Form 8-K Discover Financial Servi For: Jul 23

July 23, 2019 4:16 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 23, 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))



Securities registered pursuant to Section 12(b) of the Act
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	DFS	New York Stock Exchange



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 23, 2019, Discover Financial Services (the “Company”) released financial information with respect to the quarter ended June 30, 2019. 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 23, 2019 containing financial information for the quarter ended June 30, 2019
99.2		Financial Data Supplement of the Company for the quarter and the six months ended June 30, 2019
99.3		Financial Results Presentation of the Company for the quarter ended June 30, 2019

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 23, 2019	By:	/s/ D. Christopher Greene
		Name: D. Christopher Greene
		Title: Vice President, Secretary and Deputy General Counsel

EXHIBIT INDEX




Exhibit No.		Description
99.1		Press Release of the Company dated July 23, 2019 containing financial information for the quarter ended June 30, 2019
99.2		Financial Data Supplement of the Company for the quarter and the six months ended June 30, 2019
99.3		Financial Results Presentation of the Company for the quarter ended June 30, 2019

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS SECOND QUARTER NET INCOME OF $753 MILLION

OR $2.32 PER DILUTED SHARE



Second Quarter Results
	2019	2018	YOY Change
Total loans, end of period (in billions)	$90.2	$84.8	6%
Total revenue net of interest expense (in millions)	$2,852	$2,603	10%
Total net charge-off rate	3.22%	3.11%	11 bps
Net income (in millions)	$753	$669	13%
Diluted EPS	$2.32	$1.91	21%

Riverwoods, IL, July 23, 2019 - Discover Financial Services (NYSE: DFS) today reported net income of $753 million or $2.32 per diluted share for the second quarter of 2019, as compared to $669 million or $1.91 per diluted share for the second quarter of 2018. The company’s return on equity for the second quarter of 2019 was 26%.

“We are pleased to report another quarter of solid growth in earnings and a strong ROE, as we continue to focus on disciplined execution while delivering products and service that exceed our customers' expectations," said Roger Hochschild, CEO and president of Discover. "Key drivers of our performance continue to be our investment in the Discover brand as well as delivering a differentiated customer experience, which led to our being ranked highest by J.D. Power for customer satisfaction among credit card mobile apps and websites."

Segment Results:

Direct Banking

Direct Banking pretax income of $941 million increased by $104 million from the prior year driven by higher net interest income, partially offset by an increase in the provision for loan losses and higher operating expenses.

Total loans ended the quarter at $90.2 billion, up 6% compared to the prior year. Credit card loans ended the quarter at $72.4 billion, up 7% from the prior year. Personal loans increased $110 million, or 2%, from the prior year. Private student loans increased $273 million, or 3%, year-over-year, and grew $683 million, or 9%, excluding purchased student loans.

Net interest income increased $202 million, or 9%, from the prior year, driven by loan growth and net interest margin expansion. Net interest margin was 10.47%, up 26 basis points versus the prior year. Card yield was 13.44%, an increase of 56 basis points from the prior year primarily due to prime rate increases and portfolio mix, partially offset by higher interest charge-offs. Interest expense as a percent of total loans increased 46 basis points from the prior year, primarily as a result of higher market rates.

Other income increased $38 million, or 10%, from the prior year, driven by higher discount and interchange revenue.

The 30+ day delinquency rate for credit card loans was 2.34%, up 18 basis points from the prior year and down 11 basis points from the prior quarter. The credit card net charge-off rate was 3.49%, up 15 basis points from the prior year and down 1 basis point from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 0.73%, down 43 basis points from the prior year. The personal loans net charge-off rate of 4.33% increased by 36 basis points from the prior year. Net charge-off rates were generally higher due to the seasoning of recent years' loan growth and supply-driven credit normalization.

Provision for loan losses of $787 million increased $45 million from the prior year as higher net charge-offs were partially offset by a lower reserve build. The reserve build for the second quarter of 2019 was $69 million, compared to a reserve build of $93 million in the second quarter of 2018.

Expenses were up $91 million from the prior year primarily as a result of increases in employee compensation, professional fees and information processing. Employee compensation increased as a result of higher average salaries and benefits. Professional fees increased primarily due to achieving a higher level of recoveries. The increase in information processing was due to continued investments in infrastructure and analytic capabilities.

Payment Services

Payment Services pretax income was $46 million in the quarter, up $6 million from the prior year, due to higher revenue driven by transaction volume growth.

Payment Services transaction dollar volume was $61.8 billion, up 8% versus the prior year. PULSE transaction dollar volume was up 7% year-over-year, which reflects strong growth from existing issuers, the impact of new issuers on the network, and expanded support for our PINless products. Network Partners volume increased by 29% from the prior year driven by AribaPay.

