	13.06		%	12.88		%	12.85		%	12.79		%	41			bps
Private Student Loans	8.31		%	8.19		%	8.05		%	7.89		%	7.69		%	62			bps
Personal Loans	12.76		%	12.66		%	12.55		%	12.43		%	12.27		%	49			bps
Other Loans	6.57		%	6.38		%	6.02		%	5.98		%	5.66		%	91			bps
Total Loans	12.59		%	12.45		%	12.28		%	12.21		%	12.14		%	45			bps
Total Interest Earning Assets	10.83		%	10.72		%	10.52		%	10.51		%	10.41		%	42			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	2.00		%	1.88		%	1.71		%	1.59		%	1.44		%	56			bps
Brokered Deposits and Other Deposits	2.58		%	2.51		%	2.33		%	2.19		%	2.12		%	46			bps
Total Interest-bearing Deposits	2.20		%	2.08		%	1.90		%	1.79		%	1.65		%	55			bps
Short-term Borrowings	2.42		%	2.09		%	1.89		%	1.75		%	1.31		%	111			bps
Securitized Borrowings	2.87		%	2.71		%	2.67		%	2.43		%	2.19		%	68			bps
Other Long-term Borrowings	4.65		%	4.56		%	4.57		%	4.49		%	4.30		%	35			bps
Total Interest-bearing Liabilities	2.60		%	2.49		%	2.35		%	2.22		%	2.07		%	53			bps

Net Interest Margin	10.35		%	10.28		%	10.21		%	10.23		%	10.28		%	7			bps
Net Yield on Interest-earning Assets	8.57		%	8.57		%	8.50		%	8.59		%	8.64		%	(7		)	bps

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																			Twelve Months Ended
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017				Dec 31, 2018			Dec 31, 2017			2018 vs. 2017
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$90,512			$86,894			$84,789			$82,744			$84,248			$6,264	7	%		$90,512			$84,248			$6,264		7	%
Average Loans ^{1, 2}		$88,207			$85,855			$83,648			$83,254			$81,802			$6,405	8	%		$85,256			$78,525			$6,731		9	%

Interest Yield	12.59		%	12.45		%	12.28		%	12.21		%	12.14		%	45		bps		12.39		%	12.06		%	33			bps
Gross Principal Charge-off Rate	3.77		%	3.63		%	3.78		%	3.74		%	3.45		%	32		bps		3.73		%	3.33		%	40			bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.85		%	3.71		%	3.87		%	3.84		%	3.54		%	31		bps		3.81		%	3.43		%	38			bps
Net Principal Charge-off Rate	3.08		%	2.97		%	3.11		%	3.09		%	2.85		%	23		bps		3.06		%	2.70		%	36			bps
Net Principal Charge-off Rate excluding PCI Loans ³	3.14		%	3.03		%	3.18		%	3.17		%	2.92		%	22		bps		3.13		%	2.78		%	35			bps
Delinquency Rate (30 or more days) excluding PCI Loans ³	2.31		%	2.22		%	2.08		%	2.23		%	2.20		%	11		bps		2.31		%	2.20		%	11			bps
Delinquency Rate (90 or more days) excluding PCI Loans ³	1.08		%	1.00		%	0.99		%	1.06		%	0.99		%	9		bps		1.08		%	0.99		%	9			bps
Gross Principal Charge-off Dollars		$839			$785			$789			$769			$711			$128	18	%		$3,182			$2,618			$564		22	%
Net Principal Charge-off Dollars		$686			$642			$649			$635			$583			$103	18	%		$2,612			$2,119			$493		23	%
Net Interest and Fee Charge-off Dollars		$142			$135			$138			$136			$119			$23	19	%		$551			$442			$109		25	%
Loans Delinquent 30 or more days ³		$2,049			$1,894			$1,725			$1,800			$1,806			$243	13	%		$2,049			$1,806			$243		13	%
Loans Delinquent 90 or more days ³		$961			$854			$821			$855			$815			$146	18	%		$961			$815			$146		18	%

