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	dfspres4q16ex993.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex4q16ex.htm
8-K - 8-K - Discover Financial Services	a4q168k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015					Dec 31, 2016			Dec 31, 2015			2016 vs. 2015
EARNINGS SUMMARY
Interest Income		$2,258			$2,184			$2,090			$2,084			$2,061			$197		10	%		$8,616			$7,945			$671		8	%
Interest Expense	366			359			339			334			329			37			11	%	1,398			1,263			135			11	%
Net Interest Income	1,892			1,825			1,751			1,750			1,732			160			9	%	7,218			6,682			536			8	%
Discount/Interchange Revenue	665			631			636			565			635			30			5	%	2,497			2,397			100			4	%
Rewards Cost	411			368			371			292			372			39			10	%	1,442			1,280			162			13	%
Discount and Interchange Revenue, net	254			263			265			273			263			(9		)	(3	%)	1,055			1,117			(62		)	(6	%)
Protection Products Revenue	59			60			59			61			60			(1		)	(2	%)	239			261			(22		)	(8	%)
Loan Fee Income	93			91			79			80			87			6			7	%	343			335			8			2	%
Transaction Processing Revenue	40			40			39			36			38			2			5	%	155			159			(4		)	(3	%)
Other Income	20			22			23			24			25			(5		)	(20	%)	89			185			(96		)	(52	%)
Total Other Income	466			476			465			474			473			(7		)	(1	%)	1,881			2,057			(176		)	(9	%)

Revenue Net of Interest Expense	2,358			2,301			2,216			2,224			2,205			153			7	%	9,099			8,739			360			4	%

Provision for Loan Losses	578			445			412			424			484			94			19	%	1,859			1,512			347			23	%

Employee Compensation and Benefits	352			342			340			345			333			19			6	%	1,379			1,327			52			4	%
Marketing and Business Development	176			195			198			162			196			(20		)	(10	%)	731			745			(14		)	(2	%)
Information Processing & Communications	81			81			89			88			87			(6		)	(7	%)	339			349			(10		)	(3	%)
Professional Fees	152			143			150			160			170			(18		)	(11	%)	605			610			(5		)	(1	%)
Premises and Equipment	23			25			23			24			24			(1		)	(4	%)	95			95			—			—	%
Other Expense	113			109			106			107			123			(10		)	(8	%)	435			489			(54		)	(11	%)
Total Other Expense	897			895			906			886			933			(36		)	(4	%)	3,584			3,615			(31		)	(1	%)

Income Before Income Taxes	883			961			898			914			788			95			12	%	3,656			3,612			44			1	%
Tax Expense	320			322			282			339			288			32			11	%	1,263			1,315			(52		)	(4	%)
Net Income		$563			$639			$616			$575			$500			$63		13	%		$2,393			$2,297			$96		4	%

Net Income Allocated to Common Stockholders	$550				$625			$602			$562			$488			$62		13	%		$2,339			$2,246			$93		4	%

Effective Tax Rate	36.3		%	33.5		%	31.4		%	37.1		%	36.5		%						34.6		%	36.4		%

Net Interest Margin	10.07		%	9.99		%	9.94		%	9.94		%	9.75		%	32			bps		9.99		%	9.68		%	31			bps
Operating Efficiency	38.0		%	38.9		%	40.9		%	39.8		%	42.3		%	(430		)	bps		39.4		%	41.4		%	(200		)	bps
ROE	20		%	23		%	22		%	21		%	18		%						21		%	21		%

Ending Common Shares Outstanding	389			396			407			414			422			(33		)	(8	%)	389			422			(33		)	(8	%)
Weighted Average Common Shares Outstanding	392			402			410			417			426			(34		)	(8	%)	405			437			(32		)	(7	%)
Weighted Average Common Shares Outstanding (fully diluted)	393			402			411			417			426			(33		)	(8	%)	406			438			(32		)	(7	%)