Share Repurchases

During the second quarter of 2019, the company repurchased approximately 6.0 million shares of common stock for $461 million. Shares of common stock outstanding declined by 1.8% from the prior quarter.

2019 Capital Plan

On June 27, 2019, the Company announced that its capital plan for the four quarters ending June 30, 2020 contemplates share repurchases of up to $1.63 billion and an increase in the company's quarterly dividend from $0.40 to $0.44 per share of common stock.

The capital plan contemplates actions that maintain capital ratios to meet regulatory and legal requirements and support the company’s funding and other capital markets activities. The timing and exact amount of repurchases under the new repurchase program will be based on market conditions and other factors, including Accounting Standards Update 2016-13, Financial Instruments - Credit Losses, commonly known as CECL, which becomes effective on January 1, 2020, and will change how financial institutions, including the company, account for expected credit losses.

Conference Call and Webcast Information

The company will host a conference call to discuss its first quarter results on Tuesday, July 23, 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 around the world. 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, 2018, 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, 2019, 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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018					Jun 30, 2019			Jun 30, 2018			2019 vs. 2018
EARNINGS SUMMARY
Interest Income		$2,977			$2,937			$2,907			$2,781			$2,636			$341		13	%		$5,914			$5,205			$709		14	%
Interest Expense	645			632			605			558			507			138			27	%	1,277			976			301			31	%
Net Interest Income	2,332			2,305			2,302			2,223			2,129			203			10	%	4,637			4,229			408			10	%
Discount/Interchange Revenue	759			677			752			753			724			35			5	%	1,436			1,370			66			5	%
Rewards Cost	460			446			475			473			461			(1		)	—	%	906			853			53			6	%
Discount and Interchange Revenue, net	299			231			277			280			263			36			14	%	530			517			13			3	%
Protection Products Revenue	49			49			50			51			50			(1		)	(2	%)	98			103			(5		)	(5	%)
Loan Fee Income	102			104			108			103			95			7			7	%	206			191			15			8	%
Transaction Processing Revenue	48			46			46			47			42			6			14	%	94			85			9			11	%
Other Income	22			28			24			20			24			(2		)	(8	%)	50			53			(3		)	(6	%)
Total Other Income	520			458			505			501			474			46			10	%	978			949			29			3	%

Revenue Net of Interest Expense	2,852			2,763			2,807			2,724			2,603			249			10	%	5,615			5,178			437			8	%

Provision for Loan Losses	787			809			800			742			742			45			6	%	1,596			1,493			103			7	%

Employee Compensation and Benefits	427			425			414			408			400			27			7	%	852			805			47			6	%
Marketing and Business Development	224			195			230			218			224			—			—	%	419			409			10			2	%
Information Processing & Communications	101			99			93			89			86			15			17	%	200			168			32			19	%
Professional Fees	183			167			190			166			161			22			14	%	350			316			34			11	%
Premises and Equipment	26			28			26			26			24			2			8	%	54			50			4			8	%
Other Expense	117			110			157			108			89			28			31	%	227			204			23			11	%
Total Other Expense	1,078			1,024			1,110			1,015			984			94			10	%	2,102			1,952			150			8	%

Income Before Income Taxes	987			930			897			967			877			110			13	%	1,917			1,733			184			11	%
Tax Expense	234			204			210			247			208			26			13	%	438			398			40			10	%
Net Income		$753			$726			$687			$720			$669			$84		13	%		$1,479			$1,335			$144		11	%

Net Income Allocated to Common Stockholders		$747			$705			$681			$699			$663			$84		13	%		$1,452			$1,309			$143		11	%

Effective Tax Rate	23.8		%	21.9		%	23.5		%	25.5		%	23.7		%						22.9		%	23.0		%

Net Interest Margin	10.47		%	10.46		%	10.35		%	10.28		%	10.21		%	26			bps		10.47		%	10.22		%	25			bps
Operating Efficiency	37.8		%	37.1		%	39.6		%	37.2		%	37.8		%	—			bps		37.4		%	37.7		%	(30		)	bps
ROE	26		%	26		%	25		%	26		%	25		%						26		%	25		%
Capital Returned to Common Stockholders		$571			$601			$578			$580			$656			($85	)	(13	%)		$1,172			$1,340			($168	)	(13	%)
Payout Ratio	76		%	85		%	85		%	83		%	99		%						81		%	102		%

Ending Common Shares Outstanding	319			325			331			338			344			(25		)	(7	%)	319			344			(25		)	(7	%)
Weighted Average Common Shares Outstanding	322			328			335			341			348			(26		)	(7	%)	325			351			(26		)	(7	%)
Weighted Average Common Shares Outstanding (fully diluted)	323			328			335			342			348			(25		)	(7	%)	326			351			(25		)	(7	%)

