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

Attached files

file	filename
EX-99.3 - EXHIBIT 99.3 - Discover Financial Services	dfspres3q16ex993.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex3q16ex.htm
8-K - 8-K - Discover Financial Services	a3q168k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Nine Months Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015					Sep 30, 2016			Sep 30, 2015			2016 vs. 2015
EARNINGS SUMMARY
Interest Income		$2,184			$2,090			$2,084			$2,061			$2,008			$176		9	%		$6,358			$5,884			$474		8	%
Interest Expense	359			339			334			329			323			36			11	%	1,032			934			98			10	%
Net Interest Income	1,825			1,751			1,750			1,732			1,685			140			8	%	5,326			4,950			376			8	%
Discount/Interchange Revenue	631			636			565			635			614			17			3	%	1,832			1,762			70			4	%
Rewards Cost	368			371			292			372			326			42			13	%	1,031			908			123			14	%
Discount and Interchange Revenue, net	263			265			273			263			288			(25		)	(9	%)	801			854			(53		)	(6	%)
Protection Products Revenue	60			59			61			60			62			(2		)	(3	%)	180			201			(21		)	(10	%)
Loan Fee Income	91			79			80			87			87			4			5	%	250			248			2			1	%
Transaction Processing Revenue	40			39			36			38			39			1			3	%	115			121			(6		)	(5	%)
Other Income	22			23			24			25			27			(5		)	(19	%)	69			160			(91		)	(57	%)
Total Other Income	476			465			474			473			503			(27		)	(5	%)	1,415			1,584			(169		)	(11	%)

Revenue Net of Interest Expense	2,301			2,216			2,224			2,205			2,188			113			5	%	6,741			6,534			207			3	%

Provision for Loan Losses	445			412			424			484			332			113			34	%	1,281			1,028			253			25	%

Employee Compensation and Benefits	342			340			345			333			337			5			1	%	1,027			994			33			3	%
Marketing and Business Development	195			198			162			196			168			27			16	%	555			549			6			1	%
Information Processing & Communications	81			89			88			87			84			(3		)	(4	%)	258			262			(4		)	(2	%)
Professional Fees	143			150			160			170			160			(17		)	(11	%)	453			440			13			3	%
Premises and Equipment	25			23			24			24			24			1			4	%	72			71			1			1	%
Other Expense	109			106			107			123			109			—			—	%	322			366			(44		)	(12	%)
Total Other Expense	895			906			886			933			882			13			1	%	2,687			2,682			5			—	%

Income Before Income Taxes	961			898			914			788			974			(13		)	(1	%)	2,773			2,824			(51		)	(2	%)
Tax Expense	322			282			339			288			362			(40		)	(11	%)	943			1,027			(84		)	(8	%)
Net Income		$639			$616			$575			$500			$612			$27		4	%		$1,830			$1,797			$33		2	%

Net Income Allocated to Common Stockholders		$625			$602			$562			$488			$599			$26		4	%		$1,789			$1,758			$31		2	%

Effective Tax Rate	33.5		%	31.4		%	37.1		%	36.5		%	37.2		%						34.0		%	36.4		%

Net Interest Margin	9.99		%	9.94		%	9.94		%	9.75		%	9.62		%	37			bps		9.96		%	9.65		%	31			bps
Operating Efficiency	38.9		%	40.9		%	39.8		%	42.3		%	40.3		%	(140		)	bps		39.9		%	41.0		%	(110		)	bps
ROE	23		%	22		%	21		%	18		%	22		%						22		%	21		%

Ending Common Shares Outstanding	396			407			414			422			430			(34		)	(8	%)	396			430			(34		)	(8	%)
Weighted Average Common Shares Outstanding	402			410			417			426			433			(31		)	(7	%)	410			440			(30		)	(7	%)
Weighted Average Common Shares Outstanding (fully diluted)	402			411			417			426			434			(32		)	(7	%)	410			441			(31		)	(7	%)