PER SHARE STATISTICS
Basic EPS	$1.40				$1.56			$1.47			$1.35			$1.15			$0.25		22	%		$5.77			$5.14			$0.63		12	%
Diluted EPS	$1.40				$1.56			$1.47			$1.35			$1.14			$0.26		23	%		$5.77			$5.13			$0.64		12	%
Common Stock Price (period end)	$72.09				$56.55			$53.59			$50.92			$53.62			$18.47		34	%		$72.09			$53.62			$18.47		34	%
Book Value per share	$29.13				$28.62			$28.03			$27.32			$26.74			$2.39		9	%		$29.13			$26.74			$2.39		9	%

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, 2016		Sep 30, 2016		Jun 30, 2016		Mar 31, 2016		Dec 31, 2015		Dec 31, 2016 vs. Dec 31, 2015					Dec 31, 2016		Dec 31, 2015		2016 vs. 2015
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$868		$931		$868		$882		$767		$101		13	%		$3,549		$3,512		$37		1	%
Payment Services	15		30		30		32		21		(6		)	(29	%)	107		100		7			7	%
Total		$883		$961		$898		$914		$788		$95		12	%		$3,656		$3,612		$44		1	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	566		535		538		486		546		20			4	%	2,125		2,033		92			5	%
PULSE Network	891		871		853		841		905		(14		)	(2	%)	3,456		3,890		(434		)	(11	%)
Total	1,457		1,406		1,391		1,327		1,451		6			—	%	5,581		5,923		(342		)	(6	%)

NETWORK VOLUME
PULSE Network		$35,554		$33,913		$33,856		$34,680		$35,902		($348	)	(1	%)		$138,003		$150,145		($12,142	)	(8	%)
Network Partners	3,235		3,313		3,713		3,572		3,274		(39		)	(1	%)	13,833		12,965		868			7	%
Diners Club International¹	7,334		7,331		7,198		6,738		6,760		574			8	%	28,601		26,567		2,034			8	%
Total Payment Services	46,123		44,557		44,767		44,990		45,936		187			—	%	180,437		189,677		(9,240		)	(5	%)
Discover Network - Proprietary	34,029		31,759		31,780		28,576		32,910		1,119			3	%	126,144		122,726		3,418			3	%
Total		$80,152		$76,316		$76,547		$73,566		$78,846		$1,306		2	%		$306,581		$312,403		($5,822	)	(2	%)


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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET SUMMARY
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$13,766			$15,728			$14,236			$16,101			$12,755			$1,011		8	%
Total Loan Receivables	77,254			73,551			71,924			70,320			72,385			4,869			7	%
Allowance for Loan Losses	(2,167		)	(2,024		)	(1,949		)	(1,921		)	(1,869		)	(298		)	(16	%)
Net Loan Receivables	75,087			71,527			69,975			68,399			70,516			4,571			6	%
Premises and Equipment, net	734			722			708			706			693			41			6	%
Goodwill and Intangible Assets, net	421			421			422			422			423			(2		)	—	%
Other Assets	2,300			2,143			2,170			2,465			2,412			(112		)	(5	%)
Total Assets		$92,308			$90,541			$87,511			$88,093			$86,799			$5,509		6	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$36,002			$35,323			$34,101			$32,818			$30,866			$5,136		17	%
Brokered Deposits and Other Deposits	15,990			13,922			14,426			15,647			16,665			(675		)	(4	%)
Deposits	51,992			49,245			48,527			48,465			47,531			4,461			9	%
Borrowings	25,443			26,830			24,681			24,752			24,650			793			3	%
Accrued Expenses and Other Liabilities	3,550			3,119			2,906			3,560			3,343			207			6	%
Total Liabilities	80,985			79,194			76,114			76,777			75,524			5,461			7	%
Total Equity	11,323			11,347			11,397			11,316			11,275			48			—	%
Total Liabilities and Stockholders' Equity		$92,308			$90,541			$87,511			$88,093			$86,799			$5,509		6	%

LIQUIDITY
Liquidity Portfolio		$12,635			$14,017			$13,455			$14,556			$12,077			$558		5	%
Undrawn Credit Facilities ¹	30,194			29,048			30,777			30,077			30,682			(488		)	(2	%)
Total Liquidity		$42,829			$43,065			$44,232			$44,633			$42,759			$70		—	%


