Discover Financial Services - FORM 8-K - EX-99.2 - EXHIBIT

Attached files

file	filename
8-K - 8-K - Discover Financial Services	a4q148k.htm
EX-99.1 - EXHIBIT - Discover Financial Services	dfs-earningsreleasex4q14ex.htm
EX-99.3 - EXHIBIT - Discover Financial Services	dfspres4q14ex9932.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013					Dec 31, 2014			Dec 31, 2013			2014 vs. 2013
EARNINGS SUMMARY
Interest Income		$1,974			$1,926			$1,863			$1,833			$1,842			$132		7	%		$7,596			$7,064			$532		8	%
Interest Expense	302			288			274			270			273			29			11	%	1,134			1,146			(12		)	(1	%)
Net Interest Income	1,672			1,638			1,589			1,563			1,569			103			7	%	6,462			5,918			544			9	%
Discount/Interchange Revenue	620			599			595			519			574			46			8	%	2,333			2,162			171			8	%
Rewards Cost	517			304			268			265			295			222			75	%	1,354			1,036			318			31	%
Discount and Interchange Revenue, net	103			295			327			254			279			(176		)	(63	%)	979			1,126			(147		)	(13	%)
Protection Products Revenue	75			78			78			83			84			(9		)	(11	%)	314			350			(36		)	(10	%)
Loan Fee Income	86			85			80			83			85			1			1	%	334			320			14			4	%
Transaction Processing Revenue	46			46			46			44			46			0			0	%	182			192			(10		)	(5	%)
Other Income	55			48			52			51			66			(11		)	(17	%)	206			318			(112		)	(35	%)
Total Other Income	365			552			583			515			560			(195		)	(35	%)	2,015			2,306			(291		)	(13	%)

Revenue Net of Interest Expense	2,037			2,190			2,172			2,078			2,129			(92		)	(4	%)	8,477			8,224			253			3	%

Provision for Loan Losses	457			354			360			272			354			103			29	%	1,443			1,086			357			33	%

Employee Compensation and Benefits	314			320			301			307			297			17			6	%	1,242			1,164			78			7	%
Marketing and Business Development	216			182			168			169			189			27			14	%	735			717			18			3	%
Information Processing & Communications	88			87			87			84			89			(1		)	(1	%)	346			333			13			4	%
Professional Fees	128			111			112			99			108			20			19	%	450			410			40			10	%
Premises and Equipment	24			23			22			23			22			2			9	%	92			82			10			12	%
Other Expense	162			104			107			102			133			29			22	%	475			488			(13		)	(3	%)
Total Other Expense	932			827			797			784			838			94			11	%	3,340			3,194			146			5	%

Income Before Income Taxes	648			1,009			1,015			1,022			937			(289		)	(31	%)	3,694			3,944			(250		)	(6	%)
Tax Expense	244			365			371			391			335			(91		)	(27	%)	1,371			1,474			(103		)	(7	%)
Net Income		$404			$644			$644			$631			$602			($198	)	(33	%)		$2,323			$2,470			($147	)	(6	%)

Net Income Allocated to Common Stockholders		$392			$630			$630			$618			$588			($196	)	(33	%)		$2,270			$2,414			($144	)	(6	%)

Effective Tax Rate	37.7		%	36.2		%	36.6		%	38.3		%	35.8		%						37.1		%	37.4		%

Net Interest Margin	9.76		%	9.78		%	9.84		%	9.87		%	9.81		%	(5		)	bps		9.81		%	9.57		%	24			bps
Operating Efficiency	45.8		%	37.8		%	36.7		%	37.7		%	39.4		%	639			bps		39.4		%	38.8		%	56			bps
ROE	14		%	23		%	23		%	23		%	22		%						21		%	24		%

Ending Common Shares Outstanding	449			455			465			468			472			(23		)	(5	%)	449			472			(23		)	(5	%)
Weighted Average Common Shares Outstanding	452			460			466			471			475			(23		)	(5	%)	462			485			(23		)	(5	%)
Weighted Average Common Shares Outstanding (fully diluted)	453			461			467			472			477			(24		)	(5	%)	463			487			(24		)	(5	%)