PER SHARE STATISTICS
Basic EPS		$2.32			$2.15			$2.04			$2.05			$1.91			$0.41		21	%		$4.46			$3.73			$0.73		20	%
Diluted EPS		$2.32			$2.15			$2.03			$2.05			$1.91			$0.41		21	%		$4.46			$3.72			$0.74		20	%
Common Stock Price (period end)		$77.59			$71.16			$58.98			$76.45			$70.41			$7.18		10	%		$77.59			$70.41			$7.18		10	%
Book Value per share		$35.97			$34.60			$33.58			$32.60			$31.66			$4.31		14	%		$35.97			$31.66			$4.31		14	%

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, 2019		Mar 31, 2019		Dec 31, 2018		Sep 30, 2018		Jun 30, 2018		Jun 30, 2019 vs. Jun 30, 2018				Jun 30, 2019		Jun 30, 2018		2019 vs. 2018
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$941		$879		$874		$923		$837		$104	12	%		$1,820		$1,648		$172		10	%
Payment Services	46		51		23		44		40		6		15	%	97		85		12			14	%
Total		$987		$930		$897		$967		$877		$110	13	%		$1,917		$1,733		$184		11	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	671		605		663		642		614		57		9	%	1,276		1,164		112			10	%
PULSE Network	1,183		1,132		1,169		1,151		1,055		128		12	%	2,315		2,044		271			13	%
Total	1,854		1,737		1,832		1,793		1,669		185		11	%	3,591		3,208		383			12	%

NETWORK VOLUME
PULSE Network		$47,389		$47,106		$47,082		$45,244		$44,308		$3,081	7	%		$94,495		$87,466		$7,029		8	%
Network Partners	5,950		5,663		4,680		5,113		4,602		1,348		29	%	11,613		9,155		2,458			27	%
Diners Club International¹	8,472		8,278		8,700		8,370		8,417		55		1	%	16,750		16,807		(57		)	0	%
Total Payment Services	61,811		61,047		60,462		58,727		57,327		4,484		8	%	122,858		113,428		9,430			8	%
Discover Network - Proprietary	37,891		34,051		38,502		36,642		36,339		1,552		4	%	71,942		68,721		3,221			5	%
Total		$99,702		$95,098		$98,964		$95,369		$93,666		$6,036	6	%		$194,800		$182,149		$12,651		7	%


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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$19,934			$21,456			$18,515			$18,410			$17,441			$2,493		14	%
Total Loan Receivables	90,229			88,743			90,512			86,894			84,789			5,440			6	%
Allowance for Loan Losses	(3,202		)	(3,134		)	(3,041		)	(2,927		)	(2,828		)	(374		)	(13	%)
Net Loan Receivables	87,027			85,609			87,471			83,967			81,961			5,066			6	%
Premises and Equipment, net	1,008			980			936			896			874			134			15	%
Goodwill and Intangible Assets, net	415			415			416			417			417			(2		)	—	%
Other Assets	2,323			2,260			2,215			2,152			2,058			265			13	%
Total Assets		$110,707			$110,720			$109,553			$105,842			$102,751			$7,956		8	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$49,686			$47,730			$44,669			$43,411			$42,256			$7,430		18	%
Brokered Deposits and Other Deposits	20,048			21,186			23,090			20,263			19,427			621			3	%
Deposits	69,734			68,916			67,759			63,674			61,683			8,051			13	%
Borrowings	25,163			26,276			27,228			26,998			26,252			(1,089		)	(4	%)
Accrued Expenses and Other Liabilities	4,317			4,269			3,436			4,154			3,927			390			10	%
Total Liabilities	99,214			99,461			98,423			94,826			91,862			7,352			8	%
Total Equity	11,493			11,259			11,130			11,016			10,889			604			6	%
Total Liabilities and Stockholders' Equity		$110,707			$110,720			$109,553			$105,842			$102,751			$7,956		8	%

LIQUIDITY
Liquidity Portfolio		$17,283			$20,050			$15,923			$16,370			$15,703		1,580			10	%
Undrawn Credit Facilities ¹	38,466			37,870			36,986			36,257			36,422			2,044			6	%
Total Liquidity		$55,749			$57,920			$52,909			$52,627			$52,125			$3,624		7	%


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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018
BALANCE SHEET STATISTICS
Total Common Equity		$10,930			$10,696			$10,567			$10,453			$10,326			$604	6	%
Total Common Equity/Total Assets	9.9		%	9.7		%	9.6		%	9.9		%	10.1		%
Total Common Equity/Net Loans	12.6		%	12.5		%	12.1		%	12.4		%	12.6		%