PER SHARE STATISTICS
Basic EPS		$1.56			$1.47			$1.35			$1.15			$1.38			$0.18		13	%		$4.37			$3.99			$0.38		10	%
Diluted EPS		$1.56			$1.47			$1.35			$1.14			$1.38			$0.18		13	%		$4.36			$3.98			$0.38		10	%
Common Stock Price (period end)		$56.55			$53.59			$50.92			$53.62			$51.99			$4.56		9	%		$56.55			$51.99			$4.56		9	%
Book Value per share		$28.62			$28.03			$27.32			$26.74			$26.32			$2.30		9	%		$28.62			$26.32			$2.30		9	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended															Nine Months Ended
	Sep 30, 2016		Jun 30, 2016		Mar 31, 2016		Dec 31, 2015		Sep 30, 2015		Sep 30, 2016 vs. Sep 30, 2015					Sep 30, 2016		Sep 30, 2015		2016 vs. 2015
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$931		$868		$882		$767		$950		($19	)	(2	%)		$2,681		$2,745		($64	)	(2	%)
Payment Services	30		30		32		21		24		6			25	%	92		79		13			16	%
Total		$961		$898		$914		$788		$974		($13	)	(1	%)		$2,773		$2,824		($51	)	(2	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	535		538		486		546		519		16			3	%	1,559		1,487		72			5	%
PULSE Network	871		853		841		905		972		(101		)	(10	%)	2,565		2,985		(420		)	(14	%)
Total	1,406		1,391		1,327		1,451		1,491		(85		)	(6	%)	4,124		4,472		(348		)	(8	%)

NETWORK VOLUME
PULSE Network		$33,913		$33,856		$34,680		$35,902		$36,267		($2,354	)	(6	%)		$102,449		$114,243		($11,794	)	(10	%)
Network Partners	3,313		3,713		3,572		3,274		3,206		107			3	%	10,598		9,691		907			9	%
Diners Club International¹	7,331		7,198		6,738		6,760		6,560		771			12	%	21,267		19,807		1,460			7	%
Total Payment Services	44,557		44,767		44,990		45,936		46,033		(1,476		)	(3	%)	134,314		143,741		(9,427		)	(7	%)
Discover Network - Proprietary	31,759		31,780		28,576		32,910		31,408		351			1	%	92,115		89,816		2,299			3	%
Total		$76,316		$76,547		$73,566		$78,846		$77,441		($1,125	)	(1	%)		$226,429		$233,557		($7,128	)	(3	%)


¹ Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment
Note: See Glossary of Financial Terms for definitions of financial terms



DISCOVER FINANCIAL SERVICES
BALANCE SHEET SUMMARY
(unaudited, in millions)
	Quarter Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$15,728			$14,236			$16,101			$12,755			$13,650			$2,078		15	%
Total Loan Receivables	73,551			71,924			70,320			72,385			70,078			3,473			5	%
Allowance for Loan Losses	(2,024		)	(1,949		)	(1,921		)	(1,869		)	(1,743		)	(281		)	(16	%)
Net Loan Receivables	71,527			69,975			68,399			70,516			68,335			3,192			5	%
Premises and Equipment, net	722			708			706			693			684			38			6	%
Goodwill and Intangible Assets, net	421			422			422			423			424			(3		)	(1	%)
Other Assets	2,143			2,170			2,465			2,412			2,378			(235		)	(10	%)
Total Assets		$90,541			$87,511			$88,093			$86,799			$85,471			$5,070		6	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$35,323			$34,101			$32,818			$30,866			$29,801			$5,522		19	%
Brokered Deposits and Other Deposits	13,922			14,426			15,647			16,665			16,738			(2,816		)	(17	%)
Deposits	49,245			48,527			48,465			47,531			46,539			2,706			6	%
Borrowings	26,830			24,681			24,752			24,650			23,726			3,104			13	%
Accrued Expenses and Other Liabilities	3,119			2,906			3,560			3,343			3,903			(784		)	(20	%)
Total Liabilities	79,194			76,114			76,777			75,524			74,168			5,026			7	%
Total Equity	11,347			11,397			11,316			11,275			11,303			44			0	%
Total Liabilities and Stockholders' Equity		$90,541			$87,511			$88,093			$86,799			$85,471			$5,070		6	%