PER SHARE STATISTICS
Basic EPS		$0.87			$1.37			$1.35			$1.31			$1.24			($0.37	)	(30	%)		$4.91			$4.97			($0.06	)	(1	%)
Diluted EPS		$0.87			$1.37			$1.35			$1.31			$1.23			($0.36	)	(29	%)		$4.90			$4.96			($0.06	)	(1	%)
Common Stock Price (period end)		$65.49			$64.39			$61.98			$58.19			$55.95			$9.54		17	%		$65.49			$55.95			$9.54		17	%
Book Value per share		$24.79			$24.82			$24.46			$23.53			$22.89			$1.90		8	%		$24.79			$22.89			$1.90		8	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended															Twelve Months Ended
	Dec 31, 2014		Sep 30, 2014		Jun 30, 2014		Mar 31, 2014		Dec 31, 2013		December 31, 2014 vs. December 31, 2013					Dec 31, 2014		Dec 31, 2013		2014 vs. 2013
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$646		$981		$984		$994		$911		($265	)	(29	%)		$3,605		$3,864		($259	)	(7	%)
Payment Services	2		28		31		28		26		(24		)	(92	%)	89		80		9			11	%
Total		$648		$1,009		$1,015		$1,022		$937		($289	)	(31	%)		$3,694		$3,944		($250	)	(6	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	523		522		514		461		522		1			0	%	2,020		1,947		73			4	%
PULSE Network	1,085		1,071		1,090		1,037		1,044		41			4	%	4,283		4,187		96			2	%
Total	1,608		1,593		1,604		1,498		1,566		42			3	%	6,303		6,134		169			3	%

NETWORK VOLUME
PULSE Network		$41,788		$40,636		$41,500		$41,927		$40,368		$1,420		4	%		$165,851		$159,805		$6,046		4	%
Network Partners	2,263		2,185		2,617		2,381		2,613		(350		)	(13	%)	9,446		9,808		(362		)	(4	%)
Diners Club International¹	6,933		6,777		6,733		6,527		6,826		107			2	%	26,970		26,867		103			0	%
Total Payment Services	50,984		49,598		50,850		50,835		49,807		1,177			2	%	202,267		196,480		5,787			3	%
Discover Network - Proprietary	32,005		30,577		30,342		26,547		30,622		1,383			5	%	119,471		113,791		5,680			5	%
Total		$82,989		$80,175		$81,192		$77,382		$80,429		$2,560		3	%		$321,738		$310,271		$11,467		4	%


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 STATISTICS
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$11,339			$11,480			$11,254			$13,858			$11,727			($388	)	(3	%)
Total Loan Receivables	69,969			67,366			65,875			63,852			65,771			4,198			6	%
Allowance for Loan Losses	(1,746		)	(1,644		)	(1,614		)	(1,591		)	(1,648		)	(98		)	(6	%)
Net Loan Receivables	68,223			65,722			64,261			62,261			64,123			4,100			6	%
Premises and Equipment, net	670			661			665			668			654			16			2	%
Goodwill and Intangible Assets, net	433			461			463			466			469			(36		)	(8	%)
Other Assets	2,461			2,272			2,294			2,331			2,367			94			4	%
Total Assets		$83,126			$80,596			$78,937			$79,584			$79,340			$3,786		5	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$28,766			$28,830			$28,739			$28,711			$28,357			$409		1	%
Brokered Deposits and Other Deposits	17,323			16,552			15,706			16,273			16,602			721			4	%
Deposits	46,089			45,382			44,445			44,984			44,959			1,130			3	%
Borrowings	22,657			21,057			20,177			20,306			20,614			2,043			10	%
Accrued Expenses and Other Liabilities	3,246			2,856			2,934			3,273			2,958			288			10	%
Total Liabilities	71,992			69,295			67,556			68,563			68,531			3,461			5	%
Total Equity	11,134			11,301			11,381			11,021			10,809			325			3	%
Total Liabilities and Stockholders' Equity		$83,126			$80,596			$78,937			$79,584			$79,340			$3,786		5	%