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

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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015
BALANCE SHEET STATISTICS
Total Common Equity		$10,763			$10,787			$10,837			$10,756			$10,715			$48	—	%
Total Common Equity/Total Assets	11.7		%	11.9		%	12.4		%	12.2		%	12.3		%
Total Common Equity/Net Loans	14.3		%	15.1		%	15.5		%	15.7		%	15.2		%

Tangible Assets		$91,887			$90,120			$87,089			$87,671			$86,376			$5,511	6	%
Tangible Common Equity ¹		$10,342			$10,366			$10,415			$10,334			$10,292			$50	—	%
Tangible Common Equity/Tangible Assets ¹	11.3		%	11.5		%	12.0		%	11.8		%	11.9		%
Tangible Common Equity/Net Loans ¹	13.8		%	14.5		%	14.9		%	15.1		%	14.6		%
Tangible Common Equity per share¹	$26.60				$26.15			$25.62			$24.95			$24.41			$2.19	9	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	15.5		%	16.3		%	16.7		%	16.8		%	16.5		%
Tier 1 Risk Based Capital Ratio	13.9		%	14.6		%	15.0		%	15.0		%	14.7		%
Tier 1 Leverage Ratio	12.3		%	12.6		%	12.8		%	12.8		%	12.9		%
Common Equity Tier 1 Capital Ratio	13.2		%	13.9		%	14.3		%	14.3		%	13.9		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	13.2		%	13.8		%	14.2		%	14.2		%	13.9		%

RATIO OF EARNINGS TO FIXED CHARGES
Ratio of Earnings to Fixed Charges ^{3, 4}	3.6			3.7			3.7			3.8			3.9

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 twelve months ended December 31, 2016, the nine months ended September 30, 2016, the six months ended June 30, 2016, the three months ended March 31, 2016 and the twelve months ended December 31, 2015

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015
AVERAGE BALANCES
Assets
Cash and Investment Securities		$13,567			$13,761			$14,299			$13,452			$12,881			$686		5	%
Restricted Cash	473			621			263			801			529			(56		)	(11	%)
Credit Card Loans	59,121			57,561			56,124			56,124			56,050			3,071			5	%
Private Student Loans	8,954			8,795			8,816			8,967			8,732			222			3	%
Personal Loans	6,425			6,036			5,608			5,503			5,488			937			17	%
Other Loans	275			276			262			243			233			42			18	%
Total Loans	74,775			72,668			70,810			70,837			70,503			4,272			6	%
Total Interest Earning Assets	88,815			87,050			85,372			85,090			83,913			4,902			6	%
Allowance for Loan Losses	(2,021		)	(1,947		)	(1,918		)	(1,866		)	(1,794		)	(227		)	13	%
Other Assets	4,162			4,282			4,502			4,453			4,357			(195		)	(4	%)
Total Assets		$90,956			$89,385			$87,956			$87,677			$86,476			$4,480		5	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$35,396			$34,488			$33,215			$31,529			$30,126			$5,270		17	%
Brokered Deposits and Other Deposits	14,355			14,267			14,740			15,982			16,504			(2,149		)	(13	%)
Total Interest-bearing Deposits	49,751			48,755			47,955			47,511			46,630			3,121			7	%
Short-term Borrowings	1			2			2			2			—			1			NM
Securitized Borrowings	16,817			16,736			16,635			16,950			16,628			189			1	%
Other Long-term Borrowings	9,042			8,746			7,984			7,934			7,900			1,142			14	%
Total Interest-bearing Liabilities	75,611			74,239			72,576			72,397			71,158			4,453			6	%
Other Liabilities & Stockholders' Equity	15,345			15,146			15,380			15,280			15,318			27			—	%
Total Liabilities and Stockholders' Equity		$90,956			$89,385			$87,956			$87,677			$86,476			$4,480		5	%