LIQUIDITY
Liquidity Portfolio		$14,017			$13,455			$14,556			$12,077			$12,354			$1,663		13	%
Undrawn Credit Facilities ¹	29,048			30,777			30,077			30,682			31,008			(1,960		)	(6	%)
Total Liquidity		$43,065			$44,232			$44,633			$42,759			$43,362			($297	)	(1	%)


¹ Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio

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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015
BALANCE SHEET STATISTICS
Total Common Equity		$10,787			$10,837			$10,756			$10,715			$10,743			$44	0	%
Total Common Equity/Total Assets	11.9		%	12.4		%	12.2		%	12.3		%	12.6		%
Total Common Equity/Net Loans	15.1		%	15.5		%	15.7		%	15.2		%	15.7		%

Tangible Assets		$90,120			$87,089			$87,671			$86,376			$85,047			$5,073	6	%
Tangible Common Equity ¹		$10,366			$10,415			$10,334			$10,292			$10,319			$47	0	%
Tangible Common Equity/Tangible Assets ¹	11.5		%	12.0		%	11.8		%	11.9		%	12.1		%
Tangible Common Equity/Net Loans ¹	14.5		%	14.9		%	15.1		%	14.6		%	15.1		%
Tangible Common Equity per share¹		$26.15			$25.62			$24.95			$24.41			$24.02			$2.13	9	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	16.3		%	16.7		%	16.8		%	16.5		%	17.1		%
Tier 1 Risk Based Capital Ratio	14.6		%	15.0		%	15.0		%	14.7		%	15.2		%
Tier 1 Leverage Ratio	12.6		%	12.8		%	12.8		%	12.9		%	13.1		%
Common Equity Tier 1 Capital Ratio	13.9		%	14.3		%	14.3		%	13.9		%	14.4		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	13.8		%	14.2		%	14.2		%	13.9		%	14.3		%

RATIO OF EARNINGS TO FIXED CHARGES
Ratio of Earnings to Fixed Charges ^{3, 4}	3.7			3.7			3.8			3.9			4.0

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

²Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in Common Equity Tier 1 Capital, a non-GAAP measure. The Company believes that the Common Equity Tier 1 Capital Ratio based on fully phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation of Common Equity Tier 1 Capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule

³Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense

⁴ The Ratio of Earnings to Fixed Charges is a year-to-date statistic. The periods reported reflect the nine months ended September 30, 2016, the six months ended June 30, 2016, the three months ended March 31, 2016, the twelve months ended December 31, 2015 and the nine months ended September 30, 2015

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015
AVERAGE BALANCES
Assets
Cash and Investment Securities		$13,761			$14,299			$13,452			$12,881			$12,609			$1,152		9	%
Restricted Cash	621			263			801			529			703			(82		)	(12	%)
Credit Card Loans	57,561			56,124			56,124			56,050			55,281			2,280			4	%
Private Student Loans	8,795			8,816			8,967			8,732			8,580			215			3	%
Personal Loans	6,036			5,608			5,503			5,488			5,307			729			14	%
Other Loans	276			262			243			233			294			(18		)	(6	%)
Total Loans	72,668			70,810			70,837			70,503			69,462			3,206			5	%
Total Interest Earning Assets	87,050			85,372			85,090			83,913			82,774			4,276			5	%
Allowance for Loan Losses	(1,947		)	(1,918		)	(1,866		)	(1,794		)	(1,776		)	(171		)	(10	%)
Other Assets	4,282			4,502			4,453			4,357			4,333			(51		)	(1	%)
Total Assets		$89,385			$87,956			$87,677			$86,476			$85,331			$4,054		5	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$34,488			$33,215			$31,529			$30,126			$29,477			$5,011		17	%
Brokered Deposits and Other Deposits	14,267			14,740			15,982			16,504			16,857			(2,590		)	(15	%)
Total Interest-bearing Deposits	48,755			47,955			47,511			46,630			46,334			2,421			5	%
Short-term Borrowings	2			2			2			—			60			(58		)	(97	%)
Securitized Borrowings	16,736			16,635			16,950			16,628			16,449			287			2	%
Other Long-term Borrowings	8,746			7,984			7,934			7,900			7,401			1,345			18	%
Total Interest-bearing Liabilities	74,239			72,576			72,397			71,158			70,244			3,995			6	%
Other Liabilities & Stockholders' Equity	15,146			15,380			15,280			15,318			15,087			59			—	%
Total Liabilities and Stockholders' Equity		$89,385			$87,956			$87,677			$86,476			$85,331			$4,054		5	%