Allowance for Loan Loss (period end)		$3,041			$2,927			$2,828			$2,736			$2,621			$420	16	%		$3,041			$2,621			$420		16	%
Reserve Change Build/ (Release) ⁴		$114			$100			$93			$116			$96			$18				$423			$460			($37	)
Reserve Rate	3.36		%	3.37		%	3.34		%	3.31		%	3.11		%	25		bps		3.36		%	3.11		%	25			bps
Reserve Rate Excluding PCI Loans ³	3.39		%	3.41		%	3.38		%	3.35		%	3.15		%	24		bps		3.39		%	3.15		%	24			bps

CREDIT CARD LOANS
Ending Loans		$72,876			$69,253			$67,812			$65,577			$67,291			$5,585	8	%		$72,876			$67,291			$5,585		8	%
Average Loans		$70,563			$68,613			$66,594			$65,983			$64,791			$5,772	9	%		$67,953			$62,079			$5,874		9	%

Interest Yield	13.20		%	13.06		%	12.88		%	12.85		%	12.79		%	41		bps		13.00		%	12.74		%	26			bps
Gross Principal Charge-off Rate	4.01		%	3.90		%	4.12		%	4.08		%	3.73		%	28		bps		4.02		%	3.65		%	37			bps
Net Principal Charge-off Rate	3.23		%	3.14		%	3.34		%	3.32		%	3.03		%	20		bps		3.26		%	2.91		%	35			bps
Delinquency Rate (30 or more days)	2.43		%	2.32		%	2.16		%	2.33		%	2.28		%	15		bps		2.43		%	2.28		%	15			bps
Delinquency Rate (90 or more days)	1.22		%	1.12		%	1.09		%	1.18		%	1.12		%	10		bps		1.22		%	1.12		%	10			bps
Gross Principal Charge-off Dollars		$713			$674			$684			$663			$612			$101	17	%		$2,734			$2,263			$471		21	%
Net Principal Charge-off Dollars		$575			$543			$555			$540			$496			$79	16	%		$2,213			$1,802			$411		23	%
Loans Delinquent 30 or more days		$1,772			$1,608			$1,466			$1,529			$1,532			$240	16	%		$1,772			$1,532			$240		16	%
Loans Delinquent 90 or more days		$887			$777			$743			$777			$751			$136	18	%		$887			$751			$136		18	%

Allowance for Loan Loss (period end)		$2,528			$2,424			$2,334			$2,252			$2,147			$381	18	%		$2,528			$2,147			$381		18	%
Reserve Change Build/ (Release)		$104			$90			$82			$105			$56			$48				$381			$357			$24
Reserve Rate	3.47		%	3.50		%	3.44		%	3.43		%	3.19		%	28		bps		3.47		%	3.19		%	28			bps

Total Discover Card Volume		$40,655			$39,414			$38,430			$34,327			$38,574			$2,081	5	%		$152,826			$141,858			$10,968		8	%
Discover Card Sales Volume		$37,208			$35,896			$35,077			$30,850			$35,339			$1,869	5	%		$139,031			$128,806			$10,225		8	%
Rewards Rate	1.28		%	1.31		%	1.31		%	1.27		%	1.23		%	5		bps		1.29		%	1.24		%	5			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																				Twelve Months Ended
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017					Dec 31, 2018			Dec 31, 2017			2018 vs. 2017
PRIVATE STUDENT LOANS
Ending Loans (excluding PCI)		$7,728			$7,668			$7,260			$7,416			$7,076			$652		9	%		$7,728			$7,076			$652		9	%
Ending PCI Loans ¹	1,637			1,735			1,842			1,956			2,084			(447		)	(21	%)	1,637			2,084			(447		)	(21	%)
Ending Loans		$9,365			$9,403			$9,102			$9,372			$9,160			$205		2	%		$9,365			$9,160			$205		2	%

