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	a2q17earningspresentatio.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex2q17ex.htm
8-K - 8-K - Discover Financial Services	a2q178k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Six Months Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016					Jun 30, 2017			Jun 30, 2016			2017 vs. 2016
EARNINGS SUMMARY
Interest Income		$2,338			$2,278			$2,258			$2,184			$2,090			$248		12	%		$4,616			$4,174			$442		11	%
Interest Expense	400			386			366			359			339			61			18	%	786			673			113			17	%
Net Interest Income	1,938			1,892			1,892			1,825			1,751			187			11	%	3,830			3,501			329			9	%
Discount/Interchange Revenue	666			596			665			631			636			30			5	%	1,262			1,201			61			5	%
Rewards Cost	388			363			411			368			371			17			5	%	751			663			88			13	%
Discount and Interchange Revenue, net	278			233			254			263			265			13			5	%	511			538			(27		)	(5	%)
Protection Products Revenue	56			58			59			60			59			(3		)	(5	%)	114			120			(6		)	(5	%)
Loan Fee Income	83			89			93			91			79			4			5	%	172			159			13			8	%
Transaction Processing Revenue	42			39			40			40			39			3			8	%	81			75			6			8	%
Other Income	22			28			20			22			23			(1		)	(4	%)	50			47			3			6	%
Total Other Income	481			447			466			476			465			16			3	%	928			939			(11		)	(1	%)

Revenue Net of Interest Expense	2,419			2,339			2,358			2,301			2,216			203			9	%	4,758			4,440			318			7	%

Provision for Loan Losses	640			586			578			445			412			228			55	%	1,226			836			390			47	%

Employee Compensation and Benefits	367			363			352			342			340			27			8	%	730			685			45			7	%
Marketing and Business Development	192			168			176			195			198			(6		)	(3	%)	360			360			—			—	%
Information Processing & Communications	77			80			81			81			89			(12		)	(13	%)	157			177			(20		)	(11	%)
Professional Fees	156			147			152			143			150			6			4	%	303			310			(7		)	(2	%)
Premises and Equipment	23			25			23			25			23			—			—	%	48			47			1			2	%
Other Expense	97			102			113			109			106			(9		)	(8	%)	199			213			(14		)	(7	%)
Total Other Expense	912			885			897			895			906			6			1	%	1,797			1,792			5			—	%

Income Before Income Taxes	867			868			883			961			898			(31		)	(3	%)	1,735			1,812			(77		)	(4	%)
Tax Expense	321			304			320			322			282			39			14	%	625			621			4			1	%
Net Income		$546			$564			$563			$639			$616			($70	)	(11	%)		$1,110			$1,191			($81	)	(7	%)

Net Income Allocated to Common Stockholders		$532			$551			$550			$625			$602			($70	)	(12	%)		$1,083			$1,164			($81	)	(7	%)

Effective Tax Rate	37.1		%	35.0		%	36.3		%	33.5		%	31.4		%						36.0		%	34.3		%

Net Interest Margin	10.11		%	10.07		%	10.07		%	9.99		%	9.94		%	17			bps		10.09		%	9.94		%	15			bps
Operating Efficiency	37.7		%	37.9		%	38.0		%	38.9		%	40.9		%	(320		)	bps		37.8		%	40.4		%	(260		)	bps
ROE	19		%	20		%	20		%	23		%	22		%						20		%	21		%
Capital Returned to Common Stockholders		$547			$620			$581			$689			$523			$24		5	%		$1,167			$1,036			$131		13	%
Payout Ratio	103		%	113		%	106		%	110		%	87		%						108		%	89		%	1,900			bps

Ending Common Shares Outstanding	375			382			389			396			407			(32		)	(8	%)	375			407			(32		)	(8	%)
Weighted Average Common Shares Outstanding	379			386			392			402			410			(31		)	(8	%)	382			414			(32		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	379			386			393			402			411			(32		)	(8	%)	382			414			(32		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$1.41			$1.43			$1.40			$1.56			$1.47			($0.06	)	(4	%)		$2.83			$2.81			$0.02		1	%
Diluted EPS		$1.40			$1.43			$1.40			$1.56			$1.47			($0.07	)	(5	%)		$2.83			$2.81			$0.02		1	%
Common Stock Price (period end)		$62.19			$68.39			$72.09			$56.55			$53.59			$8.60		16	%		$62.19			$53.59			$8.60		16	%
Book Value per share		$30.01			$29.46			$29.13			$28.62			$28.03			$1.98		7	%		$30.01			$28.03			$1.98		7	%