AVERAGE RATES
Assets
Cash and Investment Securities	0.70		%	0.71		%	0.72		%	0.61		%	0.55		%	15			bps
Restricted Cash	0.32		%	0.41		%	0.40		%	0.16		%	0.15		%	17			bps
Credit Card Loans	12.53		%	12.42		%	12.42		%	12.20		%	12.03		%	50			bps
Private Student Loans	7.13		%	7.13		%	7.02		%	6.88		%	6.88		%	25			bps
Personal Loans	12.23		%	12.25		%	12.20		%	11.79		%	12.08		%	15			bps
Other Loans	4.96		%	5.04		%	5.18		%	4.88		%	4.44		%	52			bps
Total Loans	11.82		%	11.72		%	11.69		%	11.49		%	11.37		%	45			bps
Total Interest Earning Assets	9.98		%	9.84		%	9.85		%	9.75		%	9.62		%	36			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.26		%	1.22		%	1.22		%	1.21		%	1.23		%	3			bps
Brokered Deposits and Other Deposits	1.90		%	1.78		%	1.68		%	1.60		%	1.55		%	35			bps
Total Interest-bearing Deposits	1.45		%	1.39		%	1.37		%	1.35		%	1.35		%	10			bps
Short-term Borrowings	0.62		%	0.64		%	0.64		%	—		%	1.49		%	(87		)	bps
Securitized Borrowings	2.07		%	2.06		%	2.04		%	1.99		%	1.98		%	9			bps
Other Long-term Borrowings	4.27		%	4.40		%	4.38		%	4.33		%	4.44		%	(17		)	bps
Total Interest-bearing Liabilities	1.92		%	1.88		%	1.86		%	1.83		%	1.82		%	10			bps

Net Interest Margin	9.99		%	9.94		%	9.94		%	9.75		%	9.62		%	37			bps
Net Yield on Interest-earning Assets	8.34		%	8.25		%	8.27		%	8.19		%	8.08		%	26			bps


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, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015					Sep 30, 2016			Sep 30, 2015			2016 vs. 2015
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$73,551			$71,924			$70,320			$72,385			$70,078			$3,473		5	%		$73,551			$70,078			$3,473		5	%
Average Loans ^{1, 2}		$72,668			$70,810			$70,837			$70,503			$69,462			$3,206		5	%		$71,442			$68,575			$2,867		4	%

