Form 8-K Discover Financial Servi For: Oct 20
Exhibit 99.1
DISCOVER FINANCIAL SERVICES REPORTS THIRD QUARTER 2021 NET INCOME OF $1.1 BILLION
OR $3.54 PER DILUTED SHARE
| Third Quarter 2021 Results | |||||||||||
| 2021 | 2020 | YOY Change | |||||||||
| Total loans, end of period (in billions) | $89.5 | $88.7 | 1% | ||||||||
| Total revenue net of interest expense (in millions) | $2,777 | $2,714 | 2% | ||||||||
| Total net charge-off rate | 1.46% | 3.00% | -154 bps | ||||||||
| Net income/(loss) (in millions) | $1,091 | $771 | 42% | ||||||||
| Diluted EPS | $3.54 | $2.45 | 44% | ||||||||
Riverwoods, IL, October 20, 2021 - Discover Financial Services (NYSE: DFS) today reported net income of $1.1 billion or $3.54 per diluted share for the third quarter of 2021, as compared to a net income of $771 million or $2.45 per diluted share for the third quarter of 2020.
“Our results this quarter reflected the strengths of our integrated digital banking and payments model, which continues to be a source of significant competitive advantage” said Roger Hochschild, CEO and President of Discover. “Even in an environment of heightened competition, our attractive value proposition drove strong new account growth, which contributed to our return to year-over-year loan growth in the quarter. Further, our success in managing our operating costs and continued strong credit performance helped generate substantial capital, supporting the increase in share repurchases.”
Segment Results:
Digital Banking
Digital Banking pretax income of $1.5 billion for the quarter was $599 million higher than the prior year period primarily reflecting a lower provision for credit losses and higher revenue net of interest expense, partially offset by increased operating expenses.
Total loans ended the quarter at $89.5 billion, up 1% year-over-year, and up 2% sequentially. Credit card loans ended the quarter at $70.3 billion, up 1% year-over-year. Personal loans decreased $321 million, or 4%, and private student loans increased $168 million, or 2%, year-over-year. The organic student loan portfolio, which excludes purchased loans, increased $402 million, or 4% from the prior year period.
Net interest income for the quarter increased $140 million, or 6%, from the prior year period, driven by favorable funding costs due to lower market rates and decreased interest charge-offs, partially offset by a lower credit card revolving loan balance as payment rates remained elevated. Net interest margin was 10.80%, up 61 basis points versus the prior year. Card yield was 12.53%, up 13 basis points from the prior year period primarily driven by decreased interest charge-offs, and a lower mix of receivables at a promotional rate, partially offset by the impact of a higher payment rate on revolving loan balances. Interest expense as a percent of total loans decreased 66 basis points from the prior year period, primarily as a result of lower market rates and proactive management of deposit costs, maturity of high coupon consumer CDs and a favorable shift in the funding mix.
Non-interest income increased $76 million, or 20%, from the prior year period, mainly driven by higher discount/interchange revenue and loan fee income partially offset by higher rewards cost.
The total net charge-off rate of 1.46% was 154 basis points lower versus the prior year period reflecting strong credit performance across the portfolio. The credit card net charge-off rate was 1.65%, down 180 basis points from the prior year period and down 80 basis points from the prior quarter. The 30+ day delinquency rate for credit card loans was 1.48%, down 43 basis points year-
over year and up 5 basis points from the prior quarter. The student loan net charge-off rate was 0.68%, up 10 basis points from the prior year and up 15 basis points from the prior quarter. Personal loans net charge-off rate of 1.11% was down 158 basis points from the prior year and down 69 basis point from the prior quarter.
Provision for credit losses of $185 million decreased $565 million from the prior year period driven by lower net charge-offs and a reserve release in the quarter. The third quarter of 2021 included a $165 million reserve release, compared to a $42 million reserve build in the third quarter of 2020. Net charge-offs of $325 million were $343 million lower than the prior year period.
Total operating expenses were up $182 million, year-over year, or 19%, primarily reflecting higher marketing expense, increased other expenses, increased recovery fees, and higher employee compensation.
Payment Services
Payment Services had a pretax loss of $114 million, down $156 million year-over-year. Lower revenue was driven by a $167 million unrealized loss on equity investments. This was partially offset by higher PULSE and Network Partners revenue.
Payment Services volume was $76.8 billion, up 10% year-over-year. PULSE dollar volume was up 9% year-over-year with growth across all debit products driven by increased spend related to the economic recovery. Diners Club volume was up 12% year-over-year reflecting a rebound from the impacts of the pandemic. Network Partners volume increased 16% from the prior year primarily reflecting higher AribaPay volume.
Share Repurchase
During the third quarter of 2021, the company repurchased approximately 6.5 million shares of common stock for $815 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 third quarter results on Thursday, October 21, 2021, at 7:00 a.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 digital 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 loans, checking and savings accounts and certificates of deposit through its 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: Media:
Eric Wasserstrom, 224-405-5923 Jon Drummond, 224-405-1888
ericwasserstrom@discover.com jondrummond@discover.com
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: the effect of the coronavirus disease 2019 ("COVID-19") pandemic and measures taken to mitigate the pandemic, including their impact on our credit quality and business operations as well as their impact on general economic and financial markets, 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, 2020, "Risk Factors" 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 June 30, 2021 and March 31, 2021 which is filed with the SEC and available at the SEC's internet site (http://www.sec.gov) and subsequent reports on Forms 8-K and 10-Q, including the company's Current Report on Form 8-K filed today with the SEC.