Tangible Assets		$110,292			$110,305			$109,137			$105,425			$102,334			$7,958	8	%
Tangible Common Equity ¹		$10,515			$10,281			$10,151			$10,036			$9,909			$606	6	%
Tangible Common Equity/Tangible Assets ¹	9.5		%	9.3		%	9.3		%	9.5		%	9.7		%
Tangible Common Equity/Net Loans ¹	12.1		%	12.0		%	11.6		%	12.0		%	12.1		%
Tangible Common Equity per share¹		$32.91			$31.60			$30.63			$29.70			$28.82			$4.09	14	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	13.7		%	13.9		%	13.5		%	13.9		%	13.6		%
Tier 1 Risk Based Capital Ratio	12.0		%	12.1		%	11.7		%	12.1		%	12.3		%
Tier 1 Leverage Ratio	10.2		%	10.0		%	10.1		%	10.4		%	10.5		%
Common Equity Tier 1 Capital Ratio	11.4		%	11.5		%	11.1		%	11.4		%	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

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018
AVERAGE BALANCES
Assets
Cash and Investment Securities		$18,906			$18,417			$17,660			$16,474			$16,395			$2,511		15	%
Restricted Cash	888			804			609			638			466			422			91	%
Credit Card Loans	71,492			71,363			70,563			68,613			66,594			4,898			7	%
Private Student Loans	9,464			9,654			9,344			9,158			9,219			245			3	%
Personal Loans	7,419			7,468			7,540			7,460			7,304			115			2	%
Other Loans	983			868			760			624			531			452			85	%
Total Loans	89,358			89,353			88,207			85,855			83,648			5,710			7	%
Total Interest Earning Assets	109,152			108,574			106,476			102,967			100,509			8,643			9	%
Allowance for Loan Losses	(3,133		)	(3,040		)	(2,924		)	(2,827		)	(2,731		)	(402		)	(15	%)
Other Assets	4,539			4,455			4,520			4,377			4,170			369			9	%
Total Assets		$110,558			$109,989			$108,072			$104,517			$101,948			$8,610		8	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$48,211			$45,841			$43,514			$42,498			$41,459			$6,752		16	%
Brokered Deposits and Other Deposits	20,213			21,799			21,574			19,939			19,166			1,047			5	%
Total Interest-bearing Deposits	68,424			67,640			65,088			62,437			60,625			7,799			13	%
Short-term Borrowings	—			1			2			3			1			(1		)	(100	%)
Securitized Borrowings	15,179			15,865			16,427			16,141			16,121			(942		)	(6	%)
Other Long-term Borrowings	10,932			10,711			10,756			10,351			9,866			1,066			11	%
Total Interest-bearing Liabilities	94,535			94,217			92,273			88,932			86,613			7,922			9	%
Other Liabilities & Stockholders' Equity	16,023			15,772			15,799			15,585			15,335			688			4	%
Total Liabilities and Stockholders' Equity		$110,558			$109,989			$108,072			$104,517			$101,948			$8,610		8	%

AVERAGE RATES
Assets
Cash and Investment Securities	2.46		%	2.51		%	2.35		%	2.01		%	1.82		%	64			bps
Restricted Cash	2.32		%	2.35		%	2.28		%	1.92		%	1.85		%	47			bps
Credit Card Loans	13.44		%	13.42		%	13.20		%	13.06		%	12.88		%	56			bps
Private Student Loans	8.59		%	8.63		%	8.31		%	8.19		%	8.05		%	54			bps
Personal Loans	13.02		%	12.86		%	12.76		%	12.66		%	12.55		%	47			bps
Other Loans	6.83		%	6.85		%	6.57		%	6.38		%	6.02		%	81			bps
Total Loans	12.82		%	12.79		%	12.59		%	12.45		%	12.28		%	54			bps
Total Interest Earning Assets	10.94		%	10.97		%	10.83		%	10.72		%	10.52		%	42			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	2.20		%	2.15		%	2.00		%	1.88		%	1.71		%	49			bps
Brokered Deposits and Other Deposits	2.71		%	2.67		%	2.58		%	2.51		%	2.33		%	38			bps
Total Interest-bearing Deposits	2.35		%	2.32		%	2.20		%	2.08		%	1.90		%	45			bps
Short-term Borrowings	2.59		%	2.59		%	2.42		%	2.09		%	1.89		%	70			bps
Securitized Borrowings	3.01		%	3.05		%	2.87		%	2.71		%	2.67		%	34			bps
Other Long-term Borrowings	4.75		%	4.81		%	4.65		%	4.56		%	4.57		%	18			bps
Total Interest-bearing Liabilities	2.73		%	2.72		%	2.60		%	2.49		%	2.35		%	38			bps

Net Interest Margin	10.47		%	10.46		%	10.35		%	10.28		%	10.21		%	26			bps
Net Yield on Interest-earning Assets	8.57		%	8.61		%	8.57		%	8.57		%	8.50		%	7			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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018					Jun 30, 2019			Jun 30, 2018			2019 vs. 2018
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$90,229			$88,743			$90,512			$86,894			$84,789			$5,440		6	%		$90,229			$84,789			$5,440		6	%
Average Loans ^{1, 2}		$89,358			$89,353			$88,207			$85,855			$83,648			$5,710		7	%		$89,356			$83,452			$5,904		7	%