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



DISCOVER FINANCIAL SERVICES
EARNINGS SUMMARY
(unaudited, in millions)
	Quarter Ended															Six Months Ended
	Jun 30, 2017		Mar 31, 2017		Dec 31, 2016		Sep 30, 2016		Jun 30, 2016		Jun 30, 2017 vs. Jun 30, 2016					Jun 30, 2017		Jun 30, 2016		2017 vs. 2016
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$831		$824		$868		$931		$868		($37	)	(4	%)		$1,655		$1,750		($95	)	(5	%)
Payment Services	36		44		15		30		30		6			20	%	80		62		18			29	%
Total		$867		$868		$883		$961		$898		($31	)	(3	%)		$1,735		$1,812		($77	)	(4	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	551		503		566		535		538		13			2	%	1,054		1,024		30			3	%
PULSE Network	961		870		891		871		853		108			13	%	1,831		1,694		137			8	%
Total	1,512		1,373		1,457		1,406		1,391		121			9	%	2,885		2,718		167			6	%

NETWORK VOLUME
PULSE Network		$38,848		$36,066		$35,554		$33,913		$33,856		$4,992		15	%		$74,914		$68,536		$6,378		9	%
Network Partners	3,461		3,661		3,235		3,313		3,713		(252		)	(7	%)	7,122		7,285		(163		)	(2	%)
Diners Club International¹	7,800		7,382		7,334		7,331		7,198		602			8	%	15,182		13,936		1,246			9	%
Total Payment Services	50,109		47,109		46,123		44,557		44,767		5,342			12	%	97,218		89,757		7,461			8	%
Discover Network - Proprietary	33,342		29,859		34,029		31,759		31,780		1,562			5	%	63,201		60,356		2,845			5	%
Total		$83,451		$76,968		$80,152		$76,316		$76,547		$6,904		9	%		$160,419		$150,113		$10,306		7	%


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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET SUMMARY
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$14,722			$17,981			$13,766			$15,728			$14,236			$486		3	%
Total Loan Receivables	77,997			75,853			77,254			73,551			71,924			6,073			8	%
Allowance for Loan Losses	(2,384		)	(2,264		)	(2,167		)	(2,024		)	(1,949		)	(435		)	(22	%)
Net Loan Receivables	75,613			73,589			75,087			71,527			69,975			5,638			8	%
Premises and Equipment, net	774			750			734			722			708			66			9	%
Goodwill and Intangible Assets, net	419			420			421			421			422			(3		)	(1	%)
Other Assets	2,229			2,055			2,300			2,143			2,170			59			3	%
Total Assets		$93,757			$94,795			$92,308			$90,541			$87,511			$6,246		7	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$37,709			$37,094			$36,002			$35,323			$34,101			$3,608		11	%
Brokered Deposits and Other Deposits	15,155			16,428			15,990			13,922			14,426			729			5	%
Deposits	52,864			53,522			51,992			49,245			48,527			4,337			9	%
Borrowings	26,438			26,823			25,443			26,830			24,681			1,757			7	%
Accrued Expenses and Other Liabilities	3,196			3,185			3,550			3,119			2,906			290			10	%
Total Liabilities	82,498			83,530			80,985			79,194			76,114			6,384			8	%
Total Equity	11,259			11,265			11,323			11,347			11,397			(138		)	(1	%)
Total Liabilities and Stockholders' Equity		$93,757			$94,795			$92,308			$90,541			$87,511			$6,246		7	%

LIQUIDITY
Liquidity Portfolio		$13,865			$16,213			$12,635			$14,017			$13,455		410			3	%
Undrawn Credit Facilities ¹	31,877			30,823			30,194			29,048			30,777			1,100			4	%
Total Liquidity		$45,742			$47,036			$42,829			$43,065			$44,232		1,510			3	%


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

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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016
BALANCE SHEET STATISTICS
Total Common Equity		$10,699			$10,705			$10,763			$10,787			$10,837			($138	)	(1	%)
Total Common Equity/Total Assets	11.4		%	11.3		%	11.7		%	11.9		%	12.4		%
Total Common Equity/Net Loans	14.2		%	14.5		%	14.3		%	15.1		%	15.5		%