| DISCOVER FINANCIAL SERVICES | Exhibit 99.2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS SUMMARY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions, except per share statistics) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| EARNINGS SUMMARY | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Income | $2,674 | $2,589 | $2,646 | $2,760 | $2,681 | ($7) | — | % | $7,909 | $8,335 | ($426) | (5 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | 269 | 290 | 316 | 383 | 416 | (147) | (35 | %) | 875 | 1,482 | (607) | (41 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Income | 2,405 | 2,299 | 2,330 | 2,377 | 2,265 | 140 | 6 | % | 7,034 | 6,853 | 181 | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount/Interchange Revenue | 988 | 937 | 766 | 811 | 752 | 236 | 31 | % | 2,691 | 2,068 | 623 | 30 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rewards Cost | 689 | 598 | 525 | 569 | 514 | 175 | 34 | % | 1,812 | 1,377 | 435 | 32 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discount and Interchange Revenue, net | 299 | 339 | 241 | 242 | 238 | 61 | 26 | % | 879 | 691 | 188 | 27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Protection Products Revenue | 43 | 43 | 43 | 45 | 44 | (1) | (2 | %) | 129 | 135 | (6) | (4 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loan Fee Income | 121 | 105 | 107 | 110 | 100 | 21 | 21 | % | 333 | 304 | 29 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Transaction Processing Revenue | 58 | 58 | 51 | 52 | 50 | 8 | 16 | % | 167 | 143 | 24 | 17 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Unrealized Gains/ (Losses) on Equity Investments | (167) | 729 | — | — | — | (167) | NM | 562 | — | 562 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Realized Gains/ (Losses) on Equity Investments | — | — | — | — | — | — | NM | — | 79 | (79) | (100 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Income | 18 | 6 | 23 | (2) | 17 | 1 | 6 | % | 47 | 59 | (12) | (20 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Non-Interest Income | 372 | 1,280 | 465 | 447 | 449 | (77) | (17 | %) | 2,117 | 1,411 | 706 | 50 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Net of Interest Expense | 2,777 | 3,579 | 2,795 | 2,824 | 2,714 | 63 | 2 | % | 9,151 | 8,264 | 887 | 11 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for Credit Losses | 185 | 135 | (365) | 531 | 750 | (565) | (75 | %) | (45) | 4,603 | (4,648) | (101 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Employee Compensation and Benefits | 483 | 498 | 506 | 504 | 471 | 12 | 3 | % | 1,487 | 1,390 | 97 | 7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Marketing and Business Development | 210 | 175 | 154 | 159 | 140 | 70 | 50 | % | 539 | 500 | 39 | 8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Information Processing & Communications | 121 | 145 | 109 | 198 | 111 | 10 | 9 | % | 375 | 342 | 33 | 10 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Professional Fees | 198 | 187 | 182 | 192 | 151 | 47 | 31 | % | 567 | 525 | 42 | 8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Premises and Equipment | 23 | 22 | 24 | 30 | 26 | (3) | (12 | %) | 69 | 83 | (14) | (17 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Other Expense | 155 | 195 | 106 | 195 | 106 | 49 | 46 | % | 456 | 401 | 55 | 14 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Operating Expense | 1,190 | 1,222 | 1,081 | 1,278 | 1,005 | 185 | 18 | % | 3,493 | 3,241 | 252 | 8 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income/ (Loss) Before Income Taxes | 1,402 | 2,222 | 2,079 | 1,015 | 959 | 443 | 46 | % | 5,703 | 420 | 5,283 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Tax Expense | 311 | 524 | 486 | 216 | 188 | 123 | 65 | % | 1,321 | 78 | 1,243 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income/ (Loss) | $1,091 | $1,698 | $1,593 | $799 | $771 | $320 | 42 | % | $4,382 | $342 | $4,040 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Income/ (Loss) Allocated to Common Stockholders | $1,055 | $1,688 | $1,546 | $794 | $751 | $304 | 40 | % | $4,289 | $309 | $3,980 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Effective Tax Rate | 22.2 | % | 23.6 | % | 23.4 | % | 21.3 | % | 19.6 | % | 23.2 | % | 18.6 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Margin | 10.80 | % | 10.68 | % | 10.75 | % | 10.63 | % | 10.19 | % | 61 | bps | 10.74 | % | 10.07 | % | 67 | bps | |||||||||||||||||||||||||||||||||||||||||||||||
| Operating Efficiency | 42.9 | % | 34.1 | % | 38.7 | % | 45.2 | % | 37.0 | % | 590 | bps | 38.2 | % | 39.2 | % | (100) | bps | |||||||||||||||||||||||||||||||||||||||||||||||
| ROE | 33 | % | 54 | % | 56 | % | 30 | % | 31 | % | 47 | % | 5 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| ROCE | 35 | % | 59 | % | 59 | % | 33 | % | 34 | % | 50 | % | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Capital Returned to Common Stockholders | $940 | $649 | $232 | $119 | $117 | $823 | NM | $1,821 | $721 | $1,100 | 153 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Payout Ratio | 89 | % | 38 | % | 15 | % | 15 | % | 16 | % | 42 | % | 234 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Common Shares Outstanding | 295 | 301 | 306 | 307 | 306 | (11) | (4 | %) | 295 | 306 | (11) | (4 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average Common Shares Outstanding | 298 | 304 | 307 | 307 | 306 | (8) | (3 | %) | 303 | 307 | (4) | (1 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Weighted Average Common Shares Outstanding (fully diluted) | 298 | 304 | 307 | 307 | 306 | (8) | (3 | %) | 303 | 307 | (4) | (1 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| PER SHARE STATISTICS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basic EPS | $3.54 | $5.56 | $5.04 | $2.59 | $2.45 | $1.09 | 44 | % | $14.17 | $1.00 | $13.17 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Diluted EPS | $3.54 | $5.55 | $5.04 | $2.59 | $2.45 | $1.09 | 44 | % | $14.16 | $1.00 | $13.16 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Dividends Declared Per Share | $0.50 | $0.44 | $0.44 | $0.44 | $0.44 | $0.06 | 14 | % | $1.38 | $1.32 | $0.06 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Common Stock Price (period end) | $122.85 | $118.29 | $94.99 | $90.53 | $57.78 | $65.07 | 113 | % | $122.85 | $57.78 | $65.07 | 113 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Book Value per share | $45.00 | $43.72 | $39.72 | $35.50 | $33.45 | $11.55 | 35 | % | $45.00 | $33.45 | $11.55 | 35 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note: See Glossary of Financial Terms for definitions of financial terms | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCOVER FINANCIAL SERVICES | ||||||||||||||||||||||||||||||||||||||||||||
| BALANCE SHEET SUMMARY | ||||||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | ||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | |||||||||||||||||||||||||||||||||||||||
| BALANCE SHEET SUMMARY | ||||||||||||||||||||||||||||||||||||||||||||
| Assets | ||||||||||||||||||||||||||||||||||||||||||||
Cash and Investment Securities 1 | $20,762 | $25,209 | $30,106 | $25,703 | $38,991 | ($18,229) | (47 | %) | ||||||||||||||||||||||||||||||||||||
| Total Loan Receivables | 89,542 | 87,674 | 86,347 | 90,449 | 88,660 | 882 | 1 | % | ||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses | (6,861) | (7,026) | (7,347) | (8,226) | (8,226) | 1,365 | 17 | % | ||||||||||||||||||||||||||||||||||||
| Net Loan Receivables | 82,681 | 80,648 | 79,000 | 82,223 | 80,434 | 2,247 | 3 | % | ||||||||||||||||||||||||||||||||||||
| Premises and Equipment, net | 987 | 986 | 1,021 | 1,027 | 1,121 | (134) | (12 | %) | ||||||||||||||||||||||||||||||||||||
| Goodwill and Intangible Assets, net | 256 | 256 | 350 | 350 | 350 | (94) | (27 | %) | ||||||||||||||||||||||||||||||||||||
| Other Assets | 3,858 | 3,886 | 3,394 | 3,586 | 3,453 | 405 | 12 | % | ||||||||||||||||||||||||||||||||||||
| Total Assets | $108,544 | $110,985 | $113,871 | $112,889 | $124,349 | ($15,805) | (13 | %) | ||||||||||||||||||||||||||||||||||||
| Liabilities & Stockholders' Equity | ||||||||||||||||||||||||||||||||||||||||||||
Certificates of Deposits 2 | $14,931 | $15,732 | $16,681 | $18,526 | $19,661 | ($4,730) | (24 | %) | ||||||||||||||||||||||||||||||||||||