Interest Yield	12.82		%	12.79		%	12.59		%	12.45		%	12.28		%	54			bps		12.81		%	12.24		%	57			bps
Gross Principal Charge-off Rate	4.03		%	4.02		%	3.77		%	3.63		%	3.78		%	25			bps		4.03		%	3.76		%	27			bps
Gross Principal Charge-off Rate excluding PCI Loans³	4.10		%	4.10		%	3.85		%	3.71		%	3.87		%	23			bps		4.10		%	3.85		%	25			bps
Net Principal Charge-off Rate	3.22		%	3.25		%	3.08		%	2.97		%	3.11		%	11			bps		3.23		%	3.10		%	13			bps
Net Principal Charge-off Rate excluding PCI Loans ³	3.27		%	3.31		%	3.14		%	3.03		%	3.18		%	9			bps		3.29		%	3.18		%	11			bps
Delinquency Rate (30 or more days) excluding PCI Loans ³	2.18		%	2.28		%	2.31		%	2.22		%	2.08		%	10			bps		2.18		%	2.08		%	10			bps
Delinquency Rate (90 or more days) excluding PCI Loans ³	1.04		%	1.10		%	1.08		%	1.00		%	0.99		%	5			bps		1.04		%	0.99		%	5			bps
Gross Principal Charge-off Dollars		$898			$887			$839			$785			$789			$109		14	%		$1,785			$1,558			$227		15	%
Net Principal Charge-off Dollars		$718			$715			$686			$642			$649			$69		11	%		$1,433			$1,284			$149		12	%
Net Interest and Fee Charge-off Dollars		$158			$158			$142			$135			$138			$20		14	%		$316			$274			$42		15	%
Loans Delinquent 30 or more days ³		$1,939			$1,988			$2,049			$1,894			$1,725			$214		12	%		$1,939			$1,725			$214		12	%
Loans Delinquent 90 or more days ³		$922			$959			$961			$854			$821			$101		12	%		$922			$821			$101		12	%

Allowance for Loan Loss (period end)		$3,202			$3,134			$3,041			$2,927			$2,828			$374		13	%		$3,202			$2,828			$374		13	%
Reserve Change Build/ (Release) ⁴		$69			$94			$114			$100			$93			($24	)				$163			$209			($46	)
Reserve Rate	3.55		%	3.53		%	3.36		%	3.37		%	3.34		%	21			bps		3.55		%	3.34		%	21			bps
Reserve Rate Excluding PCI Loans ³	3.58		%	3.57		%	3.39		%	3.41		%	3.38		%	20			bps		3.58		%	3.38		%	20			bps

CREDIT CARD LOANS
Ending Loans		$72,393			$70,789			$72,876			$69,253			$67,812			$4,581		7	%		$72,393			$67,812			$4,581		7	%
Average Loans		$71,492			$71,363			$70,563			$68,613			$66,594			$4,898		7	%		$71,428			$66,290			$5,138		8	%

Interest Yield	13.44		%	13.42		%	13.20		%	13.06		%	12.88		%	56			bps		13.43		%	12.87		%	56			bps
Gross Principal Charge-off Rate	4.43		%	4.40		%	4.01		%	3.90		%	4.12		%	31			bps		4.41		%	4.10		%	31			bps
Net Principal Charge-off Rate	3.49		%	3.50		%	3.23		%	3.14		%	3.34		%	15			bps		3.50		%	3.33		%	17			bps
Delinquency Rate (30 or more days)	2.34		%	2.45		%	2.43		%	2.32		%	2.16		%	18			bps		2.34		%	2.16		%	18			bps
Delinquency Rate (90 or more days)	1.18		%	1.26		%	1.22		%	1.12		%	1.09		%	9			bps		1.18		%	1.09		%	9			bps
Gross Principal Charge-off Dollars		$789			$774			$713			$674			$684			$105		15	%		$1,563			$1,347			$216		16	%
Net Principal Charge-off Dollars		$623			$616			$575			$543			$555			$68		12	%		$1,239			$1,095			$144		13	%
Loans Delinquent 30 or more days		$1,692			$1,731			$1,772			$1,608			$1,466			$226		15	%		$1,692			$1,466			$226		15	%
Loans Delinquent 90 or more days		$857			$891			$887			$777			$743			$114		15	%		$857			$743			$114		15	%