BALANCE SHEET STATISTICS
Total Common Equity		$10,574			$10,741			$10,821			$10,461			$10,249			$325		3	%
Total Common Equity/Total Assets	12.7		%	13.3		%	13.7		%	13.1		%	12.9		%
Total Common Equity/Net Loans	15.5		%	16.3		%	16.8		%	16.8		%	16.0		%

Tangible Assets		$82,693			$80,135			$78,474			$79,118			$78,871			$3,822		5	%
Tangible Common Equity¹		$10,141			$10,280			$10,358			$9,995			$9,780			$361		4	%
Tangible Common Equity/Tangible Assets ¹	12.3		%	12.8		%	13.2		%	12.6		%	12.4		%
Tangible Common Equity/Net Loans ¹	14.9		%	15.6		%	16.1		%	16.1		%	15.3		%
Tangible Common Equity per share¹		$22.58			$22.57			$22.26			$21.34			$20.71			$1.87		9	%

REGULATORY CAPITAL RATIOS
Total Risk Based Capital Ratio	17.0		%	17.8		%	18.3		%	18.1		%	17.4		%
Tier 1 Risk Based Capital Ratio	14.9		%	15.6		%	16.0		%	15.8		%	15.2		%
Tier 1 Common Capital Ratio ²	14.1		%	14.8		%	15.2		%	14.9		%	14.3		%
Common Equity Tier 1 Capital Ratio ³	14.1		%	14.7		%	N/A			N/A			N/A
Tier 1 Leverage Ratio	13.2		%	13.7		%	14.0		%	13.4		%	13.4		%

LIQUIDITY
Liquidity Portfolio		$10,752			$10,944			$10,337			$12,141			$11,115			($363	)	(3	%)
Undrawn Credit Facilities ⁴	23,524			22,877			22,964			22,284			21,500			2,024			9	%
Total Liquidity		$34,276			$33,821			$33,301			$34,425			$32,615			$1,661		5	%

¹Tangible 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
²Tier 1 Common Capital Ratio (under Basel I) is calculated using tier 1 common capital, a non-GAAP measure. The Company believes the tier 1 common capital ratio is meaningful to investors to assess the quality and composition of the Company’s capital. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule
³Common Equity Tier 1 Capital Ratio (under fully phased-in Basel III rules) is calculated using common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on Basel III final rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under Basel III final rules to tier 1 common equity and risk weighted assets calculated under Basel I see Reconciliation of GAAP to non-GAAP Data schedule
⁴Excludes 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
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013
AVERAGE BALANCES
Assets
Cash and Investment Securities		$11,886			$10,742			$11,037			$11,244			$11,661			$225		2	%
Restricted Cash	242			498			563			1,768			488			(246		)	(50	%)
Credit Card Loans	54,169			53,130			51,718			51,347			50,957			3,212			6	%
Private Student Loans	8,478			8,310			8,301			8,377			8,124			354			4	%
Personal Loans	4,954			4,718			4,426			4,259			4,114			840			20	%
Other Loans	329			323			283			244			248			81			33	%
Total Loans	67,930			66,481			64,728			64,227			63,443			4,487			7	%
Total Interest Earning Assets	80,058			77,721			76,328			77,239			75,592			4,466			6	%
Allowance for Loan Losses	(1,676		)	(1,625		)	(1,599		)	(1,678		)	(1,575		)	(101		)	(6	%)
Other Assets	4,303			4,289			4,253			4,271			4,405			(102		)	(2	%)
Total Assets		$82,685			$80,385			$78,982			$79,832			$78,422			$4,263		5	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$28,828			$28,835			$28,752			$28,572			$28,592			$236		1	%
Brokered Deposits and Other Deposits	16,755			15,810			15,638			16,280			15,669			1,086			7	%
Total Interest-bearing Deposits	45,583			44,645			44,390			44,852			44,261			1,322			3	%
Short-term Borrowings	107			129			113			93			114			(7		)	(6	%)
Securitized Borrowings	17,219			16,535			15,976			17,014			16,584			635			4	%
Other Long-term Borrowings	4,950			4,341			3,889			3,572			3,099			1,851			60	%
Total Interest-bearing Liabilities	67,859			65,650			64,368			65,531			64,058			3,801			6	%
Other Liabilities & Stockholders' Equity	14,826			14,735			14,614			14,301			14,364			462			3	%
Total Liabilities and Stockholders' Equity		$82,685			$80,385			$78,982			$79,832			$78,422			$4,263		5	%