Savings, Money Market, and Other Deposits 2, 3 | 47,035 | 46,823 | 47,420 | 44,971 | 43,282 | 3,753 | 9 | % | ||||||||||||||||||||||||||||||||||||
Total Direct to Consumer Deposits 2, 3 | 61,966 | 62,555 | 64,101 | 63,497 | 62,943 | (977) | (2 | %) | ||||||||||||||||||||||||||||||||||||
| Brokered Deposits and Other Deposits | 10,596 | 11,921 | 12,644 | 13,407 | 15,072 | (4,476) | (30 | %) | ||||||||||||||||||||||||||||||||||||
| Deposits | 72,562 | 74,476 | 76,745 | 76,904 | 78,015 | (5,453) | (7 | %) | ||||||||||||||||||||||||||||||||||||
Short-term Borrowings 4 | — | — | — | — | 10,700 | (10,700) | (100) | % | ||||||||||||||||||||||||||||||||||||
| Securitized Borrowings | 9,064 | 9,145 | 10,804 | 10,840 | 11,425 | (2,361) | (21 | %) | ||||||||||||||||||||||||||||||||||||
| Other Borrowings | 9,452 | 10,205 | 10,207 | 10,401 | 10,416 | (964) | (9 | %) | ||||||||||||||||||||||||||||||||||||
| Borrowings | 18,516 | 19,350 | 21,011 | 21,241 | 32,541 | (14,025) | (43 | %) | ||||||||||||||||||||||||||||||||||||
| Accrued Expenses and Other Liabilities | 4,203 | 3,988 | 3,961 | 3,860 | 3,541 | 662 | 19 | % | ||||||||||||||||||||||||||||||||||||
| Total Liabilities | 95,281 | 97,814 | 101,717 | 102,005 | 114,097 | (18,816) | (16 | %) | ||||||||||||||||||||||||||||||||||||
| Total Equity | 13,263 | 13,171 | 12,154 | 10,884 | 10,252 | 3,011 | 29 | % | ||||||||||||||||||||||||||||||||||||
| Total Liabilities and Stockholders' Equity | $108,544 | $110,985 | $113,871 | $112,889 | $124,349 | ($15,805) | (13 | %) | ||||||||||||||||||||||||||||||||||||
| LIQUIDITY | ||||||||||||||||||||||||||||||||||||||||||||
Liquidity Portfolio 5 | $19,946 | $23,201 | $28,196 | $24,411 | $25,759 | ($5,813) | (23 | %) | ||||||||||||||||||||||||||||||||||||
| Private Asset-backed Securitizations | 4,000 | 4,000 | 6,000 | 6,000 | 6,000 | (2,000) | (33 | %) | ||||||||||||||||||||||||||||||||||||
| Federal Home Loan Bank Borrowing Capacity | 1,341 | 1,209 | 1,127 | — | — | 1,341 | NM | |||||||||||||||||||||||||||||||||||||
Federal Reserve Discount Window 6 | 32,719 | 32,328 | 32,457 | 32,930 | 32,635 | 84 | — | % | ||||||||||||||||||||||||||||||||||||
Undrawn Credit Facilities 6 | 38,060 | 37,537 | 39,584 | 38,930 | 38,635 | (575) | (1 | %) | ||||||||||||||||||||||||||||||||||||
| Total Liquidity | $58,006 | $60,738 | $67,780 | $63,341 | $64,394 | -$6,388 | (10 | %) | ||||||||||||||||||||||||||||||||||||
1 Numbers for the quarter ending September 30, 2020 includes $10.7 billion of agency pass-through residential mortgage-backed securities (RMBS) received in connection with a securities lending transaction entered into in September 2020 | ||||||||||||||||||||||||||||||||||||||||||||
2 Includes Affinity relationships | ||||||||||||||||||||||||||||||||||||||||||||
3 Savings, Money Market, and Other Deposits includes checking and reflects both interest-bearing and non-interest bearing direct to consumer deposits | ||||||||||||||||||||||||||||||||||||||||||||
4 Represents the obligation to return the agency pass-through RMBS received from the counterparty of the securities lending transaction. The Company returned the RMBS when the securities lending transaction expired in November 2020 | ||||||||||||||||||||||||||||||||||||||||||||
5 Excludes U.S. Treasury securities that have been pledged as collateral in the securities lending transaction | ||||||||||||||||||||||||||||||||||||||||||||
6 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 | ||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | |||||||||||||||||||||||||||||||||||||||
| BALANCE SHEET STATISTICS | ||||||||||||||||||||||||||||||||||||||||||||
| Total Common Equity | $12,207 | $12,115 | $11,098 | $9,828 | $9,196 | $3,011 | 33 | % | ||||||||||||||||||||||||||||||||||||
| Total Common Equity/Total Assets | 11.2 | % | 10.9 | % | 9.7 | % | 8.7 | % | 7.4 | % | ||||||||||||||||||||||||||||||||||
| Total Common Equity/Net Loans | 14.8 | % | 15.0 | % | 14.0 | % | 12.0 | % | 11.4 | % | ||||||||||||||||||||||||||||||||||
| Tangible Assets | $108,288 | $110,729 | $113,521 | $112,539 | $123,999 | ($15,711) | (13 | %) | ||||||||||||||||||||||||||||||||||||
Tangible Common Equity 1 | $11,951 | $11,859 | $10,748 | $9,478 | $8,846 | $3,105 | 35 | % | ||||||||||||||||||||||||||||||||||||
Tangible Common Equity/Tangible Assets 1 | 11.0 | % | 10.7 | % | 9.5 | % | 8.4 | % | 7.1 | % | ||||||||||||||||||||||||||||||||||
Tangible Common Equity/Net Loans 1 | 14.5 | % | 14.7 | % | 13.6 | % | 11.5 | % | 11.0 | % | ||||||||||||||||||||||||||||||||||
Tangible Common Equity per share 1 | $40.55 | $39.37 | $35.12 | $30.91 | $28.86 | $11.69 | 41 | % | ||||||||||||||||||||||||||||||||||||
| Basel III | ||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | ||||||||||||||||||||||||||||||||||||||||||||
REGULATORY CAPITAL RATIOS 2 | Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | |||||||||||||||||||||||||||||||||||||||
| Total Risk Based Capital Ratio | 18.5 | % | 18.8 | % | 18.0 | % | 16.1 | % | 15.2 | % | ||||||||||||||||||||||||||||||||||
| Tier 1 Risk Based Capital Ratio | 16.7 | % | 16.9 | % | 16.1 | % | 14.3 | % | 13.3 | % | ||||||||||||||||||||||||||||||||||
| Tier 1 Leverage Ratio | 13.8 | % | 13.3 | % | 12.2 | % | 10.9 | % | 10.6 | % | ||||||||||||||||||||||||||||||||||
| Common Equity Tier 1 Capital Ratio | 15.5 | % | 15.7 | % | 14.9 | % | 13.1 | % | 12.2 | % | ||||||||||||||||||||||||||||||||||
| 1 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule | ||||||||||||||||||||||||||||||||||||||||||||
| 2 Based on the final rule published September 30, 2020. Capital ratios reflect delay in the recognition of the impact of CECL reserves on regulatory capital for two years in accordance with the final rule | ||||||||||||||||||||||||||||||||||||||||||||
| Note: See Glossary of Financial Terms for definitions of financial terms | ||||||||||||||||||||||||||||||||||||||||||||
| DISCOVER FINANCIAL SERVICES | |||||||||||||||||||||||||||||||||||||||||
| AVERAGE BALANCE SHEET | |||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | |||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | ||||||||||||||||||||||||||||||||||||
| AVERAGE BALANCES | |||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||
| Cash and Investment Securities | $20,623 | $26,784 | $27,927 | $30,245 | $27,841 | ($7,218) | (26 | %) | |||||||||||||||||||||||||||||||||
| Restricted Cash | 571 | 897 | 136 | 121 | 775 | (204) | (26 | %) | |||||||||||||||||||||||||||||||||
| Credit Card Loans | 69,416 | 67,420 | 68,723 | 69,997 | 69,643 | (227) | — | % | |||||||||||||||||||||||||||||||||
| Private Student Loans | 9,932 | 9,993 | 10,211 | 9,952 | 9,790 | 142 | 1 | % | |||||||||||||||||||||||||||||||||
| Personal Loans | 6,900 | 6,884 | 7,075 | 7,197 | 7,255 | (355) | (5 | %) | |||||||||||||||||||||||||||||||||
| Other Loans | 2,108 | 1,999 | 1,896 | 1,814 | 1,734 | 374 | 22 | % | |||||||||||||||||||||||||||||||||
| Total Loans | 88,356 | 86,296 | 87,905 | 88,960 | 88,422 | (66) | — | % | |||||||||||||||||||||||||||||||||
| Total Interest Earning Assets | 109,550 | 113,977 | 115,968 | 119,326 | 117,038 | (7,488) | (6 | %) | |||||||||||||||||||||||||||||||||
| Allowance for Credit Losses | (7,020) | (7,342) | (8,214) | (8,222) | (8,183) | 1,163 | (14 | %) | |||||||||||||||||||||||||||||||||
| Other Assets | 6,430 | 5,971 | 6,165 | 6,050 | 5,981 | 449 | 8 | % | |||||||||||||||||||||||||||||||||