Allowance for Loan Loss (period end)		$2,691			$2,622			$2,528			$2,424			$2,334			$357		15	%		$2,691			$2,334			$357		15	%
Reserve Change Build/ (Release)		$69			$94			$104			$90			$82			($13	)				$163			$187			($24	)
Reserve Rate	3.72		%	3.70		%	3.47		%	3.50		%	3.44		%	28			bps		3.72		%	3.44		%	28			bps

Total Discover Card Volume		$39,935			$36,386			$40,655			$39,414			$38,430			$1,505		4	%		$76,321			$72,757			$3,564		5	%
Discover Card Sales Volume		$36,664			$32,899			$37,208			$35,896			$35,077			$1,587		5	%		$69,563			$65,927			$3,636		6	%
Rewards Rate	1.25		%	1.35		%	1.28		%	1.31		%	1.31		%	(6		)	bps		1.30		%	1.29		%	1			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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018					Jun 30, 2019			Jun 30, 2018			2019 vs. 2018
PRIVATE STUDENT LOANS
Ending Loans (excluding PCI)		$7,943			$8,071			$7,728			$7,668			$7,260			$683		9	%		$7,943			$7,260			$683		9	%
Ending PCI Loans ¹	1,432			1,531			1,637			1,735			1,842			(410		)	(22	%)	1,432			1,842			(410		)	(22	%)
Ending Loans		$9,375			$9,602			$9,365			$9,403			$9,102			$273		3	%		$9,375			$9,102			$273		3	%

Interest Yield	8.59		%	8.63		%	8.31		%	8.19		%	8.05		%	54			bps		8.61		%	7.97		%	64			bps
Net Principal Charge-off Rate	0.61		%	0.66		%	0.86		%	0.96		%	0.92		%	(31		)	bps		0.64		%	0.92		%	(28		)	bps
Net Principal Charge-off Rate excluding PCI Loans²	0.73		%	0.79		%	1.05		%	1.19		%	1.16		%	(43		)	bps		0.76		%	1.17		%	(41		)	bps
Delinquency Rate (30 or more days) excluding PCI Loans ²	1.67		%	1.76		%	2.00		%	2.13		%	2.10		%	(43		)	bps		1.67		%	2.10		%	(43		)	bps

Reserve Rate	1.79		%	1.75		%	1.80		%	1.80		%	1.87		%	(8		)	bps		1.79		%	1.87		%	(8		)	bps
Reserve Rate excluding PCI Loans ²	1.80		%	1.78		%	1.85		%	1.87		%	1.97		%	(17		)	bps		1.80		%	1.97		%	(17		)	bps

PERSONAL LOANS
Ending Loans		$7,414			$7,428			$7,454			$7,545			$7,304			$110		2	%		$7,414			$7,304			$110		2	%

Interest Yield	13.02		%	12.86		%	12.76		%	12.66		%	12.55		%	47			bps		12.94		%	12.49		%	45			bps
Net Principal Charge-off Rate	4.33		%	4.53		%	4.49		%	4.09		%	3.97		%	36			bps		4.43		%	4.00		%	43			bps
Delinquency Rate (30 or more days)	1.49		%	1.51		%	1.60		%	1.57		%	1.42		%	7			bps		1.49		%	1.42		%	7			bps

Reserve Rate	4.56		%	4.55		%	4.53		%	4.28		%	4.29		%	27			bps		4.56		%	4.29		%	27			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, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018			Jun 30, 2019 vs. Jun 30, 2018					Jun 30, 2019			Jun 30, 2018			2019 vs. 2018
DIRECT BANKING
Interest Income		$2,976			$2,937			$2,906			$2,781			$2,636			$340		13	%		$5,913			$5,205			$708		14	%
Interest Expense	645			632			605			558			507			138			27	%	1,277			976			301			31	%
Net Interest Income	2,331			2,305			2,301			2,223			2,129			202			9	%	4,636			4,229			407			10	%
Other Income	436			372			432			421			398			38			10	%	808			792			16			2	%
Revenue Net of Interest Expense	2,767			2,677			2,733			2,644			2,527			240			9	%	5,444			5,021			423			8	%
Provision for Loan Losses	787			809			800			742			742			45			6	%	1,596			1,493			103			7	%
Total Other Expense	1,039			989			1,059			979			948			91			10	%	2,028			1,880			148			8	%
Income Before Income Taxes		$941			$879			$874			$923			$837			$104		12	%		$1,820			$1,648			$172		10	%

Net Interest Margin	10.47		%	10.46		%	10.35		%	10.28		%	10.21		%	26			bps		10.47		%	10.22		%	25			bps
Pretax Return on Loan Receivables	4.23		%	3.99		%	3.93		%	4.27		%	4.01		%	22			bps		4.11		%	3.98		%	13			bps

Allowance for Loan Loss (period end)		$3,200			$3,133			$3,039			$2,920			$2,821			$379		13	%		$3,200			$2,821			$379		13	%
Reserve Change Build/ (Release) ¹		$69			$94			$120			$100			$93			($24	)				$163			$209			($46	)