Tangible Assets		$93,338			$94,375			$91,887			$90,120			$87,089			$6,249		7	%
Tangible Common Equity ¹		$10,280			$10,285			$10,342			$10,366			$10,415			($135	)	(1	%)
Tangible Common Equity/Tangible Assets ¹	11.0		%	10.9		%	11.3		%	11.5		%	12.0		%
Tangible Common Equity/Net Loans ¹	13.6		%	14.0		%	13.8		%	14.5		%	14.9		%
Tangible Common Equity per share¹		$27.40			$26.90			$26.60			$26.15			$25.62			$1.78		7	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	15.2		%	15.7		%	15.5		%	16.3		%	16.7		%
Tier 1 Risk Based Capital Ratio	13.7		%	14.1		%	13.9		%	14.6		%	15.0		%
Tier 1 Leverage Ratio	11.8		%	11.8		%	12.3		%	12.6		%	12.8		%
Common Equity Tier 1 Capital Ratio	13.0		%	13.4		%	13.2		%	13.9		%	14.3		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	13.0		%	13.4		%	13.2		%	13.8		%	14.2		%

RATIO OF EARNINGS TO FIXED CHARGES
Ratio of Earnings to Fixed Charges ^{3, 4}	3.2			3.3			3.6			3.7			3.7

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 six months ended June 30, 2017, the three months ended March 31, 2017, the twelve months ended December 31, 2016, the nine months ended September 30, 2016 and the six months ended June 30, 2016

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016
AVERAGE BALANCES
Assets
Cash and Investment Securities		$14,616			$15,424			$13,567			$13,761			$14,299			$317		2	%
Restricted Cash	559			819			473			621			263			296			113	%
Credit Card Loans	60,700			60,122			59,121			57,561			56,124			4,576			8	%
Private Student Loans	9,020			9,197			8,954			8,795			8,816			204			2	%
Personal Loans	6,820			6,582			6,425			6,036			5,608			1,212			22	%
Other Loans	314			284			275			276			262			52			20	%
Total Loans	76,854			76,185			74,775			72,668			70,810			6,044			9	%
Total Interest Earning Assets	92,029			92,428			88,815			87,050			85,372			6,657			8	%
Allowance for Loan Losses	(2,262		)	(2,166		)	(2,021		)	(1,947		)	(1,918		)	(344		)	(18	%)
Other Assets	4,147			4,166			4,162			4,282			4,502			(355		)	(8	%)
Total Assets		$93,914			$94,428			$90,956			$89,385			$87,956			$5,958		7	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$36,956			$36,316			$35,396			$34,488			$33,215			$3,741		11	%
Brokered Deposits and Other Deposits	15,600			16,242			14,355			14,267			14,740			860			6	%
Total Interest-bearing Deposits	52,556			52,558			49,751			48,755			47,955			4,601			10	%
Short-term Borrowings	2			1			1			2			2			—			—	%
Securitized Borrowings	16,141			16,960			16,817			16,736			16,635			(494		)	(3	%)
Other Long-term Borrowings	9,979			9,600			9,042			8,746			7,984			1,995			25	%
Total Interest-bearing Liabilities	78,678			79,119			75,611			74,239			72,576			6,102			8	%
Other Liabilities & Stockholders' Equity	15,236			15,309			15,345			15,146			15,380			(144		)	(1	%)
Total Liabilities and Stockholders' Equity		$93,914			$94,428			$90,956			$89,385			$87,956			$5,958		7	%

AVERAGE RATES
Assets
Cash and Investment Securities	1.12		%	0.90		%	0.72		%	0.70		%	0.71		%	41			bps
Restricted Cash	0.89		%	0.70		%	0.37		%	0.32		%	0.41		%	48			bps
Credit Card Loans	12.66		%	12.65		%	12.62		%	12.53		%	12.42		%	24			bps
Private Student Loans	7.45		%	7.29		%	7.06		%	7.13		%	7.13		%	32			bps
Personal Loans	12.22		%	12.18		%	12.09		%	12.23		%	12.25		%	(3		)	bps
Other Loans	5.59		%	5.39		%	4.88		%	4.96		%	5.04		%	55			bps
Total Loans	11.98		%	11.94		%	11.88		%	11.82		%	11.72		%	26			bps
Total Interest Earning Assets	10.19		%	9.99		%	10.12		%	9.98		%	9.84		%	35			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.29		%	1.25		%	1.26		%	1.26		%	1.22		%	7			bps
Brokered Deposits and Other Deposits	2.07		%	1.98		%	1.93		%	1.90		%	1.78		%	29			bps
Total Interest-bearing Deposits	1.52		%	1.48		%	1.45		%	1.45		%	1.39		%	13			bps
Short-term Borrowings	1.06		%	0.67		%	0.60		%	0.62		%	0.64		%	42			bps
Securitized Borrowings	2.31		%	2.17		%	2.09		%	2.07		%	2.06		%	25			bps
Other Long-term Borrowings	4.36		%	4.38		%	4.26		%	4.27		%	4.40		%	(4		)	bps
Total Interest-bearing Liabilities	2.04		%	1.98		%	1.93		%	1.92		%	1.88		%	16			bps