Interest Yield	8.31		%	8.19		%	8.05		%	7.89		%	7.69		%	62			bps		8.11		%	7.50		%	61			bps
Net Principal Charge-off Rate	0.86		%	0.96		%	0.92		%	0.92		%	1.03		%	(17		)	bps		0.91		%	0.90		%	1			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.05		%	1.19		%	1.16		%	1.17		%	1.34		%	(29		)	bps		1.14		%	1.21		%	(7		)	bps
Delinquency Rate (30 or more days) excluding PCI Loans ²	2.00		%	2.13		%	2.10		%	2.25		%	2.35		%	(35		)	bps		2.00		%	2.35		%	(35		)	bps

Reserve Rate	1.80		%	1.80		%	1.87		%	1.82		%	1.77		%	3			bps		1.80		%	1.77		%	3			bps
Reserve Rate excluding PCI Loans ²	1.85		%	1.87		%	1.97		%	1.93		%	1.89		%	(4		)	bps		1.85		%	1.89		%	(4		)	bps

PERSONAL LOANS
Ending Loans		$7,454			$7,545			$7,304			$7,307			$7,374			$80		1	%		$7,454			$7,374			$80		1	%

Interest Yield	12.76		%	12.66		%	12.55		%	12.43		%	12.27		%	49			bps		12.60		%	12.25		%	35			bps
Net Principal Charge-off Rate	4.49		%	4.09		%	3.97		%	4.03		%	3.62		%	87			bps		4.15		%	3.30		%	85			bps
Delinquency Rate (30 or more days)	1.60		%	1.57		%	1.42		%	1.37		%	1.40		%	20			bps		1.60		%	1.40		%	20			bps

Reserve Rate	4.53		%	4.28		%	4.29		%	4.12		%	4.08		%	45			bps		4.53		%	4.08		%	45			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																				Twelve Months Ended
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017			Dec 31, 2018 vs. Dec 31, 2017					Dec 31, 2018			Dec 31, 2017			2018 vs. 2017
DIRECT BANKING
Interest Income		$2,906			$2,781			$2,636			$2,569			$2,556			$350		14	%		$10,892			$9,648			$1,244		13	%
Interest Expense	605			558			507			469			436			169			39	%	2,139			1,648			491			30	%
Net Interest Income	2,301			2,223			2,129			2,100			2,120			181			9	%	8,753			8,000			753			9	%
Other Income	432			421			398			394			423			9			2	%	1,645			1,607			38			2	%
Revenue Net of Interest Expense	2,733			2,644			2,527			2,494			2,543			190			7	%	10,398			9,607			791			8	%
Provision for Loan Losses	800			742			742			751			678			122			18	%	3,035			2,586			449			17	%
Total Other Expense	1,059			979			948			932			995			64			6	%	3,918			3,629			289			8	%
Income Before Income Taxes		$874			$923			$837			$811			$870			$4		—	%		$3,445			$3,392			$53		2	%

Net Interest Margin	10.35		%	10.28		%	10.21		%	10.23		%	10.28		%	7			bps		10.27		%	10.19		%	8			bps
Pretax Return on Loan Receivables	3.93		%	4.27		%	4.01		%	3.95		%	4.22		%	(29		)	bps		4.04		%	4.32		%	(28		)	bps

Allowance for Loan Loss (period end)		$3,039			$2,920			$2,821			$2,728			$2,613			$426		16	%		$3,039			$2,613			$426		16	%
Reserve Change Build/ (Release) ¹		$120			$100			$93			$116			$94			$26					$429			$468			($39	)

PAYMENT SERVICES
Interest Income		$1			$—			$—			$—			$—			$1		NM			$1			$—			$1		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	1			—			—			—			—			1			NM		1			—			1			NM
Other Income	73			80			76			81			71			2			3	%	310			290			20			7	%
Revenue Net of Interest Expense	74			80			76			81			71			3			4	%	311			290			21			7	%
Provision for Loan Losses	—			—			—			—			1			(1		)	(100	%)	—			(7		)	7			(100	%)
Total Other Expense	51			36			36			36			41			10			24	%	159			152			7			5	%
Income Before Income Taxes		$23			$44			$40			$45			$29			($6	)	(21	%)		$152			$145			$7		5	%