Interest Yield	11.82		%	11.72		%	11.69		%	11.49		%	11.37		%	45			bps		11.75		%	11.36		%	39			bps
Gross Principal Charge-off Rate	2.66		%	2.87		%	2.80		%	2.65		%	2.51		%	15			bps		2.78		%	2.70		%	8			bps
Gross Principal Charge-off Rate excluding PCI Loans³	2.77		%	2.99		%	2.92		%	2.78		%	2.64		%	13			bps		2.89		%	2.84		%	5			bps
Net Principal Charge-off Rate	2.02		%	2.18		%	2.11		%	2.02		%	1.85		%	17			bps		2.10		%	2.01		%	9			bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.10		%	2.27		%	2.21		%	2.11		%	1.94		%	16			bps		2.19		%	2.12		%	7			bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.79		%	1.60		%	1.64		%	1.67		%	1.60		%	19			bps		1.79		%	1.60		%	19			bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.77		%	0.71		%	0.79		%	0.76		%	0.72		%	5			bps		0.77		%	0.72		%	5			bps
Gross Principal Charge-off Dollars		$488			$505			$493			$472			$440			$48		11	%		$1,486			$1,383			$103		7	%
Net Principal Charge-off Dollars		$370			$384			$372			$358			$324			$46		14	%		$1,126			$1,031			$95		9	%
Net Interest and Fee Charge-off Dollars		$80			$84			$86			$86			$81			($1	)	(1	%)		$250			$263			($13	)	(5	%)
Loans Delinquent Over 30 Days ³		$1,269			$1,104			$1,105			$1,153			$1,070			$199		19	%		$1,269			$1,070			$199		19	%
Loans Delinquent Over 90 Days ³		$545			$491			$531			$530			$481			$64		13	%		$545			$481			$64		13	%

Allowance for Loan Loss (period end)		$2,024			$1,949			$1,921			$1,869			$1,743			$281		16	%		$2,024			$1,743			$281		16	%
Change in Loan Loss Reserves		$75			$28			$52			$126			$8			$67					$155			($3	)		$158
Reserve Rate	2.75		%	2.71		%	2.73		%	2.58		%	2.49		%	26			bps		2.75		%	2.49		%	26			bps
Reserve Rate Excluding PCI Loans ³	2.81		%	2.77		%	2.80		%	2.65		%	2.57		%	24			bps		2.81		%	2.57		%	24			bps

CREDIT CARD LOANS
Ending Loans		$58,006			$57,219			$55,620			$57,896			$55,655			$2,351		4	%		$58,006			$55,655			$2,351		4	%
Average Loans		$57,561			$56,124			$56,124			$56,050			$55,281			$2,280		4	%		$56,606			$54,440			$2,166		4	%

Interest Yield	12.53		%	12.42		%	12.42		%	12.20		%	12.03		%	50			bps		12.46		%	12.04		%	42			bps
Gross Principal Charge-off Rate	2.93		%	3.21		%	3.15		%	2.94		%	2.83		%	10			bps		3.09		%	3.06		%	3			bps
Net Principal Charge-off Rate	2.17		%	2.39		%	2.34		%	2.18		%	2.04		%	13			bps		2.30		%	2.24		%	6			bps
Delinquency Rate (over 30 days)	1.87		%	1.63		%	1.68		%	1.72		%	1.65		%	22			bps		1.87		%	1.65		%	22			bps
Delinquency Rate (over 90 days)	0.86		%	0.78		%	0.86		%	0.85		%	0.78		%	8			bps		0.86		%	0.78		%	8			bps
Gross Principal Charge-off Dollars		$425			$448			$439			$415			$394			$31		8	%		$1,312			$1,245			$67		5	%
Net Principal Charge-off Dollars		$314			$334			$326			$309			$285			$29		10	%		$974			$911			$63		7	%
Loans Delinquent Over 30 Days		$1,086			$933			$934			$995			$919			$167		18	%		$1,086			$919			$167		18	%
Loans Delinquent Over 90 Days		$500			$444			$480			$490			$437			$63		14	%		$500			$437			$63		14	%

Allowance for Loan Loss (period end)		$1,661			$1,603			$1,590			$1,554			$1,459			$202		14	%		$1,661			$1,459			$202		14	%
Change in Loan Loss Reserves		$58			$13			$36			$95			$18			$40					$107			($15	)		$122
Reserve Rate	2.86		%	2.80		%	2.86		%	2.68		%	2.62		%	24			bps		2.86		%	2.62		%	24			bps