Net Interest Margin	10.11		%	10.07		%	10.07		%	9.99		%	9.94		%	17			bps
Net Yield on Interest-earning Assets	8.44		%	8.30		%	8.47		%	8.34		%	8.25		%	19			bps

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Six Months Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016					Jun 30, 2017			Jun 30, 2016			2017 vs. 2016
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$77,997			$75,853			$77,254			$73,551			$71,924			$6,073		8	%		$77,997			$71,924			$6,073	8	%
Average Loans ^{1, 2}		$76,854			$76,185			$74,775			$72,668			$70,810			$6,044		9	%		$76,521			$70,823			$5,698	8	%

Interest Yield	11.98		%	11.94		%	11.88		%	11.82		%	11.72		%	26			bps		11.96		%	11.71		%	25		bps
Gross Principal Charge-off Rate	3.36		%	3.25		%	2.91		%	2.66		%	2.87		%	49			bps		3.31		%	2.83		%	48		bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.47		%	3.37		%	3.02		%	2.77		%	2.99		%	48			bps		3.42		%	2.96		%	46		bps
Net Principal Charge-off Rate	2.71		%	2.60		%	2.31		%	2.02		%	2.18		%	53			bps		2.65		%	2.15		%	50		bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.79		%	2.69		%	2.39		%	2.10		%	2.27		%	52			bps		2.74		%	2.24		%	50		bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	1.93		%	1.97		%	1.97		%	1.79		%	1.60		%	33			bps		1.93		%	1.60		%	33		bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.88		%	0.92		%	0.87		%	0.77		%	0.71		%	17			bps		0.88		%	0.71		%	17		bps
Gross Principal Charge-off Dollars		$645			$611			$548			$488			$505			$140		28	%		$1,256			$998			$258	26	%
Net Principal Charge-off Dollars		$520			$489			$435			$370			$384			$136		35	%		$1,009			$756			$253	33	%
Net Interest and Fee Charge-off Dollars		$110			$106			$94			$80			$84			$26		31	%		$216			$170			$46	27	%
Loans Delinquent Over 30 Days ³		$1,457			$1,445			$1,469			$1,269			$1,104			$353		32	%		$1,457			$1,104			$353	32	%
Loans Delinquent Over 90 Days ³		$667			$675			$652			$545			$491			$176		36	%		$667			$491			$176	36	%

Allowance for Loan Loss (period end)		$2,384			$2,264			$2,167			$2,024			$1,949			$435		22	%		$2,384			$1,949			$435	22	%
Change in Loan Loss Reserves		$120			$97			$143			$75			$28			$92					$217			$80			$137
Reserve Rate	3.06		%	2.98		%	2.80		%	2.75		%	2.71		%	35			bps		3.06		%	2.71		%	35		bps
Reserve Rate Excluding PCI Loans ³	3.11		%	3.04		%	2.86		%	2.81		%	2.77		%	34			bps		3.11		%	2.77		%	34		bps

CREDIT CARD LOANS
Ending Loans		$61,797			$59,757			$61,522			$58,006			$57,219			$4,578		8	%		$61,797			$57,219			$4,578	8	%
Average Loans		$60,700			$60,122			$59,121			$57,561			$56,124			$4,576		8	%		$60,413			$56,124			$4,289	8	%