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

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
	Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Mar 31, 2018			Dec 31, 2017
GAAP Total Common Equity		$10,567			$10,453			$10,326			$10,308			$10,329
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(161		)	(162		)	(162		)	(162		)	(163		)
Tangible Common Equity ¹		$10,151			$10,036			$9,909			$9,891			$9,911

GAAP Book Value Per Share		$33.58			$32.60			$31.66			$30.93			$30.43
Less: Goodwill	(0.77		)	(0.76		)	(0.73		)	(0.72		)	(0.72		)
Less: Intangibles	(0.48		)	(0.48		)	(0.47		)	(0.46		)	(0.45		)
Less: Preferred Stock	(1.70		)	(1.66		)	(1.64		)	(1.60		)	(1.57		)
Tangible Common Equity Per Share		$30.63			$29.70			$28.82			$28.15			$27.69

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 quarters ended March 31, 2018, June 30, 2018, and September 30, 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

Full Year 2018 Highlights(1) • Solid execution of strategy drove net income of $2.7Bn, diluted EPS of $7.79; return on equity of 25% • Consistent focus on profitable loan growth led to 8% revenue growth • Strong credit performance benefiting from: ◦ Disciplined underwriting ◦ Increasing efficiency and effectiveness in servicing • Payment Services continued to drive strong network volume growth (up 15%) • Continued investments in global merchant acceptance and technology Note(s) (1) All comparisons stated on a year-over-year basis 3

Full Year 2018: Consistent, strong loan growth Highlights Ending Loans ($Bn) Highlights $90.5 $84.2 • Strong loan growth of 8% in Card $77.3 • Number of new accounts up 11% $72.4 $70.0 • Acquisition costs per account down 6% • Student Loans grew 9% excluding purchased student loans CAGR: 7% • Modest growth of 1% in Personal Loans; maintaining discipline in credit and pricing 2014 2015 2016 2017 2018 4

Full Year 2018: Credit performing as expected Total Net Charge-off Rate Highlights • Credit stabilizing in Card as normalization impact slows • Student Loan credit performance 3.06% remains strong with stable net- 2.70% charge off rate and lower delinquencies 2.16% 2.04% 2.01% • Personal Loan losses higher, as expected, primarily due to seasoning of growth and normalization 2014 2015 2016 2017 2018 5

4Q18 Summary Financial Results Highlights B / (W) ($MM, except per share data) 4Q18 4Q17 $ Δ % Δ Revenue Net of Interest Expense $2,807 $2,614 $193 7% • Diluted EPS of $2.03, up 105% Net Principal Charge-off 686 583 (103) (18%) • Revenue net of interest expense of Reserve Change build/(release) 114 96 (18) (19%) $2.8Bn, up 7%, driven by higher net Provision for Loan Losses 800 679 (121) (18%) interest income Operating Expense 1,110 1,036 (74) (7%) • Provision for loan losses increased Direct Banking 874 870 4 —% $121MM, or 18%, on higher net Payment Services 23 29 (6) (21%) charge-offs and a higher reserve build Total Pre-Tax Income 897 899 (2) —% • Expenses rose 7%, primarily driven Income Tax Expense 210 512 302 59% by investments to support growth and Net Income $687 $387 $300 78% new capabilities, including $34MM in incremental investments in global ROE 25% 14% merchant acceptance Diluted EPS $2.03 $0.99 $1.04 105% EPS From Non-Recurring Charges ($0.56) • 4Q17 income tax expense included (1) Adjusted Diluted EPS $2.03 $1.55 $0.48 31% non-recurring charges of $179MM associated with the passage of tax Pre-Tax, Pre-Provision Income (2) $1,697 $1,578 $119 8% reform Note(s) 1. Adjusted Diluted EPS 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 activities that are not expected to continue and provides a useful metric to evaluate the Company's ongoing operating performance; see appendix for a reconciliation 2. 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 6