Total Discover Card Volume		$33,471			$33,409			$30,004			$33,830			$32,971			$500		2	%		$96,884			$93,995			$2,889		3	%
Discover Card Sales Volume		$30,683			$30,702			$27,552			$31,672			$30,374			$309		1	%		$88,937			$86,770			$2,167		2	%
Rewards Rate	1.20		%	1.21		%	1.06		%	1.18		%	1.07		%	13			bps		1.16		%	1.05		%	11			bps
¹Total Loans includes Home Equity and other loans

² Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables

³ Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing

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, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015					Sep 30, 2016			Sep 30, 2015			2016 vs. 2015
PRIVATE STUDENT LOANS
Ending Loans		$8,995			$8,725			$8,914			$8,763			$8,769			$226		3	%		$8,995			$8,769			$226		3	%
Ending PCI Loans ¹		$2,708			$2,834			$2,965			$3,116			$3,249			($541	)	(17	%)		$2,708			$3,249			($541	)	(17	%)

Interest Yield	7.13		%	7.13		%	7.02		%	6.88		%	6.88		%	25			bps		7.09		%	6.91		%	18			bps
Net Principal Charge-off Rate	0.70		%	0.74		%	0.56		%	0.82		%	0.57		%	13			bps		0.67		%	0.60		%	7			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.02		%	1.10		%	0.85		%	1.30		%	0.94		%	8			bps		0.99		%	0.99		%	0			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	1.87		%	1.88		%	1.92		%	1.91		%	1.88		%	(1		)	bps		1.87		%	1.88		%	(1		)	bps

Reserve Rate	1.74		%	1.73		%	1.65		%	1.63		%	1.48		%	26			bps		1.74		%	1.48		%	26			bps
Reserve Rate excluding PCI Loans ²	1.92		%	1.95		%	1.86		%	1.88		%	1.84		%	8			bps		1.92		%	1.84		%	8			bps

PERSONAL LOANS
Ending Loans		$6,273			$5,708			$5,534			$5,490			$5,425			$848		16	%		$6,273			$5,425			$848		16	%

Interest Yield	12.23		%	12.25		%	12.20		%	11.79		%	12.08		%	15			bps		12.23		%	12.13		%	10			bps
Net Principal Charge-off Rate	2.63		%	2.38		%	2.45		%	2.28		%	1.99		%	64			bps		2.49		%	2.10		%	39			bps
Delinquency Rate (over 30 days)	0.98		%	1.02		%	0.97		%	0.89		%	0.80		%	18			bps		0.98		%	0.80		%	18			bps

Reserve Rate	2.98		%	3.07		%	2.99		%	2.82		%	2.49		%	49			bps		2.98		%	2.49		%	49			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																				Nine Months Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015			Sep 30, 2016 vs. Sep 30, 2015					Sep 30, 2016			Sep 30, 2015			2016 vs. 2015
DIRECT BANKING
Interest Income		$2,184			$2,090			$2,084			$2,061			$2,008			$176		9	%		$6,358			$5,884			$474		8	%
Interest Expense	359			339			334			329			323			36			11	%	1,032			934			98			10	%
Net Interest Income	1,825			1,751			1,750			1,732			1,685			140			8	%	5,326			4,950			376			8	%
Other Income	408			396			406			408			435			(27		)	(6	%)	1,210			1,371			(161		)	(12	%)
Revenue Net of Interest Expense	2,233			2,147			2,156			2,140			2,120			113			5	%	6,536			6,321			215			3	%
Provision for Loan Losses	445			411			423			486			332			113			34	%	1,279			1,026			253			25	%
Total Other Expense	857			868			851			887			838			19			2	%	2,576			2,550			26			1	%
Income Before Income Taxes		$931			$868			$882			$767			$950			($19	)	(2	%)		$2,681			$2,745			($64	)	(2	%)