AVERAGE RATES
Assets
Cash and Investment Securities	0.72		%	0.80		%	0.76		%	0.75		%	0.77		%	(5		)	bps
Restricted Cash	0.10		%	0.09		%	0.08		%	0.08		%	0.06		%	4			bps
Credit Card Loans	12.08		%	12.04		%	12.10		%	12.14		%	12.08		%	0			bps
Private Student Loans	6.85		%	6.82		%	6.84		%	6.85		%	6.63		%	22			bps
Personal Loans	12.25		%	12.21		%	12.49		%	12.54		%	12.53		%	(28		)	bps
Other Loans	3.78		%	3.83		%	3.69		%	3.27		%	3.12		%	66			bps
Total Loans	11.40		%	11.36		%	11.42		%	11.44		%	11.38		%	2			bps
Total Interest Earning Assets	9.78		%	9.83		%	9.79		%	9.62		%	9.67		%	11			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.26		%	1.26		%	1.27		%	1.29		%	1.33		%	(7		)	bps
Brokered Deposits and Other Deposits	1.53		%	1.54		%	1.54		%	1.54		%	1.58		%	(5		)	bps
Total Interest-bearing Deposits	1.36		%	1.36		%	1.37		%	1.38		%	1.42		%	(6		)	bps
Short-term Borrowings	1.54		%	1.42		%	1.60		%	1.90		%	2.04		%	(50		)	bps
Securitized Borrowings	1.88		%	1.82		%	1.74		%	1.67		%	1.65		%	23			bps
Other Long-term Borrowings	5.09		%	5.28		%	5.54		%	5.24		%	5.78		%	(69		)	bps
Total Interest-bearing Liabilities	1.77		%	1.74		%	1.71		%	1.67		%	1.69		%	8			bps

Net Interest Margin	9.76		%	9.78		%	9.84		%	9.87		%	9.81		%	(5		)	bps
Net Yield on Interest-earning Assets	8.28		%	8.36		%	8.35		%	8.21		%	8.23		%	5			bps


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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013					Dec 31, 2014			Dec 31, 2013			2014 vs. 2013
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$69,969			$67,366			$65,875			$63,852			$65,771			$4,198		6	%		$69,969			$65,771			$4,198		6	%
Average Loans ^{1, 2}		$67,930			$66,481			$64,728			$64,227			$63,443			$4,487		7	%		$65,853			$61,820			$4,033		7	%