4Q18 Loan and Volume Growth Ending Loans ($Bn) Volume ($Bn) Payment Services Network (1) Total Card Student Personal Proprietary PULSE Diners Partners +7% +8% +2% +1% +6% +11% +4% +43% $90.5 $84.2 $72.9 $67.3 $47.1 $42.4 $36.3$38.5 $8.4 $8.7 $9.2 $9.4 $7.4 $7.5 $3.3 $4.7 4Q17 4Q18 4Q17 4Q18 Total Network Volume up 10% 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 7

4Q18 Revenue Detail B / (W) Highlights ($MM) 4Q18 4Q17 $ Δ % Δ Interest Income $2,907 $2,556 $351 14% • Loan growth and higher net interest Interest Expense 605 436 (169) (39%) margin drove 9% increase in net Net Interest Income 2,302 2,120 182 9% interest income Discount/Interchange Revenue 752 717 35 5% Rewards Cost 475 434 (41) (9%) • Discount and interchange revenue Net Discount/Interchange Revenue 277 283 (6) (2%) up 5%, driven by increased Card Protection Products Revenue 50 54 (4) (7%) sales Loan Fee Income 108 96 12 13% Transaction Processing Revenue 46 43 3 7% • Rewards rate up 5 bps, driving a Other Income 24 18 6 33% $6MM decrease in net discount and Total Non-Interest Income 505 494 11 2% interchange revenue Revenue Net of Interest Expense $2,807 $2,614 $193 7% Direct Banking $2,733 $2,543 $190 7% Payment Services 74 71 3 4% Revenue Net of Interest Expense $2,807 $2,614 $193 7% Change ($MM) 4Q18 4Q17 QOQ YOY Discover Card Sales Volume $37,208 $35,339 4% 5% Rewards Rate (1) 1.28% 1.23% -3 bps 5 bps Note(s) 1. Rewards cost divided by Discover card sales volume 8

4Q18 Net Interest Margin 4Q18 4Q17 Highlights Average Average ($MM) Balance Rate Balance Rate • Net interest margin on loans up 7 Credit Card $70,563 13.20% $64,791 12.79% bps driven by higher loan yields, Private Student 9,344 8.31% 9,158 7.69% offset by higher funding costs Personal 7,540 12.76% 7,455 12.27% Other 760 6.57% 398 5.66% Total Loans 88,207 12.59% 81,802 12.14% • Credit card yield increased 41 bps as Other Interest-Earning Assets 18,269 2.33% 15,566 1.34% increases in the prime rate were Total Interest-Earning Assets $106,476 10.83% $97,368 10.41% partially offset by portfolio mix and higher interest charge-offs Direct to Consumer and Affinity $43,514 2.00% $38,807 1.44% Brokered Deposits and Other 21,574 2.58% 18,244 2.12% Interest Bearing Deposits 65,088 2.20% 57,051 1.65% • Average consumer deposits grew Borrowings 27,185 3.57% 26,446 2.97% 12% and composed 47% of total Total Interest-Bearing Liabilities $92,273 2.60% $83,497 2.07% average funding Change • Funding costs on interest-bearing (%) 4Q18 QOQ YOY liabilities increased 53 bps, primarily Total Interest Yield on Loans 12.59% 14bps 45bps driven by higher market rates NIM on Loans 10.35% 7bps 7bps NIM on Interest-Earning Assets 8.57% 0bps -7bps 9