| Total Assets | $108,960 | $112,606 | $113,919 | $117,154 | $114,836 | ($5,876) | (5 | %) | |||||||||||||||||||||||||||||||||
| Liabilities and Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
Certificates of Deposits 1 | $15,373 | $16,109 | $17,682 | $19,032 | $20,295 | ($4,922) | (24 | %) | |||||||||||||||||||||||||||||||||
Savings, Money Market, and Other Deposits 1, 2 | 45,907 | 46,020 | 45,020 | 43,489 | 41,256 | 4,651 | 11 | % | |||||||||||||||||||||||||||||||||
Interest-bearing Direct to Consumer Deposits 1, 2 | 61,280 | 62,129 | 62,702 | 62,521 | 61,551 | (271) | — | % | |||||||||||||||||||||||||||||||||
| Brokered Deposits and Other Deposits | 10,691 | 11,915 | 12,621 | 13,711 | 15,271 | (4,580) | (30 | %) | |||||||||||||||||||||||||||||||||
| Total Interest-bearing Deposits | 71,971 | 74,044 | 75,323 | 76,232 | 76,822 | (4,851) | (6 | %) | |||||||||||||||||||||||||||||||||
| Short-term Borrowings | 6 | — | 1 | 3,722 | 350 | (344) | NM | ||||||||||||||||||||||||||||||||||
| Securitized Borrowings | 8,292 | 10,305 | 10,826 | 10,945 | 12,115 | (3,823) | (32 | %) | |||||||||||||||||||||||||||||||||
| Other Long-term Borrowings | 9,550 | 10,211 | 10,360 | 10,409 | 10,426 | (876) | (8 | %) | |||||||||||||||||||||||||||||||||
| Total Interest-bearing Liabilities | 89,819 | 94,560 | 96,510 | 101,308 | 99,713 | (9,894) | (10 | %) | |||||||||||||||||||||||||||||||||
| Other Liabilities & Stockholders' Equity | 19,141 | 18,046 | 17,409 | 15,846 | 15,123 | 4,018 | 27 | % | |||||||||||||||||||||||||||||||||
| Total Liabilities and Stockholders' Equity | $108,960 | $112,606 | $113,919 | $117,154 | $114,836 | ($5,876) | (5 | %) | |||||||||||||||||||||||||||||||||
| AVERAGE YIELD | |||||||||||||||||||||||||||||||||||||||||
| Assets | |||||||||||||||||||||||||||||||||||||||||
| Cash and Investment Securities | 0.95 | % | 0.78 | % | 0.79 | % | 1.14 | % | 0.90 | % | 5 | bps | |||||||||||||||||||||||||||||
| Restricted Cash | 0.03 | % | 0.02 | % | 0.03 | % | 0.05 | % | 0.09 | % | (6) | bps | |||||||||||||||||||||||||||||
| Credit Card Loans | 12.53 | % | 12.52 | % | 12.71 | % | 12.65 | % | 12.40 | % | 13 | bps | |||||||||||||||||||||||||||||
| Private Student Loans | 7.36 | % | 7.41 | % | 7.37 | % | 7.40 | % | 7.40 | % | (4) | bps | |||||||||||||||||||||||||||||
| Personal Loans | 12.61 | % | 12.76 | % | 12.83 | % | 13.01 | % | 13.03 | % | (42) | bps | |||||||||||||||||||||||||||||
| Other Loans | 5.41 | % | 5.59 | % | 5.94 | % | 6.02 | % | 6.25 | % | (84) | bps | |||||||||||||||||||||||||||||
| Total Loans | 11.79 | % | 11.79 | % | 11.96 | % | 11.96 | % | 11.78 | % | 1 | bps | |||||||||||||||||||||||||||||
| Total Interest Earning Assets | 9.68 | % | 9.11 | % | 9.25 | % | 9.20 | % | 9.11 | % | 57 | bps | |||||||||||||||||||||||||||||
| AVERAGE RATES | |||||||||||||||||||||||||||||||||||||||||
| Liabilities and Stockholders' Equity | |||||||||||||||||||||||||||||||||||||||||
Certificates of Deposits 1 | 1.19 | % | 1.32 | % | 1.57 | % | 1.80 | % | 2.02 | % | (83) | bps | |||||||||||||||||||||||||||||
Savings, Money Market, and Other Deposits 1, 2 | 0.42 | % | 0.42 | % | 0.45 | % | 0.57 | % | 0.86 | % | (44) | bps | |||||||||||||||||||||||||||||
Interest-bearing Direct to Consumer Deposits 1, 2 | 0.61 | % | 0.65 | % | 0.77 | % | 0.94 | % | 1.25 | % | (64) | bps | |||||||||||||||||||||||||||||
| Brokered Deposits and Other Deposits | 2.28 | % | 2.35 | % | 2.37 | % | 2.38 | % | 2.47 | % | (19) | bps | |||||||||||||||||||||||||||||
| Total Interest-bearing Deposits | 0.86 | % | 0.92 | % | 1.04 | % | 1.20 | % | 1.49 | % | (63) | bps | |||||||||||||||||||||||||||||
| Short-term Borrowings | 0.24 | % | 0.11 | % | 0.15 | % | 3.10 | % | 3.10 | % | (286) | bps | |||||||||||||||||||||||||||||
| Securitized Borrowings | 1.10 | % | 1.01 | % | 1.07 | % | 1.06 | % | 1.04 | % | 6 | bps | |||||||||||||||||||||||||||||
| Other Long-term Borrowings | 3.78 | % | 3.66 | % | 3.72 | % | 3.60 | % | 3.60 | % | 18 | bps | |||||||||||||||||||||||||||||
| Total Interest-bearing Liabilities | 1.19 | % | 1.23 | % | 1.33 | % | 1.50 | % | 1.66 | % | (47) | bps | |||||||||||||||||||||||||||||
| Net Interest Margin | 10.80 | % | 10.68 | % | 10.75 | % | 10.63 | % | 10.19 | % | 61 | bps | |||||||||||||||||||||||||||||
| Net Yield on Interest-earning Assets | 8.71 | % | 8.09 | % | 8.15 | % | 7.93 | % | 7.70 | % | 101 | bps | |||||||||||||||||||||||||||||
1 Includes Affinity relationships | |||||||||||||||||||||||||||||||||||||||||
2 Excludes checking which is a non-interest bearing deposit product. All non-interest bearing deposits, including checking, are reflected in Other Liabilities & Stockholders’ Equity on the average balance sheet | |||||||||||||||||||||||||||||||||||||||||
| Note: See Glossary of Financial Terms for definitions of financial terms | |||||||||||||||||||||||||||||||||||||||||
| DISCOVER FINANCIAL SERVICES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOAN STATISTICS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TOTAL LOAN RECEIVABLES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Ending Loans 1 | $89,542 | $87,674 | $86,347 | $90,449 | $88,660 | $882 | 1 | % | $89,542 | $88,660 | $882 | 1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Average Loans 1 | $88,356 | $86,296 | $87,905 | $88,960 | $88,422 | ($66) | — | % | $87,521 | $90,889 | ($3,368) | (4 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Yield | 11.79 | % | 11.79 | % | 11.96 | % | 11.96 | % | 11.78 | % | 1 | bps | 11.84 | % | 11.95 | % | (11) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Principal Charge-off Rate | 2.50 | % | 3.20 | % | 3.45 | % | 3.17 | % | 3.78 | % | (128) | bps | 3.04 | % | 4.07 | % | (103) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Principal Charge-off Rate | 1.46 | % | 2.12 | % | 2.48 | % | 2.38 | % | 3.00 | % | (154) | bps | 2.01 | % | 3.24 | % | (123) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (30 or more days) | 1.40 | % | 1.34 | % | 1.67 | % | 1.89 | % | 1.77 | % | (37) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (90 or more days) | 0.58 | % | 0.63 | % | 0.85 | % | 0.88 | % | 0.80 | % | (22) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Principal Charge-off Dollars | $556 | $688 | $747 | $709 | $842 | ($286) | (34 | %) | $1,991 | $2,767 | ($776) | (28 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Principal Charge-off Dollars | $325 | $456 | $537 | $531 | $668 | ($343) | (51 | %) | $1,318 | $2,204 | ($886) | (40 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest and Fee Charge-off Dollars | $72 | $101 | $118 | $113 | $141 | ($69) | (49 | %) | $291 | $488 | ($197) | (40 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Delinquent 30 or more days | $1,258 | $1,172 | $1,438 | $1,705 | $1,567 | ($309) | (20 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Delinquent 90 or more days | $522 | $550 | $732 | $795 | $708 | ($186) | (26 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses (period end) | $6,861 | $7,026 | $7,347 | $8,226 | $8,226 | ($1,365) | (17 | %) | $6,861 | $8,226 | ($1,365) | (17 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserve Change Build/ (Release) 2, 3 | ($165) | ($321) | ($879) | $— | $42 | ($207) | ($1,365) | $2,382 | ($3,747) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reserve Rate | 7.66 | % | 8.01 | % | 8.51 | % | 9.09 | % | 9.28 | % | (162) | bps | 7.66 | % | 9.28 | % | (162) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| CREDIT