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	a3q17earningspresentatio.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex3q17ex.htm
8-K - 8-K - Discover Financial Services	a3q178k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Nine Months Ended
	Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016					Sep 30, 2017			Sep 30, 2016			2017 vs. 2016
EARNINGS SUMMARY
Interest Income		$2,476			$2,338			$2,278			$2,258			$2,184			$292		13	%		$7,092			$6,358			$734		12	%
Interest Expense	426			400			386			366			359			67			19	%	1,212			1,032			180			17	%
Net Interest Income	2,050			1,938			1,892			1,892			1,825			225			12	%	5,880			5,326			554			10	%
Discount/Interchange Revenue	675			666			596			665			631			44			7	%	1,937			1,832			105			6	%
Rewards Cost	417			388			363			411			368			49			13	%	1,168			1,031			137			13	%
Discount and Interchange Revenue, net	258			278			233			254			263			(5		)	(2	%)	769			801			(32		)	(4	%)
Protection Products Revenue	55			56			58			59			60			(5		)	(8	%)	169			180			(11		)	(6	%)
Loan Fee Income	95			83			89			93			91			4			4	%	267			250			17			7	%
Transaction Processing Revenue	43			42			39			40			40			3			8	%	124			115			9			8	%
Other Income	24			22			28			20			22			2			9	%	74			69			5			7	%
Total Other Income	475			481			447			466			476			(1		)	—	%	1,403			1,415			(12		)	(1	%)

Revenue Net of Interest Expense	2,525			2,419			2,339			2,358			2,301			224			10	%	7,283			6,741			542			8	%

Provision for Loan Losses	674			640			586			578			445			229			51	%	1,900			1,281			619			48	%

Employee Compensation and Benefits	371			367			363			352			342			29			8	%	1,101			1,027			74			7	%
Marketing and Business Development	203			192			168			176			195			8			4	%	563			555			8			1	%
Information Processing & Communications	78			77			80			81			81			(3		)	(4	%)	235			258			(23		)	(9	%)
Professional Fees	163			156			147			152			143			20			14	%	466			453			13			3	%
Premises and Equipment	25			23			25			23			25			—			—	%	73			72			1			1	%
Other Expense	108			97			102			113			109			(1		)	(1	%)	307			322			(15		)	(5	%)
Total Other Expense	948			912			885			897			895			53			6	%	2,745			2,687			58			2	%

Income Before Income Taxes	903			867			868			883			961			(58		)	(6	%)	2,638			2,773			(135		)	(5	%)
Tax Expense	301			321			304			320			322			(21		)	(7	%)	926			943			(17		)	(2	%)
Net Income		$602			$546			$564			$563			$639			($37	)	(6	%)		$1,712			$1,830			($118	)	(6	%)

Net Income Allocated to Common Stockholders		$589			$532			$551			$550			$625			($36	)	(6	%)		$1,672			$1,789			($117	)	(7	%)

Effective Tax Rate	33.3		%	37.1		%	35.0		%	36.3		%	33.5		%						35.1		%	34.0		%

Net Interest Margin	10.28		%	10.11		%	10.07		%	10.07		%	9.99		%	29			bps		10.16		%	9.96		%	20			bps
Operating Efficiency	37.5		%	37.7		%	37.9		%	38.0		%	38.9		%	(140		)	bps		37.7		%	39.9		%	(220		)	bps
ROE	22		%	19		%	20		%	20		%	23		%						20		%	22		%
Capital Returned to Common Stockholders		$667			$547			$620			$581			$689			($22	)	(3	%)		$1,835			$1,725			$110		6	%
Payout Ratio	113		%	103		%	113		%	106		%	110		%						110		%	96		%	1,400			bps

Ending Common Shares Outstanding	366			375			382			389			396			(30		)	(8	%)	366			396			(30		)	(8	%)
Weighted Average Common Shares Outstanding	371			379			386			392			402			(31		)	(8	%)	379			410			(31		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	371			379			386			393			402			(31		)	(8	%)	379			410			(31		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$1.59			$1.41			$1.43			$1.40			$1.56			$0.03		2	%		$4.42			$4.37			$0.05		1	%
Diluted EPS		$1.59			$1.40			$1.43			$1.40			$1.56			$0.03		2	%		$4.42			$4.36			$0.06		1	%
Common Stock Price (period end)		$64.48			$62.19			$68.39			$72.09			$56.55			$7.93		14	%		$64.48			$56.55			$7.93		14	%
Book Value per share		$30.56			$30.01			$29.46			$29.13			$28.62			$1.94		7	%		$30.56			$28.62			$1.94		7	%