PAYMENT SERVICES
Interest Income		$1			$—			$1			$—			$—			$1		NM			$1			$—			$1		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	1			—			1			—			—			1			NM		1			—			1			NM
Other Income	84			86			73			80			76			8			11	%	170			157			13			8	%
Revenue Net of Interest Expense	85			86			74			80			76			9			12	%	171			157			14			9	%
Provision for Loan Losses	—			—			—			—			—			—			NM		—			—			—			NM
Total Other Expense	39			35			51			36			36			3			8	%	74			72			2			3	%
Income Before Income Taxes		$46			$51			$23			$44			$40			$6		15	%		$97			$85			$12		14	%


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

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
	Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Sep 30, 2018			Jun 30, 2018
GAAP Total Common Equity		$10,930			$10,696			$10,567			$10,453			$10,326
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(160		)	(160		)	(161		)	(162		)	(162		)
Tangible Common Equity ¹		$10,515			$10,281			$10,151			$10,036			$9,909

GAAP Book Value Per Share		$35.97			$34.60			$33.58			$32.60			$31.66
Less: Goodwill	(0.80		)	(0.78		)	(0.77		)	(0.76		)	(0.73		)
Less: Intangibles	(0.50		)	(0.49		)	(0.48		)	(0.48		)	(0.47		)
Less: Preferred Stock	(1.76		)	(1.73		)	(1.70		)	(1.66		)	(1.64		)
Tangible Common Equity Per Share		$32.91			$31.60			$30.63			$29.70			$28.82

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 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, 2018, 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, 2019, 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

2Q19 Highlights(1) • Net income of $753MM, diluted EPS of $2.32; return on equity of 26% • Total loan growth of 6% led by an 7% increase in credit card loans; revenue growth of 10% • Strong credit performance reflecting disciplined underwriting and continued investments in collection capabilities • Payment Services continued to drive strong network volume growth (up 8%) • Investments in technology as well as our customer focus led to the highest ranking by J.D. Power in customer satisfaction among credit card mobile apps and websites • Returned $571MM of capital through dividends and share repurchases; announced capital plan which includes dividend increase and share repurchases Note(s) (1) All comparisons stated on a year-over-year basis 3

2Q19 Summary Financial Results Highlights Inc / (Dec) ($MM, except per share data) 2Q19 2Q18 $ % Revenue Net of Interest Expense $2,852 $2,603 $249 10% • Revenue net of interest expense of $2.9Bn, up 10%, driven by higher net Net Principal Charge-off 718 649 69 11% interest income Reserve Change 69 93 (24) (26%) Provision for Loan Losses 787 742 45 6% • Provision for loan losses increased Operating Expense 1,078 984 94 10% $45MM, or 6%, on higher net charge- offs, partially offset by a lower reserve Total Pre-Tax Income 987 877 110 13% build Income Tax Expense 234 208 26 13% • Expenses rose 10%, primarily driven Net Income $753 $669 $84 13% by higher compensation expense, as well as investments to support growth Segment Pre-Tax Income and new capabilities Direct Banking $941 $837 $104 12% Payment Services 46 40 6 15% • Diluted EPS of $2.32, up 21% Total Pre-Tax Income $987 $877 $110 13% ROE 26% 25% Diluted EPS $2.32 $1.91 $0.41 21% 4

2Q19 Loan and Volume Growth Ending Loans ($Bn) Volume ($Bn) Payment Services Network (1) Total Card Student Personal Proprietary PULSE Diners Partners +6% +7% +3% +2% +4% +7% +1% +29% $90.2 $84.8 $72.4 $67.8 $47.4 $44.3 $36.3$37.9 $9.1 $9.4 $7.4 $8.4 $8.5 $7.3 $4.6 $6.0 2Q18 2Q19 2Q18 2Q19 Total Network Volume up 6% 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

2Q19 Revenue Inc / (Dec) Highlights ($MM) 2Q19 2Q18 $ % Interest Income $2,977 $2,636 $341 13% • Loan growth and higher net Interest Expense 645 507 138 27% interest margin drove 10% Net Interest Income 2,332 2,129 203 10% increase in net interest income Discount/Interchange Revenue 759 724 35 5% Rewards Cost 460 461 (1) —% • Net discount and interchange Net Discount/Interchange Revenue 299 263 36 14% revenue increased 14% driven by Protection Products Revenue 49 50 (1) (2%) increased Card sales volume Loan Fee Income 102 95 7 7% while rewards cost remained flat Transaction Processing Revenue 48 42 6 14% Other Income 22 24 (2) (8%) • Rewards rate down 6 bps YOY Total Non-Interest Income 520 474 46 10% reflecting a shift in the 5% Revenue Net of Interest Expense $2,852 $2,603 $249 10% category (gas, Uber, Lyft in 2Q19 vs. groceries in 2Q18) Segment Revenue Net of Interest Expense Direct Banking $2,767 $2,527 $240 9% Payment Services 85 76 9 12% Revenue Net of Interest Expense $2,852 $2,603 $249 10% Change ($MM) 2Q19 2Q18 QOQ YOY Discover Card Sales Volume $36,664 $35,077 11% 5% Rewards Rate (1) 1.25% 1.31% -10 bps -6 bps Note(s) 1. Rewards cost divided by Discover card sales volume 6