AVERAGE RATES
Assets
Cash and Investment Securities	0.72		%	0.70		%	0.71		%	0.72		%	0.61		%	11			bps
Restricted Cash	0.37		%	0.32		%	0.41		%	0.40		%	0.16		%	21			bps
Credit Card Loans	12.62		%	12.53		%	12.42		%	12.42		%	12.20		%	42			bps
Private Student Loans	7.06		%	7.13		%	7.13		%	7.02		%	6.88		%	18			bps
Personal Loans	12.09		%	12.23		%	12.25		%	12.20		%	11.79		%	30			bps
Other Loans	4.88		%	4.96		%	5.04		%	5.18		%	4.88		%	—			bps
Total Loans	11.88		%	11.82		%	11.72		%	11.69		%	11.49		%	39			bps
Total Interest Earning Assets	10.12		%	9.98		%	9.84		%	9.85		%	9.75		%	37			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.26		%	1.26		%	1.22		%	1.22		%	1.21		%	5			bps
Brokered Deposits and Other Deposits	1.93		%	1.90		%	1.78		%	1.68		%	1.60		%	33			bps
Total Interest-bearing Deposits	1.45		%	1.45		%	1.39		%	1.37		%	1.35		%	10			bps
Short-term Borrowings	0.60		%	0.62		%	0.64		%	0.64		%	—		%	60			bps
Securitized Borrowings	2.09		%	2.07		%	2.06		%	2.04		%	1.99		%	10			bps
Other Long-term Borrowings	4.26		%	4.27		%	4.40		%	4.38		%	4.33		%	(7		)	bps
Total Interest-bearing Liabilities	1.93		%	1.92		%	1.88		%	1.86		%	1.83		%	10			bps

Net Interest Margin	10.07		%	9.99		%	9.94		%	9.94		%	9.75		%	32			bps
Net Yield on Interest-earning Assets	8.47		%	8.34		%	8.25		%	8.27		%	8.19		%	28			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, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015				Dec 31, 2016			Dec 31, 2015			2016 vs. 2015
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$77,254			$73,551			$71,924			$70,320			$72,385			$4,869	7	%		$77,254			$72,385			$4,869		7	%
Average Loans ^{1, 2}		$74,775			$72,668			$70,810			$70,837			$70,503			$4,272	6	%		$72,280			$69,061			$3,219		5	%

Interest Yield	11.88		%	11.82		%	11.72		%	11.69		%	11.49		%	39		bps		11.78		%	11.40		%	38			bps
Gross Principal Charge-off Rate	2.91		%	2.66		%	2.87		%	2.80		%	2.65		%	26		bps		2.81		%	2.69		%	12			bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.02		%	2.77		%	2.99		%	2.92		%	2.78		%	24		bps		2.93		%	2.82		%	11			bps
Net Principal Charge-off Rate	2.31		%	2.02		%	2.18		%	2.11		%	2.02		%	29		bps		2.16		%	2.01		%	15			bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.39		%	2.10		%	2.27		%	2.21		%	2.11		%	28		bps		2.24		%	2.12		%	12			bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.97		%	1.79		%	1.60		%	1.64		%	1.67		%	30		bps		1.97		%	1.67		%	30			bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.87		%	0.77		%	0.71		%	0.79		%	0.76		%	11		bps		0.87		%	0.76		%	11			bps
Gross Principal Charge-off Dollars		$548			$488			$505			$493			$472			$76	16	%		$2,034			$1,855			$179		10	%
Net Principal Charge-off Dollars		$435			$370			$384			$372			$358			$77	22	%		$1,561			$1,389			$172		12	%
Net Interest and Fee Charge-off Dollars		$94			$80			$84			$86			$86			$8	9	%		$344			$349			($5	)	(1	%)
Loans Delinquent Over 30 Days ³		$1,469			$1,269			$1,104			$1,105			$1,153			$316	27	%		$1,469			$1,153			$316		27	%
Loans Delinquent Over 90 Days ³		$652			$545			$491			$531			$530			$122	23	%		$652			$530			$122		23	%

Allowance for Loan Loss (period end)		$2,167			$2,024			$1,949			$1,921			$1,869			$298	16	%		$2,167			$1,869			$298		16	%
Change in Loan Loss Reserves		$143			$75			$28			$52			$126			$17				$298			$123			$175
Reserve Rate	2.80		%	2.75		%	2.71		%	2.73		%	2.58		%	22		bps		2.80		%	2.58		%	22			bps
Reserve Rate Excluding PCI Loans ³	2.86		%	2.81		%	2.77		%	2.80		%	2.65		%	21		bps		2.86		%	2.65		%	21			bps