Interest Yield	12.66		%	12.65		%	12.62		%	12.53		%	12.42		%	24			bps		12.66		%	12.42		%	24		bps
Gross Principal Charge-off Rate	3.71		%	3.61		%	3.19		%	2.93		%	3.21		%	50			bps		3.66		%	3.18		%	48		bps
Net Principal Charge-off Rate	2.94		%	2.84		%	2.47		%	2.17		%	2.39		%	55			bps		2.89		%	2.37		%	52		bps
Delinquency Rate (over 30 days)	2.00		%	2.06		%	2.04		%	1.87		%	1.63		%	37			bps		2.00		%	1.63		%	37		bps
Delinquency Rate (over 90 days)	0.98		%	1.03		%	0.97		%	0.86		%	0.78		%	20			bps		0.98		%	0.78		%	20		bps
Gross Principal Charge-off Dollars		$561			$535			$474			$425			$448			$113		25	%		$1,096			$887			$209	24	%
Net Principal Charge-off Dollars		$445			$422			$369			$314			$334			$111		33	%		$867			$660			$207	31	%
Loans Delinquent Over 30 Days		$1,237			$1,233			$1,252			$1,086			$933			$304		33	%		$1,237			$933			$304	33	%
Loans Delinquent Over 90 Days		$603			$616			$597			$500			$444			$159		36	%		$603			$444			$159	36	%

Allowance for Loan Loss (period end)		$1,980			$1,892			$1,790			$1,661			$1,603			$377		24	%		$1,980			$1,603			$377	24	%
Change in Loan Loss Reserves		$88			$102			$129			$58			$13			$75					$190			$49			$141
Reserve Rate	3.21		%	3.17		%	2.91		%	2.86		%	2.80		%	41			bps		3.21		%	2.80		%	41		bps

Total Discover Card Volume		$35,297			$32,406			$35,440			$33,471			$33,409			$1,888		6	%		$67,703			$63,413			$4,290	7	%
Discover Card Sales Volume		$32,172			$29,134			$32,486			$30,683			$30,702			$1,470		5	%		$61,306			$58,254			$3,052	5	%
Rewards Rate	1.20		%	1.25		%	1.26		%	1.20		%	1.21		%	(1		)	bps		1.22		%	1.14		%	8		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																				Six Months Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016					Jun 30, 2017			Jun 30, 2016			2017 vs. 2016
PRIVATE STUDENT LOANS
Ending Loans		$8,916			$9,138			$8,977			$8,995			$8,725			$191		2	%		$8,916			$8,725			$191		2	%
Ending PCI Loans ¹		$2,322			$2,449			$2,584			$2,708			$2,834			($512	)	(18	%)		$2,322			$2,834			($512	)	(18	%)

Interest Yield	7.45		%	7.29		%	7.06		%	7.13		%	7.13		%	32			bps		7.37		%	7.08		%	29			bps
Net Principal Charge-off Rate	0.85		%	0.60		%	1.00		%	0.70		%	0.74		%	11			bps		0.72		%	0.65		%	7			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.15		%	0.83		%	1.42		%	1.02		%	1.10		%	5			bps		0.99		%	0.98		%	1			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	2.12		%	2.04		%	2.22		%	1.87		%	1.88		%	24			bps		2.12		%	1.88		%	24			bps

Reserve Rate	1.78		%	1.70		%	1.74		%	1.74		%	1.73		%	5			bps		1.78		%	1.73		%	5			bps
Reserve Rate excluding PCI Loans ²	1.91		%	1.80		%	1.91		%	1.92		%	1.95		%	(4		)	bps		1.91		%	1.95		%	(4		)	bps

PERSONAL LOANS
Ending Loans		$6,955			$6,663			$6,481			$6,273			$5,708			$1,247		22	%		$6,955			$5,708			$1,247		22	%

Interest Yield	12.22		%	12.18		%	12.09		%	12.23		%	12.25		%	(3		)	bps		12.20		%	12.23		%	(3		)	bps
Net Principal Charge-off Rate	3.18		%	3.16		%	2.70		%	2.63		%	2.38		%	80			bps		3.17		%	2.41		%	76			bps
Delinquency Rate (over 30 days)	1.14		%	1.12		%	1.12		%	0.98		%	1.02		%	12			bps		1.14		%	1.02		%	12			bps

Reserve Rate	3.38		%	3.10		%	3.09		%	2.98		%	3.07		%	31			bps		3.38		%	3.07		%	31			bps


¹ Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables

² Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Because the Company is recognizing interest income on a pool of loans, it is all considered to be performing