CARD LOANS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Loans | $70,320 | $68,886 | $67,304 | $71,472 | $69,656 | $664 | 1 | % | $70,320 | $69,656 | $664 | 1 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Average Loans | $69,416 | $67,420 | $68,723 | $69,997 | $69,643 | ($227) | — | % | $68,522 | $71,934 | ($3,412) | (5 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Yield | 12.53 | % | 12.52 | % | 12.71 | % | 12.65 | % | 12.40 | % | 13 | bps | 12.59 | % | 12.55 | % | 4 | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Principal Charge-off Rate | 2.83 | % | 3.69 | % | 3.91 | % | 3.53 | % | 4.33 | % | (150) | bps | 3.47 | % | 4.60 | % | (113) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Principal Charge-off Rate | 1.65 | % | 2.45 | % | 2.80 | % | 2.63 | % | 3.45 | % | (180) | bps | 2.29 | % | 3.67 | % | (138) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (30 or more days) | 1.48 | % | 1.43 | % | 1.85 | % | 2.07 | % | 1.91 | % | (43) | bps | 1.48 | % | 1.91 | % | (43) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (90 or more days) | 0.66 | % | 0.73 | % | 1.01 | % | 1.03 | % | 0.93 | % | (27) | bps | 0.66 | % | 0.93 | % | (27) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Gross Principal Charge-off Dollars | $495 | $620 | $663 | $621 | $759 | ($264) | (35 | %) | $1,778 | $2,480 | ($702) | (28 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Principal Charge-off Dollars | $289 | $412 | $474 | $463 | $604 | ($315) | (52 | %) | $1,175 | $1,975 | ($800) | (41 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Delinquent 30 or more days | $1,040 | $983 | $1,245 | $1,478 | $1,328 | ($288) | (22 | %) | $1,040 | $1,328 | ($288) | (22 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Loans Delinquent 90 or more days | $467 | $504 | $680 | $739 | $650 | ($183) | (28 | %) | $467 | $650 | ($183) | (28 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses (period end) | $5,298 | $5,409 | $5,640 | $6,491 | $6,491 | ($1,193) | (18 | %) | $5,298 | $6,491 | ($1,193) | (18 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserve Change Build/ (Release) 2 | ($111) | ($231) | ($851) | $— | $— | ($111) | ($1,193) | $1,941 | ($3,134) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Reserve Rate | 7.54 | % | 7.85 | % | 8.38 | % | 9.08 | % | 9.32 | % | (178) | bps | 7.54 | % | 9.32 | % | (178) | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Discover Card Volume | $50,389 | $48,049 | $40,334 | $43,581 | $39,783 | $10,606 | 27 | % | $138,772 | $110,362 | $28,410 | 26 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discover Card Sales Volume | $47,613 | $45,460 | $37,744 | $40,957 | $37,134 | $10,479 | 28 | % | $130,817 | $101,843 | $28,974 | 28 | % | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Rewards Rate | 1.44 | % | 1.31 | % | 1.38 | % | 1.38 | % | 1.38 | % | 6 | bps | 1.38 | % | 1.34 | % | 4 | bps | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Total Loans includes Home Equity and other loans | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 Excludes January 1, 2020 CECL day one impact | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
3 Excludes any build/release of the liability for expected credit losses on unfunded commitments as the offset is recorded in accrued expenses and other liabilities in the Company's condensed consolidated statements of financial condition | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Note: See Glossary of Financial Terms for definitions of financial terms | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCOVER FINANCIAL SERVICES | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| LOAN STATISTICS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Nine Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | 2021 vs. 2020 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PRIVATE STUDENT LOANS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Organic Student Loans | $9,391 | $9,021 | $9,254 | $8,989 | $8,989 | $402 | 4 | % | $9,391 | $8,989 | $402 | 4 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Purchased Student Loans | 793 | 843 | 899 | 965 | 1,027 | (234) | (23 | %) | 793 | 1,027 | (234) | (23 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Total Private Student Loans | $10,184 | $9,864 | $10,153 | $9,954 | $10,016 | $168 | 2 | % | $10,184 | $10,016 | $168 | 2 | % | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Yield | 7.36 | % | 7.41 | % | 7.37 | % | 7.40 | % | 7.40 | % | (4) | bps | 7.38 | % | 7.70 | % | (32) | bps | ||||||||||||||||||||||||||||||||||||||||||||
Net Principal Charge-off Rate 1 | 0.68 | % | 0.53 | % | 0.53 | % | 0.71 | % | 0.58 | % | 10 | bps | 0.58 | % | 0.63 | % | (5) | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (30 or more days) | 1.55 | % | 1.34 | % | 1.20 | % | 1.39 | % | 1.49 | % | 6 | bps | 1.55 | % | 1.49 | % | 6 | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Reserve Rate | 8.41 | % | 8.39 | % | 8.49 | % | 8.43 | % | 8.38 | % | 3 | bps | 8.41 | % | 8.38 | % | 3 | bps | ||||||||||||||||||||||||||||||||||||||||||||
| PERSONAL LOANS | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Ending Loans | $6,890 | $6,865 | $6,961 | $7,177 | $7,211 | ($321) | (4 | %) | $6,890 | $7,211 | ($321) | (4 | %) | |||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Yield | 12.61 | % | 12.76 | % | 12.83 | % | 13.01 | % | 13.03 | % | (42) | bps | 12.73 | % | 12.90 | % | (17) | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Net Principal Charge-off Rate | 1.11 | % | 1.80 | % | 2.80 | % | 2.79 | % | 2.69 | % | (158) | bps | 1.91 | % | 3.24 | % | (133) | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Delinquency Rate (30 or more days) | 0.71 | % | 0.69 | % | 0.84 | % | 1.08 | % | 1.10 | % | (39) | bps | 0.71 | % | 1.10 | % | (39) | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Reserve Rate | 9.61 | % | 10.85 | % | 11.55 | % | 11.94 | % | 11.89 | % | (228) | bps | 9.61 | % | 11.89 | % | (228) | bps | ||||||||||||||||||||||||||||||||||||||||||||
| Note: See Glossary of Financial Terms for definitions of financial terms | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DISCOVER FINANCIAL SERVICES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| SEGMENT RESULTS AND VOLUME STATISTICS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Quarter Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | Sep 30, 2021 vs. Sep 30, 2020 | Sep 30, 2021 | Sep 30, 2020 | 2021 vs. 