CREDIT CARD LOANS
Ending Loans		$61,522			$58,006			$57,219			$55,620			$57,896			$3,626	6	%		$61,522			$57,896			$3,626		6	%
Average Loans		$59,121			$57,561			$56,124			$56,124			$56,050			$3,071	5	%		$57,238			$54,846			$2,392		4	%

Interest Yield	12.62		%	12.53		%	12.42		%	12.42		%	12.20		%	42		bps		12.50		%	12.08		%	42			bps
Gross Principal Charge-off Rate	3.19		%	2.93		%	3.21		%	3.15		%	2.94		%	25		bps		3.12		%	3.03		%	9			bps
Net Principal Charge-off Rate	2.47		%	2.17		%	2.39		%	2.34		%	2.18		%	29		bps		2.34		%	2.22		%	12			bps
Delinquency Rate (over 30 days)	2.04		%	1.87		%	1.63		%	1.68		%	1.72		%	32		bps		2.04		%	1.72		%	32			bps
Delinquency Rate (over 90 days)	0.97		%	0.86		%	0.78		%	0.86		%	0.85		%	12		bps		0.97		%	0.85		%	12			bps
Gross Principal Charge-off Dollars		$474			$425			$448			$439			$415			$59	14	%		$1,786			$1,660			$126		8	%
Net Principal Charge-off Dollars		$369			$314			$334			$326			$309			$60	19	%		$1,343			$1,220			$123		10	%
Loans Delinquent Over 30 Days		$1,252			$1,086			$933			$934			$995			$257	26	%		$1,252			$995			$257		26	%
Loans Delinquent Over 90 Days		$597			$500			$444			$480			$490			$107	22	%		$597			$490			$107		22	%

Allowance for Loan Loss (period end)		$1,790			$1,661			$1,603			$1,590			$1,554			$236	15	%		$1,790			$1,554			$236		15	%
Change in Loan Loss Reserves		$129			$58			$13			$36			$95			$34				$236			$80			$156
Reserve Rate	2.91		%	2.86		%	2.80		%	2.86		%	2.68		%	23		bps		2.91		%	2.68		%	23			bps

Total Discover Card Volume		$35,440			$33,471			$33,409			$30,004			$33,830			$1,610	5	%		$132,324			$127,825			$4,499		4	%
Discover Card Sales Volume		$32,486			$30,683			$30,702			$27,552			$31,672			$814	3	%		$121,423			$118,442			$2,981		3	%
Rewards Rate	1.26		%	1.20		%	1.21		%	1.06		%	1.18		%	8		bps		1.19		%	1.08		%	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																				Twelve Months Ended
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015					Dec 31, 2016			Dec 31, 2015			2016 vs. 2015
PRIVATE STUDENT LOANS
Ending Loans		$8,977			$8,995			$8,725			$8,914			$8,763			$214		2	%		$8,977			$8,763			$214		2	%
Ending PCI Loans ¹		$2,584			$2,708			$2,834			$2,965			$3,116			($532	)	(17	%)		$2,584			$3,116			($532	)	(17	%)

Interest Yield	7.06		%	7.13		%	7.13		%	7.02		%	6.88		%	18			bps		7.09		%	6.90		%	19			bps
Net Principal Charge-off Rate	1.00		%	0.70		%	0.74		%	0.56		%	0.82		%	18			bps		0.75		%	0.65		%	10			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.42		%	1.02		%	1.10		%	0.85		%	1.30		%	12			bps		1.10		%	1.07		%	3			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	2.22		%	1.87		%	1.88		%	1.92		%	1.91		%	31			bps		2.22		%	1.91		%	31			bps

Reserve Rate	1.74		%	1.74		%	1.73		%	1.65		%	1.63		%	11			bps		1.74		%	1.63		%	11			bps
Reserve Rate excluding PCI Loans ²	1.91		%	1.92		%	1.95		%	1.86		%	1.88		%	3			bps		1.91		%	1.88		%	3			bps

PERSONAL LOANS
Ending Loans		$6,481			$6,273			$5,708			$5,534			$5,490			$991		18	%		$6,481			$5,490			$991		18	%