Interest Yield	11.40		%	11.36		%	11.42		%	11.44		%	11.38		%	2			bps		11.40		%	11.28		%	12			bps
Gross Principal Charge-off Rate	2.70		%	2.63		%	2.82		%	2.82		%	2.63		%	7			bps		2.74		%	2.81		%	(7		)	bps
Gross Principal Charge-off Rate excluding PCI Loans³	2.86		%	2.79		%	3.01		%	3.01		%	2.82		%	4			bps		2.91		%	3.03		%	(12		)	bps
Net Principal Charge-off Rate	2.06		%	1.94		%	2.08		%	2.08		%	1.90		%	16			bps		2.04		%	1.98		%	6			bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.18		%	2.06		%	2.22		%	2.22		%	2.03		%	15			bps		2.17		%	2.14		%	3			bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.66		%	1.64		%	1.56		%	1.65		%	1.64		%	2			bps		1.66		%	1.64		%	2			bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.78		%	0.75		%	0.73		%	0.80		%	0.77		%	1			bps		0.78		%	0.77		%	1			bps
Gross Principal Charge-off Dollars		$463			$440			$455			$447			$421			$42		10	%		$1,806			$1,739			$67		4	%
Net Principal Charge-off Dollars		$355			$324			$337			$329			$304			$51		17	%		$1,345			$1,226			$119		10	%
Net Interest and Fee Charge-off Dollars		$91			$85			$87			$89			$82			$9		11	%		$352			$339			$13		4	%
Loans Delinquent Over 30 Days ³		$1,100			$1,043			$964			$985			$1,010			$90		9	%		$1,100			$1,010			$90		9	%
Loans Delinquent Over 90 Days ³		$517			$476			$451			$478			$475			$42		9	%		$517			$475			$42		9	%

Allowance for Loan Loss (period end)		$1,746			$1,644			$1,614			$1,591			$1,648			$98		6	%		$1,746			$1,648			$98		6	%
Change in Loan Loss Reserves		$102			$30			$23			($57	)		$50			$52		104	%		$98			($140	)		$238		170	%
Reserve Rate	2.50		%	2.44		%	2.45		%	2.49		%	2.51		%	(1		)	bps		2.50		%	2.51		%	(1		)	bps
Reserve Rate Excluding PCI Loans ³	2.59		%	2.54		%	2.56		%	2.61		%	2.63		%	(4		)	bps		2.59		%	2.63		%	(4		)	bps

CREDIT CARD LOANS
Ending Loans		$56,128			$53,699			$52,742			$50,879			$53,150			$2,978		6	%		$56,128			$53,150			$2,978		6	%
Average Loans		$54,168			$53,130			$51,718			$51,347			$50,957			$3,211		6	%		$52,600			$49,816			$2,784		6	%

Interest Yield	12.08		%	12.04		%	12.10		%	12.14		%	12.08		%	0			bps		12.09		%	12.00		%	9			bps
Gross Principal Charge-off Rate	3.03		%	2.99		%	3.22		%	3.22		%	2.98		%	5			bps		3.11		%	3.22		%	(11		)	bps
Net Principal Charge-off Rate	2.26		%	2.16		%	2.33		%	2.32		%	2.09		%	17			bps		2.27		%	2.21		%	6			bps
Delinquency Rate (over 30 days)	1.73		%	1.71		%	1.63		%	1.72		%	1.72		%	1			bps		1.73		%	1.72		%	1			bps
Delinquency Rate (over 90 days)	0.85		%	0.82		%	0.80		%	0.87		%	0.84		%	1			bps		0.85		%	0.84		%	1			bps
Gross Principal Charge-off Dollars		$413			$400			$415			$408			$384			$29		8	%		$1,636			$1,604			$32		2	%
Net Principal Charge-off Dollars		$309			$289			$300			$294			$269			$40		15	%		$1,191			$1,100			$91		8	%
Loans Delinquent Over 30 Days		$971			$920			$860			$876			$912			$59		6	%		$971			$912			$59		6	%
Loans Delinquent Over 90 Days		$480			$440			$420			$442			$447			$33		7	%		$480			$447			$33		7	%

Allowance for Loan Loss (period end)		$1,474			$1,388			$1,359			$1,342			$1,406			$68		5	%		$1,474			$1,406			$68		5	%
Change in Loan Loss Reserves		$86			$29			$17			($64	)		$13			$73		NM			$68			($207	)		$275		133	%
Reserve Rate	2.63		%	2.58		%	2.58		%	2.64		%	2.65		%	(2		)	bps		2.63		%	2.65		%	(2		)	bps