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| DIGITAL BANKING | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Income | $2,674 | $2,589 | $2,646 | $2,760 | $2,681 | ($7) | — | % | $7,909 | $8,335 | ($426) | (5 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | 269 | 290 | 316 | 383 | 416 | (147) | (35 | %) | 875 | 1,482 | (607) | (41 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Income | 2,405 | 2,299 | 2,330 | 2,377 | 2,265 | 140 | 6 | % | 7,034 | 6,853 | 181 | 3 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Interest Income | 447 | 458 | 379 | 368 | 371 | 76 | 20 | % | 1,284 | 1,091 | 193 | 18 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Net of Interest Expense | 2,852 | 2,757 | 2,709 | 2,745 | 2,636 | 216 | 8 | % | 8,318 | 7,944 | 374 | 5 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for Credit Losses | 185 | 135 | (365) | 531 | 750 | (565) | (75 | %) | (45) | 4,603 | (4,648) | (101 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Operating Expense | 1,151 | 1,092 | 1,047 | 1,223 | 969 | 182 | 19 | % | 3,290 | 3,069 | 221 | 7 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income/ (Loss) Before Income Taxes | $1,516 | $1,530 | $2,027 | $991 | $917 | $599 | 65 | % | $5,073 | $272 | $4,801 | NM | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Margin | 10.80 | % | 10.68 | % | 10.75 | % | 10.63 | % | 10.19 | % | 61 | bps | 10.74 | % | 10.07 | % | 67 | bps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Pretax Return on Loan Receivables | 6.81 | % | 7.11 | % | 9.36 | % | 4.44 | % | 4.13 | % | 268 | bps | 7.75 | % | 0.4 | % | 735 | bps | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Allowance for Credit Losses (period end) | $6,861 | $7,026 | $7,347 | $8,226 | $8,226 | ($1,365) | (17 | %) | $6,861 | $8,226 | ($1,365) | (17 | %) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Reserve Change Build/ (Release) 1 | ($165) | ($321) | ($879) | $0 | $42 | ($207) | ($1,365) | $2,382 | ($3,747) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PAYMENT SERVICES | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Income | $— | $— | $— | $— | $— | $— | NM | $— | $— | $— | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Interest Expense | — | — | — | — | — | — | NM | — | — | — | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Net Interest Income | — | — | — | — | — | — | NM | — | — | — | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Non-Interest Income/ (Loss) | (75) | 822 | 86 | 79 | 78 | (153) | (196 | %) | 833 | 320 | 513 | 160 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Revenue Net of Interest Expense | (75) | 822 | 86 | 79 | 78 | (153) | (196 | %) | 833 | 320 | 513 | 160 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Provision for Credit Losses | — | — | — | — | — | — | NM | — | — | — | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Operating Expense | 39 | 130 | 34 | 55 | 36 | 3 | 8 | % | 203 | 172 | 31 | 18 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Income/ (Loss) Before Income Taxes | ($114) | $692 | $52 | $24 | $42 | ($156) | NM | $630 | $148 | $482 | NM | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| TRANSACTIONS PROCESSED ON NETWORKS | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discover Network | 868 | 799 | 678 | 735 | 679 | 189 | 28 | % | 2,345 | 1,889 | 456 | 24 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PULSE Network | 1,415 | 1,399 | 1,310 | 1,286 | 1,270 | 145 | 11 | % | 4,124 | 3,668 | 456 | 12 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | 2,283 | 2,198 | 1,988 | 2,021 | 1,949 | 334 | 17 | % | 6,469 | 5,557 | 912 | 16 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| NETWORK VOLUME | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| PULSE Network | $59,872 | $62,855 | $60,399 | $55,055 | $54,993 | $4,879 | 9 | % | $183,126 | $157,026 | $26,100 | 17 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Network Partners | 10,377 | 9,468 | 9,629 | 8,740 | 8,917 | 1,460 | 16 | % | 29,474 | 23,177 | 6,297 | 27 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Diners Club International 2 | 6,547 | 6,126 | 5,897 | 6,321 | 5,839 | 708 | 12 | % | 18,570 | 17,915 | 655 | 4 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total Payment Services | 76,796 | 78,449 | 75,925 | 70,116 | 69,749 | 7,047 | 10 | % | 231,170 | 198,118 | 33,052 | 17 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Discover Network - Proprietary | 49,360 | 47,201 | 39,202 | 42,526 | 38,699 | 10,661 | 28 | % | 135,763 | 106,228 | 29,535 | 28 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Total | $126,156 | $125,650 | $115,127 | $112,642 | $108,448 | $17,708 | 16 | % | $366,933 | $304,346 | $62,587 | 21 | % | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
1 Excludes January 1, 2020 CECL day one impact | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2 Volume is derived from data provided by licencees 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 - GLOSSARY OF FINANCIAL TERMS | |||||||||||
| Balance Sheet & Regulatory Capital Terms | |||||||||||
Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments | |||||||||||
Regulatory Capital Ratios are preliminary | |||||||||||
| • | 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 | ||||||||||
| • | Common Equity Tier 1 Capital Ratio represents common equity tier 1 capital divided by risk weighted assets | ||||||||||
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 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 | |||||||||||
Tangible Common Equity/Net Loans, a non-GAAP measure, represents TCE divided by total loans less the allowance for credit losses (period end) | |||||||||||
Tangible Common Equity per Share, a non-GAAP measure, represents TCE divided by ending common shares outstanding | |||||||||||
Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents TCE divided by total assets less goodwill and intangibles | |||||||||||
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) | |||||||||||
| Credit Related Terms | |||||||||||
Delinquency Rate (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective product loans, as appropriate) | |||||||||||
Delinquency Rate (90 or more days) represents loans delinquent ninety days or more divided by ending loans (total or respective product loans, as appropriate) | |||||||||||
Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) | |||||||||||
Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) | |||||||||||
Reserve Rate represents the allowance for credit losses divided by total loans (total or respective product loans, as appropriate) | |||||||||||
| Earnings and Shareholder Return Terms | |||||||||||
Book Value per share represents total equity divided by ending common shares outstanding | |||||||||||
Capital Returned to Common Stockholders represents common stock dividends declared and treasury share repurchases, excluding common stock issued under employee benefit plans and stock based compensation | |||||||||||
Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding | |||||||||||
Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate) | |||||||||||
Net Income Allocated to Common Stockholders represents net income less preferred stock dividends and income allocated to participating securities | |||||||||||
Net Interest Margin represents net interest income (annualized) divided by average total loans for the period | |||||||||||
Net Yield on Interest Earning Assets represents net interest income (annualized) divided by average total interest earning assets for the period | |||||||||||
Operating Efficiency represents total operating expense divided by revenue net of interest expense | |||||||||||
Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period | |||||||||||
Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders | |||||||||||
Return on Equity represents net income (annualized) divided by average total equity for the reporting period | |||||||||||
Rewards Rate represents Credit Card rewards cost divided by Discover Card sales volume | |||||||||||
| Volume Terms | |||||||||||
Discover Card Sales Volume represents Discover card activity related to sales net of returns | |||||||||||
Discover Card Volume represents Discover card activity related to sales net of returns, balance transfers, cash advances and other activity | |||||||||||