2Q19 Net Interest Margin 2Q19 2Q18 Highlights Average Average ($MM) Balance Rate Balance Rate • Net interest margin on loans up 26 Credit Card $71,492 13.44% $66,594 12.88% Private Student 9,464 8.59% 9,219 8.05% bps as higher loan yields were Personal 7,419 13.02% 7,304 12.55% partially offset by higher funding costs Other 983 6.83% 531 6.02% Total Loans 89,358 12.82% 83,648 12.28% • Credit card yield increased 56 bps Other Interest-Earning Assets 19,794 2.45% 16,861 1.81% due to prime rate increases and Total Interest-Earning Assets $109,152 10.94% $100,509 10.52% portfolio mix, partially offset by higher Direct to Consumer and Affinity $48,211 2.20% $41,459 1.71% interest charge-offs Brokered Deposits and Other 20,213 2.71% 19,166 2.33% Interest Bearing Deposits 68,424 2.35% 60,625 1.90% • Average consumer deposits grew Borrowings 26,111 3.74% 25,988 3.39% 16% and composed 51% of total Total Interest-Bearing Liabilities $94,535 2.73% $86,613 2.35% funding Change • Funding costs on interest-bearing (%) 2Q19 QOQ YOY Total Interest Yield on Loans 12.82% 3bps 54bps liabilities increased 38 bps, primarily NIM on Loans 10.47% 1bps 26bps driven by higher market rates NIM on Interest-Earning Assets 8.57% -4bps 7bps 7

2Q19 Operating Expense Inc / (Dec) Highlights ($MM) 2Q19 2Q18 $ % Employee Compensation and Benefits $427 $400 $27 7% • Employee compensation and benefits Marketing and Business Development 224 224 0 —% up 7%, primarily due to higher Information Processing & Communications 101 86 15 17% average salaries and benefits Professional Fees 183 161 22 14% Premises and Equipment 26 24 2 8% Other Expense 117 89 28 31% • Information processing up 17% due to Total Operating Expense $1,078 $984 $94 10% investments in infrastructure and analytic capabilities Segment Operating Expense Direct Banking 1,039 948 $91 10% • Professional fees up 14%, primarily Payment Services 39 36 3 8% Total Operating Expense $1,078 $984 $94 10% related to achieving a higher level of recoveries Operating Efficiency(1) 37.8% 37.8% — bps 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 3.50 3.49 3.09 3.11 3.08 3.25 3.22 3.14 3.23 2.85 2.97 2.84 2.94 3.03 2.60 2.71 2.63 2.80 2.43 2.45 2.20 2.23 2.22 2.31 2.28 2.18 2.28 2.33 2.16 2.32 2.34 1.97 1.93 2.05 2.08 2.06 2.00 2.14 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) Private Student Loans Personal Loans 4.49 4.53 4.33 4.03 3.97 4.09 3.62 3.16 3.18 3.19 2.35 2.25 2.04 2.12 2.14 2.10 2.13 2.00 1.76 1.67 1.14 1.40 1.37 1.42 1.57 1.60 1.51 1.49 0.85 1.03 0.92 0.92 0.96 0.86 1.12 1.14 1.27 0.60 0.66 0.61 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) 9

Capital Trends 13.0 12.5 11.9 11.6 11.6 11.4 11.5 11.4 11.1 123 120 118 108 109 109 93 88 82 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 2Q19 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

2Q19 Financial Summary Balance Sheet Credit and Capital Profitability • Total loans grew 6% • Total NCO rate of 3.22%, • Net income of $753MM ($5.4Bn) YOY up 11 bps YOY and diluted EPS of $2.32 • Reflects loan seasoning • Credit card loans grew 7% and supply-driven credit • Revenue growth of 10% ($4.6Bn) YOY as sales normalization on higher net interest volume increased 5% income • Capital return • Average consumer • Raised quarterly • NIM of 10.47%, up 26 bps deposits grew 16% common dividend to YOY ($6.8Bn) YOY, while $0.44/share deposit rates increased 49 • Planned share • Strong return on equity at bps repurchases up to $1.63Bn over four 26% quarters ending June 30, 2020 • CET1 capital ratio(1) of 11.4% down 20 bps YOY Note(s) 1. Basel III Transition 11

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