Total Discover Card Volume		$33,211			$32,091			$31,732			$28,077			$31,755			$1,456		5	%		$125,111			$118,594			$6,517		5	%
Discover Card Sales Volume		$30,871			$29,609			$29,341			$25,697			$29,530			$1,341		5	%		$115,518			$109,957			$5,561		5	%
Rewards Rate	1.67		%	1.03		%	0.91		%	1.03		%	1.00		%	67			bps		1.17		%	0.94		%	23			bps

¹Total Loans includes mortgages 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

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013					Dec 31, 2014			Dec 31, 2013			2014 vs. 2013
PRIVATE STUDENT LOANS
Ending Loans		$8,510			$8,494			$8,251			$8,372			$8,148			$362		4	%		$8,510			$8,148			$362		4	%
Ending PCI Loans ¹		$3,660			$3,788			$3,915			$4,046			$4,178			($518	)	(12	%)		$3,660			$4,178			($518	)	(12	%)

Interest Yield	6.85		%	6.82		%	6.84		%	6.85		%	6.63		%	22			bps		6.84		%	6.54		%	30			bps
Net Principal Charge-off Rate	0.79		%	0.61		%	0.68		%	0.67		%	0.67		%	12			bps		0.69		%	0.58		%	11			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.40		%	1.14		%	1.30		%	1.31		%	1.41		%	(1		)	bps		1.29		%	1.30		%	(1		)	bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	1.80		%	1.78		%	1.66		%	1.79		%	1.66		%	14			bps		1.80		%	1.66		%	14			bps

Reserve Rate	1.59		%	1.56		%	1.55		%	1.45		%	1.39		%	20			bps		1.59		%	1.39		%	20			bps
Reserve Rate excluding PCI Loans ²	2.20		%	2.21		%	2.29		%	2.16		%	2.14		%	6			bps		2.20		%	2.14		%	6			bps

PERSONAL LOANS
Ending Loans		$5,007			$4,830			$4,579			$4,310			$4,191			$816		19	%		$5,007			$4,191			$816		19	%

Interest Yield	12.25		%	12.21		%	12.49		%	12.54		%	12.53		%	(28		)	bps		12.36		%	12.52		%	(16		)	bps
Net Principal Charge-off Rate	2.20		%	1.92		%	1.95		%	2.07		%	2.00		%	20			bps		2.04		%	2.13		%	(9		)	bps
Delinquency Rate (over 30 days)	0.79		%	0.75		%	0.66		%	0.68		%	0.70		%	9			bps		0.79		%	0.70		%	9			bps

Reserve Rate	2.40		%	2.23		%	2.37		%	2.52		%	2.67		%	(27		)	bps		2.40		%	2.67		%	(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																				Twelve Months Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013			December 31, 2014 vs. December 31, 2013					Dec 31, 2014			Dec 31, 2013			2014 vs. 2013
DIRECT BANKING
Interest Income		$1,974			$1,926			$1,863			$1,833			$1,842			$132		7	%		$7,596			$7,064			$532		8	%
Interest Expense	302			288			274			270			273			29			11	%	1,134			1,146			(12		)	(1	%)
Net Interest Income	1,672			1,638			1,589			1,563			1,569			103			7	%	6,462			5,918			544			9	%
Other Income	286			475			503			436			475			(189		)	(40	%)	1,700			1,976			(276		)	(14	%)
Revenue Net of Interest Expense	1,958			2,113			2,092			1,999			2,044			(86		)	(4	%)	8,162			7,894			268			3	%
Provision for Loan Losses	454			356			360			270			352			102			29	%	1,440			1,069			371			35	%
Total Other Expense	858			776			748			735			781			77			10	%	3,117			2,961			156			5	%
Income Before Income Taxes		$646			$981			$984			$994			$911			($265	)	(29	%)		$3,605			$3,864			($259	)	(7	%)

Net Interest Margin	9.77		%	9.79		%	9.85		%	9.88		%	9.82		%	(5		)	bps		9.82		%	9.58		%	24			bps
Pretax Return on Loan Receivables	3.78		%	5.86		%	6.10		%	6.29		%	5.70		%	(192		)	bps		5.48		%	6.26		%	(78		)	bps