Discover Network Proprietary Volume represents gross Discover Card sales volume on the Discover Network | |||||||||||
| DISCOVER FINANCIAL SERVICES | |||||||||||||||||||||||||||||
| RECONCILIATION OF GAAP TO NON-GAAP DATA | |||||||||||||||||||||||||||||
| (unaudited, in millions) | |||||||||||||||||||||||||||||
| Quarter Ended | |||||||||||||||||||||||||||||
| Sep 30, 2021 | Jun 30, 2021 | Mar 31, 2021 | Dec 31, 2020 | Sep 30, 2020 | |||||||||||||||||||||||||
| GAAP Total Common Equity | $12,207 | $12,115 | $11,098 | $9,828 | $9,196 | ||||||||||||||||||||||||
| Less: Goodwill | (255) | (255) | (255) | (255) | (255) | ||||||||||||||||||||||||
| Less: Intangibles | (1) | (1) | (95) | (95) | (95) | ||||||||||||||||||||||||
Tangible Common Equity 1 | $11,951 | $11,859 | $10,748 | $9,478 | $8,846 | ||||||||||||||||||||||||
| GAAP Book Value Per Share | $45.00 | $43.72 | $39.72 | $35.50 | $33.45 | ||||||||||||||||||||||||
| Less: Goodwill | (0.87) | (0.84) | (0.84) | (0.84) | (0.84) | ||||||||||||||||||||||||
| Less: Intangibles | 0.00 | 0.00 | (0.31) | (0.31) | (0.31) | ||||||||||||||||||||||||
| Less: Preferred Stock | (3.58) | (3.51) | (3.45) | (3.44) | (3.44) | ||||||||||||||||||||||||
| Tangible Common Equity Per Share | $40.55 | $39.37 | $35.12 | $30.91 | $28.86 | ||||||||||||||||||||||||
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 | |||||||||||||||||||||||||||||
©2021 DISCOVER FINANCIAL SERVICES Exhibit 99.3 3Q21 Financial Results October 20, 2021
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, 2020, "Risk Factors" 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 June 30, 2021 and March 31, 2021, which is filed with the SEC and available at the SEC's website (www.sec.gov) and subsequent reports on Forms 8-K and 10-Q, including the Company's Current Report on Form 8-K filed today with the SEC. The Company does not undertake to update or revise forward-looking statements as more information becomes available. Notice 2
3Q21 Highlights 3 • 3Q21 Net Income of $1.1Bn; diluted EPS of $3.54 • Returned to YOY loan growth in the quarter (up 1%) ◦ Supports our outlook for modest receivables expansion in 2021 ◦ Adds conviction to our view of more robust growth in 2022 • Stable NIM reflected continued optimization of our funding mix, and will contribute to revenue growth as assets increase going forward • Sustained strong credit and a stable economic outlook supported $165MM reserve release • Remained disciplined on operating costs while continuing to make investments for growth and efficiency • Committed to returning capital to shareholders; repurchased $815MM of common stock in 3Q21
• Revenue net of interest expense was $2.8Bn, up 2%, driven by increased net interest income, higher net discount and interchange revenue driven by increased sales volume, and higher loan fee income, partially offset by a $167MM unrealized loss on equity investments • Net interest margin was 10.80%, up 61 bps driven by favorable funding costs and lower interest charge-offs • Provision for credit losses decreased by $565MM driven by the impact of lower net charge-offs and a reserve release in the current quarter reflecting stable macro assumptions and strong credit performance and delinquency trends • Expenses were up 18% reflecting higher marketing expense, increased other expense, increased professional fees related to collections, and higher employee compensation 3Q21 Summary Financial Results Key Points 4 $771 $140 $(77) $565 $(185) $(123) $1,091 3Q20 Net Income Net Interest Income Non- Interest Income Provision for Credit Losses Operating Expense Income Tax/ Capital Action 3Q21 Net Income Year-Over-Year Net Income & EPS ($MM, except EPS) 3Q21 $ 2,405 $ 372 $ 185 $ 1,190 $ 311 3Q20 $ 2,265 $ 449 $ 750 $ 1,005 $ 188 B/(W) $ 140 $ (77) $ 565 $ (185) $ (123) EPS $ 2.45 $ 0.37 $ (0.20) $ 1.48 $ (0.49) $ (0.07) $ 3.54
1% 1% 4% (4)% YOY YOY YOY YOY 3Q21 Loan Growth ($Bn) Total 5 • Card receivables returned to growth, up 1% YOY and up 2% QOQ driven by increased sales volume and new account acquisition, partially offset by an elevated payment rate • Organic student loans up 4% YOY • Personal loans down 4% YOY due to increased payments, but stabilized sequentially as underwriting returned to pre- pandemic standards earlier this year Key Points $88.7 $90.4 $86.3 $87.7 $89.5 3Q20 4Q20 1Q21 2Q21 3Q21 $69.7 $71.5 $67.3 $68.9 $70.3 3Q20 4Q20 1Q21 2Q21 3Q21 $9.0 $9.0 $9.3 $9.0 $9.4 3Q20 4Q20 1Q21 2Q21 3Q21 $7.2 $7.2 $7.0 $6.9 $6.9 3Q20 4Q20 1Q21 2Q21 3Q21 Organic Student Card Personal
• NIM on loans was 10.80%, up 12bps QOQ reflecting the combination of stable asset yields and lower funding costs • Total loan yield was flat QOQ mainly reflecting lower interest charge-offs partially offset by higher promotional rate balances • Consumer deposits were flat YOY and down 1% QOQ • The rate on average interest-bearing liabilities decreased 4bps QOQ, driven by maturity of higher coupon CDs and a shift in funding mix 3Q21 Net Interest Margin Change (%) 3Q21 2Q21 3Q20 QOQ YOY Total Interest Yield on Loans 11.79 % 11.79 % 11.78 % —bps 1bps NIM on Loans 10.80 % 10.68 % 10.19 % 12bps 61bps NIM on Interest-Earning Assets 8.71 % 8.09 % 7.70 % 62bps 101bps 3Q21 2Q21 3Q20 Interest-Earning Assets ($Bn) Avg Bal Yield Avg Bal Yield Avg Bal Yield Total Loans $88.4 11.79 % $86.3 11.79 % $88.4 11.78 % Other Interest-Earning Assets 21.2 0.92 % 27.7 0.76 % 28.6 0.88 % Total Interest-Earning Assets $109.6 9.68 % $114.0 9.11 % $117.0 9.11 % 3Q21 2Q21 3Q20 Interest-Bearing Liabilities ($Bn) Avg Bal Rate Avg Bal Rate Avg Bal Rate Direct to Consumer Deposits (1) (2) $61.3 0.61 % $62.1 0.65 % $61.6 1.25 % Brokered Deposits and Other 10.7 2.28 % 11.9 2.35 % 15.3 2.47 % Interest Bearing-Deposits 72.0 0.86 % 74.0 0.92 % 76.8 1.49 % Borrowings 17.8 2.53 % 20.6 2.33 % 22.9 2.23 % Total Interest-Bearing Liabilities $89.8 1.19 % $94.6 1.23 % $99.7 1.66 % 6 Key Points Note(s) 1. Includes Affinity relationships 2. Excludes checking which is a non-interest bearing deposit product NIM on Loans 10.43% 10.29% 10.21% 9.81% 10.19% 10.63% 10.75% 10.68% 10.80% 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21
Note(s) 1. Rewards rate represents credit card rewards cost divided by Discover Card sales volume • Net interest income increased 6% primarily due to favorable funding costs and lower interest charge-offs partially offset by a lower credit card revolve rate • Net discount and interchange revenue was up 26% driven by higher sales volume, partially offset by increased rewards cost • Loan fee income increased 21% largely reflecting lower late fee charge-offs, increased non-sufficient fund fees and higher cash advance fees • The unrealized loss reflects mark-to- market adjustments on equity investments • Rewards rate increased by 6bps YOY primarily due to higher sales volume in the 5% category (restaurants and PayPal) 3Q21 Revenue 7 Key Points Inc / (Dec) ($MM) 3Q21 3Q20 $ % Net Interest Income 2,405 2,265 140 6% Net Discount/Interchange Revenue 299 238 61 26% Protection Products Revenue 43 44 (1) (2%) Loan Fee Income 121 100 21 21% Transaction Processing Revenue 58 50 8 16% Realized/Unrealized Gain/(Loss) on Equity Inv (167) 0 (167) NM Other Income 18 17 1 6% Total Non-Interest Income 372 449 (77) (17%) Revenue Net of Interest Expense $2,777 $2,714 $63 2% Change 3Q21 3Q20 QOQ YOY Discover Card Sales Volume ($MM) $47,613 $37,134 5 % 28 % Rewards Rate (1) 1.44 % 1.38 % 13bps 6bps $2,714 $140 $61 $(1) $21 $8 $(167) $1 $2,777 3Q20 Rev Net of Int Exp Net Interest Income Net Discount/ Interchange Protection Products Loan Fee Income Transaction Processing Gain/(Loss) on Equity Investments Other Income 3Q21 Rev Net of Int Exp Year-Over-Year Revenue ($MM)
Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense • Employee compensation increase was driven by a higher bonus accrual • Marketing increased primarily due to investments in acquisition and brand • Professional fees increased driven largely by higher recovery fees 3Q21 Operating Expense Inc / (Dec) ($MM) 3Q21 3Q20 $ % Employee Compensation and Benefits $483 $471 $12 3% Marketing and Business Development 210 140 70 50% Information Processing & Communications 121 111 10 9% Professional Fees 198 151 47 31% Premises and Equipment 23 26 (3) (12%) Other Expense 155 106 49 46% Total Operating Expense $1,190 $1,005 $185 18% Operating Efficiency(1) 42.9 % 37.0 % 590 bps 8 Key PointsYear-Over-Year Expense ($MM) $1,005 $12 $70 $10 $47 $46 $1,190 3Q20 Expense Employee Comp Marketing Info Process Prof Fees All Other 3Q21 Expense Includes $25MM higher bonus accrual
• Credit card net charge-off rate decreased 180bps YOY and 30-Day delinquency decreased 43bps YOY reflecting strong credit performance in the portfolio • Student loan credit performance remained stable at low levels • Personal loan net charge-offs improved 158bps YOY reflecting underwriting enhancements and elevated consumer liquidity 3Q21 Key Credit Metrics 9 Key PointsChange 3Q20 2Q21 3Q21 QOQ YOY Credit Card Loans Ending Loan Balance ($MM) $69,656 $68,886 $70,320 2.1% 1.0% Net Principal Charge-off Rate 3.45% 2.45% 1.65% (80) bps (180) bps 30-Day Delinquency Rate 1.91% 1.43% 1.48% 5 bps (43) bps Private Student Loans Ending Loan Balance ($MM) $10,016 $9,864 $10,184 3.2% 1.7% Net Principal Charge-off Rate 0.58% 0.53% 0.68% 15 bps 10 bps 30-Day Delinquency Rate 1.49% 1.34% 1.55% 21 bps 6 bps Personal Loans Ending Loan Balance ($MM) $7,211 $6,865 $6,890 0.4% (4.5)% Net Principal Charge-off Rate 2.69% 1.80% 1.11% (69) bps (158) bps 30-Day Delinquency Rate 1.10% 0.69% 0.71% 2 bps (39) bps Total Loans Ending Loan Balance ($MM) $88,660 $87,674 $89,542 2.1% 1.0% Net Principal Charge-off Rate 3.00% 2.12% 1.46% (66) bps (154) bps 30-Day Delinquency Rate 1.77% 1.34% 1.40% 6 bps (37) bps
Allowance for Credit Losses 10 ($MM) Credit Card Student Loans Personal Loans Other Total Loans Balance at January 1, 2020 4,550 653 613 28 5,844 Reserve rate 5.90% 6.76% 7.97% N/A 6.09% Balance at December 31, 2020 6,491 840 857 38 8,226 Reserve rate 9.08% 8.43% 11.94% N/A 9.09% Balance at March 31, 2021 $5,640 $862 $804 $41 $7,347 Reserve rate 8.38% 8.49% 11.55% N/A 8.51% Balance at June 30, 2021 $5,409 $828 $745 $44 $7,026 Reserve rate 7.85% 8.39% 10.85% N/A 8.01% Provision for credit losses 178 46 (64) — 160 Net Charge-offs (289) (17) (19) — (325) Balance at September 30, 2021 $5,298 $857 $662 $44 $6,861 Reserve rate 7.54% 8.41% 9.61% N/A 7.66% Macroeconomic Assumptions 2Q21 3Q21 Unemployment • ~5.5% at year-end 2021 • Return to full employment mid-2022 • No Change • Return to full employment late 2022 GDP • Growth of ∼7% in 2021 and ∼4% in 2022 • Growth of ∼6% in 2021 and ∼4% in 2022
11 48% 54% 62% 68% 23% 20% 16% 12% 18% 14% 12% 9% 11% 12% 10% 11% DTC and Affinity Deposits Brokered & Other Deposits Securitized Borrowing Unsecured Borrowing 3Q18 3Q19 3Q20 3Q21 Capital and Funding Funding Mix (%), Average Balance (3) 11.4 11.2 11.3 11.7 12.2 13.1 14.9 15.7 15.5 79 77 99 165 123 76 22 23 38 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 Capital Trends Common Equity Tier 1 (CET1) Capital Ratio(1) (%) TTM Payout Ratio(2) (%) Note(s) 1. Based on the final rule published September 30, 2020. Capital ratios reflect delay in the recognition of the impact of CECL reserves on regulatory capital for two years in accordance with the final rule 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 3. DTC and Affinity Deposits include checking and reflect both interest-bearing and non-interest bearing consumer deposits
2021 Perspective 12 Previous Current Loan Growth • Modestly positive, subject to payment rate trends and economic conditions • No Change Net Interest Margin • Relative to 1Q21, modest variability from quarter to quarter • No Change Operating Expense • Non-marketing expenses up slightly on higher compensation accrual, recovery fees and non-recurring items • Marketing expense higher in 2H21 • No Change Net Charge-offs • 2021 losses expected to be down YoY • No Change Capital Management • Announced dividend increase to $0.50 and approval of a $2.4Bn share repurchase plan expiring 3/31/22 • No Updates
Appendix
Total Company Loans Credit Card Loans Private Student Loans Personal Loans 3.22 3.05 3.19 3.27 3.44 3.00 2.38 2.48 2.12 1.462.19 2.33 2.41 2.39 1.98 1.77 1.89 1.67 1.34 1.40 NCO rate (%) 30+ day DQ rate (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 3.49 3.32 3.41 3.65 3.90 3.45 2.63 2.80 2.45 1.65 2.34 2.50 2.62 2.62 2.17 1.91 2.07 1.85 1.43 1.48 NCO rate (%) 30+ day DQ rate (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 4.33 3.99 4.26 3.59 3.43 2.69 2.79 2.80 1.80 1.11 1.49 1.49 1.37 1.31 1.07 1.10 1.08 0.84 0.69 0.71 NCO rate (%) 30+ day DQ rate (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 0.61 0.59 1.02 0.68 0.62 0.58 0.71 0.53 0.53 0.68 1.82 1.93 1.88 1.75 1.57 1.49 1.39 1.20 1.34 1.55 NCO rate (%) 30+ day DQ rate (%) 2Q19 3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21 3Q21 Credit Performance Trends 14
YOY YOY YOY YOY 3Q21 Payments Volume ($Bn) Discover Network • Discover Network volume was up 28% reflecting the increase in Discover card sales volume • PULSE volume up 9% YOY driven by increased spend related to the economic recovery • Diners volume up 12% from the prior year reflecting a rebound from the impact of the pandemic on global T&E spending • Network Partners 16% higher YOY primarily reflecting higher AribaPay volume Key Points $38.7 $42.5 $39.2 $47.2 $49.4 3Q20 4Q20 1Q21 2Q21 3Q21 $55.0 $55.1 $60.4 $62.9 $59.9 3Q20 4Q20 1Q21 2Q21 3Q21 $5.8 $6.3 $5.9 $6.1 $6.5 3Q20 4Q20 1Q21 2Q21 3Q21 $8.9 $8.7 $9.6 $9.5 $10.4 3Q20 4Q20 1Q21 2Q21 3Q21 Diners (1) PULSE Network Partners 28% 9% 12% 16% Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment Total Network Volume up 16% YOY 15
• 3Q21 sales volume up 27% vs 2019 with strong trends across all categories • Significant YOY increase in: ◦ Retail reflecting the continued economic recovery ◦ Restaurants as states have reopened and removed most restrictions ◦ Travel was positive for the quarter keyrends in Key Points Sales Volume 16 Gas Groceries Retail Restaurants Services Travel Total Sales Volume Jan Feb Mar Apr May Jun Jul Aug Sep -100% -50% 0% 50% 100% Monthly Sales Volume Trend 2021 vs. 2019 (%) 1Q21 2Q21 3Q21 Gas 7% 9% 29% Grocery 18% 24% 26% Retail 37% 41% 38% Restaurants 8% 30% 33% Services 10% 20% 25% Travel (41)% (8)% 1% All Other 10% 14% 17% Total Sales Volume 15% 24% 27% Category Definitions • Services includes entertainment, auto, education, medical, and other service providers • All Other includes discount stores, drug stores, wholesale clubs, telecommunication, utilities, insurance, financial services and government Quarterly Sales Volume Trend 2021 vs. 2019 (%)