Net Interest Margin	10.00		%	9.95		%	9.94		%	9.75		%	9.63		%	37			bps		9.96		%	9.65		%	31			bps
Pretax Return on Loan Receivables	5.10		%	4.93		%	5.01		%	4.32		%	5.43		%	(33		)	bps		5.01		%	5.35		%	(34		)	bps

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	68			69			68			65			68			—			0	%	205			213			(8		)	(4	%)
Revenue Net of Interest Expense	68			69			68			65			68			—			0	%	205			213			(8		)	(4	%)
Provision for Loan Losses	—			1			1			(2		)	—			—			NM		2			2			—			—	%
Total Other Expense	38			38			35			46			44			(6		)	(14	%)	111			132			(21		)	(16	%)
Income Before Income Taxes		$30			$30			$32			$21			$24			$6		25	%		$92			$79			$13		16	%

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 (Basel III transition) represents common equity tier 1 capital divided by risk weighted assets calculated under Basel III rules subject to transition provisions

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

Delinquency Rate (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

Discover card sales volume represents Discover card activity related to net sales

Discover card volume represents Discover card activity related to net sales, balance transfers, cash advances and other activity

Discover Network proprietary volume represents gross proprietary sales volume on the Discover Network

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

Ratio of Earnings to Fixed Charges is a year-to-date statistic and represents income before income tax expense and fixed charges divided by fixed charges for the reporting period. Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense for the reporting period

Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. Under Basel III, to be considered "well-capitalized," total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 10%, 8%, 5%, and 6.5% respectively must be maintained. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III

Reserve Rate represents the allowance for loan losses divided by total loans

Return on Equity represents net income (annualized) divided by average total equity for the reporting period

Rewards Rate represents rewards cost divided by Discover Card sales volume

Tangible Assets represents total assets less goodwill and intangibles

Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP Data schedule

Tangible Common Equity/Net Loans, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end)

Tangible Common Equity per Share, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding

Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles

Total Volume represents the transaction dollar volume from the PULSE network, Network Partners, Diners Club and proprietary Discover Network

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



DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Sep 30, 2015
GAAP Total Common Equity		$10,787			$10,837			$10,756			$10,715			$10,743
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(166		)	(167		)	(167		)	(168		)	(169		)
Tangible Common Equity ¹		$10,366			$10,415			$10,334			$10,292			$10,319

Common Equity Tier 1 Capital (Basel III Transition)		$10,618			$10,677			$10,593			$10,566			$10,612
Adjustments Related To Capital Components During Transition ²	(52		)	(53		)	(54		)	(82		)	(82		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)		$10,566			$10,624			$10,539			$10,484			$10,530

Risk Weighted Assets (Basel III Transition)		$76,560			$74,892			$74,205			$75,787			$73,526
Risk Weighted Assets (Basel III Fully Phased-in) ³		$76,493			$74,824			$74,137			$75,685			$73,423

Common Equity Tier 1 Capital Ratio (Basel III Transition)	13.9		%	14.3		%	14.3		%	13.9		%	14.4		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ⁴	13.8		%	14.2		%	14.2		%	13.9		%	14.3		%

GAAP Book Value Per Share		$28.62			$28.03			$27.32			$26.74			$26.32
Less: Goodwill	(0.64		)	(0.62		)	(0.62		)	(0.60		)	(0.60		)
Less: Intangibles	(0.42		)	(0.41		)	(0.40		)	(0.40		)	(0.40		)
Less: Preferred Stock	(1.41		)	(1.38		)	(1.35		)	(1.33		)	(1.30		)
Tangible Common Equity Per Share		$26.15			$25.62			$24.95			$24.41			$24.02

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

² Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion

³ Key differences under fully phased-in Basel III rules in the calculation of risk weighted assets include higher risk weighting for past due loans and unfunded commitments

⁴ Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) is calculated using Common Equity Tier 1 Capital (Basel III Fully Phased-in), a non-GAAP measure, divided by Risk Weighted Assets (Basel III Fully Phased-in)

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

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