Interest Yield	12.09		%	12.23		%	12.25		%	12.20		%	11.79		%	30			bps		12.19		%	12.04		%	15			bps
Net Principal Charge-off Rate	2.70		%	2.63		%	2.38		%	2.45		%	2.28		%	42			bps		2.55		%	2.15		%	40			bps
Delinquency Rate (over 30 days)	1.12		%	0.98		%	1.02		%	0.97		%	0.89		%	23			bps		1.12		%	0.89		%	23			bps

Reserve Rate	3.09		%	2.98		%	3.07		%	2.99		%	2.82		%	27			bps		3.09		%	2.82		%	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, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015			Dec 31, 2016 vs. Dec 31, 2015					Dec 31, 2016			Dec 31, 2015			2016 vs. 2015
DIRECT BANKING
Interest Income		$2,258			$2,184			$2,090			$2,084			$2,061			$197		10	%		$8,616			$7,945			$671		8	%
Interest Expense	366			359			339			334			329			37			11	%	1,398			1,263			135			11	%
Net Interest Income	1,892			1,825			1,751			1,750			1,732			160			9	%	7,218			6,682			536			8	%
Other Income	401			408			396			406			408			(7		)	(2	%)	1,611			1,779			(168		)	(9	%)
Revenue Net of Interest Expense	2,293			2,233			2,147			2,156			2,140			153			7	%	8,829			8,461			368			4	%
Provision for Loan Losses	579			445			411			423			486			93			19	%	1,858			1,512			346			23	%
Total Other Expense	846			857			868			851			887			(41		)	(5	%)	3,422			3,437			(15		)	—	%
Income Before Income Taxes		$868			$931			$868			$882			$767			$101		13	%		$3,549			$3,512			$37		1	%

Net Interest Margin	10.07		%	10.00		%	9.95		%	9.94		%	9.75		%	32			bps		9.99		%	9.68		%	31			bps
Pretax Return on Loan Receivables	4.62		%	5.10		%	4.93		%	5.01		%	4.32		%	30			bps		4.91		%	5.09		%	(18		)	bps

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	65			68			69			68			65			—			—	%	270			278			(8		)	(3	%)
Revenue Net of Interest Expense	65			68			69			68			65			—			—	%	270			278			(8		)	(3	%)
Provision for Loan Losses	(1		)	—			1			1			(2		)	1			(50%)		1			—			1			NM
Total Other Expense	51			38			38			35			46			5			11	%	162			178			(16		)	(9	%)
Income Before Income Taxes		$15			$30			$30			$32			$21			($6	)	(29	%)		$107			$100			$7		7	%

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
	Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Mar 31, 2016			Dec 31, 2015
GAAP Total Common Equity		$10,763			$10,787			$10,837			$10,756			$10,715
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(166		)	(166		)	(167		)	(167		)	(168		)
Tangible Common Equity ¹		$10,342			$10,366			$10,415			$10,334			$10,292

Common Equity Tier 1 Capital (Basel III Transition)	$10,592				$10,618			$10,677			$10,593			$10,566
Adjustments Related To Capital Components During Transition ²	(52		)	(52		)	(53		)	(54		)	(82		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)	$10,540				$10,566			$10,624			$10,539			$10,484

Risk Weighted Assets (Basel III Transition)	$80,093				$76,560			$74,892			$74,205			$75,787
Risk Weighted Assets (Basel III Fully Phased-in) ³	$80,027				$76,493			$74,824			$74,137			$75,685

Common Equity Tier 1 Capital Ratio (Basel III Transition)	13.2		%	13.9		%	14.3		%	14.3		%	13.9		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ⁴	13.2		%	13.8		%	14.2		%	14.2		%	13.9		%

GAAP Book Value Per Share		$29.13			$28.62			$28.03			$27.32			$26.74
Less: Goodwill	(0.67		)	(0.64		)	(0.62		)	(0.62		)	(0.60		)
Less: Intangibles	(0.42		)	(0.42		)	(0.41		)	(0.40		)	(0.40		)
Less: Preferred Stock	(1.44		)	(1.41		)	(1.38		)	(1.35		)	(1.33		)
Tangible Common Equity Per Share		$26.60			$26.15			$25.62			$24.95			$24.41

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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