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	79			77			80			79			85			(6		)	(7	%)	315			330			(15		)	(5	%)
Revenue Net of Interest Expense	79			77			80			79			85			(6		)	(7	%)	315			330			(15		)	(5	%)
Provision for Loan Losses	3			(2		)	—			2			2			1			50%		3			17			(14		)	(82	%)
Total Other Expense	74			51			49			49			57			17			30	%	223			233			(10		)	(4	%)
Income Before Income Taxes		$2			$28			$31			$28			$26			($24	)	(92	%)		$89			$80			$9		11	%

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

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

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

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

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

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. To be considered "well-capitalized," total risk-based, tier 1 risk-based, and tier 1 leverage ratios of 10%, 6% and 5% respectively must be maintained. Regulatory capital ratios are calculated under Basel I. 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. Tier 1 Common Capital Ratio represents tier 1 common capital, a non-GAAP measure, divided by risk-weighted assets. For corresponding reconciliation of tier 1 common capital to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule

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

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



DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2014			Sep 30, 2014			Jun 30, 2014			Mar 31, 2014			Dec 31, 2013
GAAP total common equity		$10,574			$10,741			$10,821			$10,461			$10,249
Less: Goodwill	(257		)	(284		)	(284		)	(284		)	(284		)
Less: Intangibles	(176		)	(177		)	(179		)	(182		)	(185		)
Tangible common equity ¹		$10,141			$10,280			$10,358			$9,995			$9,780
Effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital	138			70			73			71			69
Total tier 1 common capital (Basel I)²		$10,279			$10,350			$10,431			$10,066			$9,849
Add: Adjustments related to capital components ³	26			21			N/A			N/A			N/A
Common equity Tier 1 capital (Basel III final rule)		$10,305		$	10,371		N/A			N/A			N/A

Risk weighted assets (Basel I)		$72,889			$70,132			$68,755			$67,365			$68,649
Risk weighted assets (Basel III final rule) ⁴		$73,315			$70,560		N/A			N/A			N/A
Tier 1 common capital ratio (Basel I) ⁵	14.1		%	14.8		%	15.2		%	14.9		%	14.3		%
Common equity Tier 1 capital ratio (Basel III final rule) ⁶	14.1		%	14.7		%	N/A			N/A			N/A

GAAP book value per share		$24.79			$24.82			$24.46			$23.53			$22.89
Less: Goodwill	(0.57		)	(0.62		)	(0.62		)	(0.60		)	(0.60		)
Less: Intangibles	(0.39		)	(0.39		)	(0.38		)	(0.39		)	(0.39		)
Less: Preferred Stock	(1.25		)	(1.23		)	(1.20		)	(1.20		)	(1.19		)
Tangible common equity per share		$22.58			$22.58			$22.26			$21.34			$20.71


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 we advise users of this information to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of the true net asset value of the company

² Tier 1 common capital, a non-GAAP financial measure, represents common equity and the effect of certain items in accumulated other comprehensive income (loss) excluded from tier 1 common capital, less goodwill and intangibles. A reconciliation of tier 1 common capital to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use tier 1 common capital and definitions may vary, so we advise users of this information to exercise caution in comparing tier 1 common capital of different companies. Tier 1 common capital is included to support the tier 1 common capital ratio which is meaningful to investors to assess the quality and composition of the Company’s capital

³ Adjustments related to capital components include deferred tax liabilities related to intangible assets and deduction for deferred tax assets

⁴ Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets compared to Basel I include higher risk weighting for past due loans and unfunded commitments

⁵Tier 1 common capital ratio is calculated using tier 1 common capital (Basel I), a non-GAAP measure, divided by risk weighted assets (Basel I)

⁶Common equity tier 1 capital ratio is calculated using common equity tier 1 capital (under fully phased-in Basel III rules), a non-GAAP measure, divided by risk weighted assets (under fully phased-in-Basel III rules)

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