4Q18 Operating Expense Detail B / (W) Highlights ($MM) 4Q18 4Q17 $ Δ % Δ Employee Compensation and Benefits $414 $411 ($3) (1%) • Other expense up 34% due to Marketing and Business Development 230 213 (17) (8%) investments to enhance global Information Processing & Communications 93 80 (13) (16%) merchant acceptance Professional Fees 190 189 (1) (1%) Premises and Equipment 26 26 0 —% Other Expense 157 117 (40) (34%) • Marketing up 8% as a result of Total Operating Expense $1,110 $1,036 ($74) (7%) higher investment in brand and digital advertising Direct Banking 1,059 995 ($64) (6%) Payment Services 51 41 (10) (24%) • Information processing up 16% Total Operating Expense $1,110 $1,036 ($74) (7%) due to investments in Operating Efficiency(1) 39.6% 39.7% 10 bps infrastructure and analytic capabilities Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense 10

Credit Performance Trends Total Company Loans Credit Card Loans 3.32 3.34 3.09 3.11 3.08 3.14 3.23 2.85 2.97 2.84 2.94 3.03 2.60 2.71 2.63 2.80 2.31 2.47 2.02 2.17 2.31 2.28 2.33 2.32 2.43 2.05 2.20 2.23 2.08 2.22 2.04 2.06 2.14 2.16 1.79 1.97 1.97 1.93 1.87 2.00 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) Private Student Loans Personal Loans 4.49 4.03 3.97 4.09 3.62 3.18 3.19 2.35 3.16 2.22 2.12 2.14 2.25 2.10 2.13 2.63 2.70 1.87 2.04 2.00 1.14 1.40 1.37 1.42 1.57 1.60 1.00 0.85 1.03 0.92 0.92 0.96 0.86 1.12 1.12 1.14 1.27 0.70 0.60 0.98 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) 11

Capital Trends 13.4 13.2 13.0 12.5 11.9 11.6 11.6 11.4 11.1 123 120 118 109 109 104 108 99 93 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 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 12

4Q18 Financial Summary Balance Sheet Credit and Capital Profitability • Total loans grew 7% • Total NCO rate of 3.08%, • Net income of $687MM ($6.3Bn) YOY up 23 bps YOY and diluted EPS of $2.03 • Driven by supply- • Credit card loans grew 8% induced credit • Revenue growth of 7% on ($5.6Bn) YOY as sales normalization and loan higher net interest income volume increased 5% seasoning • NIM of 10.35%, up 7 bps • Capital return • Average consumer YOY deposits grew 12% • Repurchased 6.7MM ($4.7Bn) YOY, while shares of common • Strong return on equity at deposit rates increased 56 stock for $466MM (1) 25% bps • CET1 capital ratio of 11.1% down 50 bps YOY Note(s) 1. Basel III Transition 13

2019: Strong returns while investing for growth • Economic environment remains stable • Continuing to leverage the brand to drive growth in loans and deposits • Investments in advanced analytics and automation to drive account acquisition, engagement, customer experience, and operational efficiency • Relentless focus on customer experience • Projecting another year of strong ROE and capital returns 14

2019 Guidance 2018 Actual 2019 Guidance Total Loan Growth 7% 6 - 8% Operating Expense $4.1Bn $4.3 - $4.4Bn Rewards Rate 1.29% 1.32 - 1.34% Total Company NIM 10.3% 10.3% +/- Total Net Charge-off Rate 3.1% 3.2 - 3.4% 15

Appendix Reconciliation of GAAP to Non-GAAP Data (unaudited, $MM) 4Q18 4Q17 Provision for loan losses $800 $679 Income before income taxes 897 899 Pre-tax, pre-provision income(1) $1,697 $1,578 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 16

Appendix Reconciliation of GAAP to Non-GAAP Data (unaudited) 4Q17 Diluted EPS $0.99 Adjusted for: Employee compensation one-time bonus 0.03 Original issuance cost related to series B preferred stock redemption 0.04 Tax related one-time items 0.49 Adjusted Diluted EPS (1) $1.55 Note(s) 1. Adjusted Diluted EPS 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 activities that are not expected to continue and provides a useful metric to evaluate the Company's ongoing operating performance 17

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Form 8-K Discover Financial Servi For: Jan 24

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