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



DISCOVER FINANCIAL SERVICES
SEGMENT RESULTS
(unaudited, in millions)
	Quarter Ended																				Six Months Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016			Jun 30, 2017 vs. Jun 30, 2016					Jun 30, 2017			Jun 30, 2016			2017 vs. 2016
DIRECT BANKING
Interest Income		$2,338			$2,278			$2,258			$2,184			$2,090			$248		12	%		$4,616			$4,174			$442		11	%
Interest Expense	400			386			366			359			339			61			18	%	786			673			113			17	%
Net Interest Income	1,938			1,892			1,892			1,825			1,751			187			11	%	3,830			3,501			329			9	%
Other Income	408			375			401			408			396			12			3	%	783			802			(19		)	(2	%)
Revenue Net of Interest Expense	2,346			2,267			2,293			2,233			2,147			199			9	%	4,613			4,303			310			7	%
Provision for Loan Losses	639			594			579			445			411			228			55	%	1,233			834			399			48	%
Total Other Expense	876			849			846			857			868			8			1	%	1,725			1,719			6			—	%
Income Before Income Taxes		$831			$824			$868			$931			$868			($37	)	(4	%)		$1,655			$1,750			($95	)	(5	%)

Net Interest Margin	10.11		%	10.07		%	10.07		%	10.00		%	9.95		%	16			bps		10.09		%	9.94		%	15			bps
Pretax Return on Loan Receivables	4.34		%	4.39		%	4.62		%	5.10		%	4.93		%	(59		)	bps		4.36		%	4.97		%	(61		)	bps

Allowance for Loan Loss (period end)		$2,377			$2,258			$2,151			$2,007			$1,932			$445		23	%		$2,377			$1,932			$445		23	%
Change in Loan Loss Reserves		$119			$107			$144			$75			$27			$92					$226			$78			$148

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	73			72			65			68			69			4			6	%	145			137			8			6	%
Revenue Net of Interest Expense	73			72			65			68			69			4			6	%	145			137			8			6	%
Provision for Loan Losses	1			(8		)	(1		)	—			1			—			-%		(7		)	2			(9		)	NM
Total Other Expense	36			36			51			38			38			(2		)	(5	%)	72			73			(1		)	(1	%)
Income Before Income Taxes		$36			$44			$15			$30			$30			$6		20	%		$80			$62			$18		29	%

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

DISCOVER FINANCIAL SERVICES

GLOSSARY OF FINANCIAL TERMS

Book Value per share represents total equity divided by ending common shares outstanding

Capital Returned to Common Stockholders represents common stock dividends declared plus treasury share repurchases minus common stock issued under employee benefit plans and stock based compensation

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

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 by ending loans (total or respective loans, as appropriate)

Discover Card Sales Volume represents Discover card activity related to net sales

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

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

Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding

Effective Tax Rate represents tax expense divided by income before income taxes

Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period

Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period

Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments

Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities

Net Interest Margin represents net interest income (annualized) divided by average total loans for the period.

Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period

Operating Efficiency represents total other expense divided by revenue net of interest expense

Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders

Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period

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

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, for a Bank Holding Company to be considered "well-capitalized," total risk-based and tier 1 risk-based capital ratios of 10% and 6% respectively must be maintained. Under Basel III, to meet the regulatory minimum a Bank Holding Company must maintain total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 8%, 6%, 4%, and 4.5% respectively. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III

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

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

Rewards Rate represents rewards cost divided by Discover Card sales volume

Tangible Assets represents total assets less goodwill and intangibles

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

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

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

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

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

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



DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Jun 30, 2016
GAAP Total Common Equity		$10,699			$10,705			$10,763			$10,787			$10,837
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(164		)	(165		)	(166		)	(166		)	(167		)
Tangible Common Equity ¹		$10,280			$10,285			$10,342			$10,366			$10,415

Common Equity Tier 1 Capital (Basel III Transition)		$10,492			$10,501			$10,592			$10,618			$10,677
Adjustments Related To Capital Components During Transition ²	(25		)	(26		)	(52		)	(52		)	(53		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)		$10,467			$10,475			$10,540			$10,566			$10,624

Common Equity Tier 1 Capital Ratio (Basel III Transition)	13.0		%	13.4		%	13.2		%	13.9		%	14.3		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ³	13.0		%	13.4		%	13.2		%	13.8		%	14.2		%

GAAP Book Value Per Share		$30.01			$29.46			$29.13			$28.62			$28.03
Less: Goodwill	(0.68		)	(0.67		)	(0.67		)	(0.64		)	(0.62		)
Less: Intangibles	(0.44		)	(0.43		)	(0.42		)	(0.42		)	(0.41		)
Less: Preferred Stock	(1.49		)	(1.46		)	(1.44		)	(1.41		)	(1.38		)
Tangible Common Equity Per Share		$27.40			$26.90			$26.60			$26.15			$25.62

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 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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