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, 2017		Jun 30, 2017		Mar 31, 2017		Dec 31, 2016		Sep 30, 2016		Sep 30, 2017 vs. Sep 30, 2016					Sep 30, 2017		Sep 30, 2016		2017 vs. 2016
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$867		$831		$824		$868		$931		($64	)	(7	%)		$2,522		$2,681		($159	)	(6	%)
Payment Services	36		36		44		15		30		6			20	%	116		92		24			26	%
Total		$903		$867		$868		$883		$961		($58	)	(6	%)		$2,638		$2,773		($135	)	(5	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	579		551		503		566		535		44			8	%	1,633		1,559		74			5	%
PULSE Network	996		961		870		891		871		125			14	%	2,827		2,565		262			10	%
Total	1,575		1,512		1,373		1,457		1,406		169			12	%	4,460		4,124		336			8	%

NETWORK VOLUME
PULSE Network		$39,828		$38,848		$36,066		$35,554		$33,913		$5,915		17	%		$114,742		$102,449		$12,293		12	%
Network Partners	3,811		3,461		3,661		3,235		3,313		498			15	%	10,933		10,598		335			3	%
Diners Club International¹	7,989		7,800		7,382		7,334		7,331		658			9	%	23,171		21,267		1,904			9	%
Total Payment Services	51,628		50,109		47,109		46,123		44,557		7,071			16	%	148,846		134,314		14,532			11	%
Discover Network - Proprietary	33,576		33,342		29,859		34,029		31,759		1,817			6	%	96,777		92,115		4,662			5	%
Total		$85,204		$83,451		$76,968		$80,152		$76,316		$8,888		12	%		$245,623		$226,429		$19,194		8	%


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, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$16,155			$14,722			$17,981			$13,766			$15,728			$427		3	%
Total Loan Receivables	80,443			77,997			75,853			77,254			73,551			6,892			9	%
Allowance for Loan Losses	(2,531		)	(2,384		)	(2,264		)	(2,167		)	(2,024		)	(507		)	(25	%)
Net Loan Receivables	77,912			75,613			73,589			75,087			71,527			6,385			9	%
Premises and Equipment, net	800			774			750			734			722			78			11	%
Goodwill and Intangible Assets, net	418			419			420			421			421			(3		)	(1	%)
Other Assets	2,323			2,229			2,055			2,300			2,143			180			8	%
Total Assets		$97,608			$93,757			$94,795			$92,308			$90,541			$7,067		8	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$38,703			$37,709			$37,094			$36,002			$35,323			$3,380		10	%
Brokered Deposits and Other Deposits	17,432			15,155			16,428			15,990			13,922			3,510			25	%
Deposits	56,135			52,864			53,522			51,992			49,245			6,890			14	%
Borrowings	26,737			26,438			26,823			25,443			26,830			(93		)	—	%
Accrued Expenses and Other Liabilities	3,549			3,196			3,185			3,550			3,119			430			14	%
Total Liabilities	86,421			82,498			83,530			80,985			79,194			7,227			9	%
Total Equity	11,187			11,259			11,265			11,323			11,347			(160		)	(1	%)
Total Liabilities and Stockholders' Equity		$97,608			$93,757			$94,795			$92,308			$90,541			$7,067		8	%

LIQUIDITY
Liquidity Portfolio		$13,906			$13,865			$16,213			$12,635			$14,017		(111		)	(1	%)
Undrawn Credit Facilities ¹	33,696			31,877			30,823			30,194			29,048			4,648			16	%
Total Liquidity		$47,602			$45,742			$47,036			$42,829			$43,065		4,537			11	%


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, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016
BALANCE SHEET STATISTICS
Total Common Equity		$10,627			$10,699			$10,705			$10,763			$10,787			($160	)	(1	%)
Total Common Equity/Total Assets	10.9		%	11.4		%	11.3		%	11.7		%	11.9		%
Total Common Equity/Net Loans	13.6		%	14.2		%	14.5		%	14.3		%	15.1		%

Tangible Assets		$97,190			$93,338			$94,375			$91,887			$90,120			$7,070		8	%
Tangible Common Equity ¹		$10,209			$10,280			$10,285			$10,342			$10,366			($157	)	(2	%)
Tangible Common Equity/Tangible Assets ¹	10.5		%	11.0		%	10.9		%	11.3		%	11.5		%
Tangible Common Equity/Net Loans ¹	13.1		%	13.6		%	14.0		%	13.8		%	14.5		%
Tangible Common Equity per share¹		$27.89			$27.40			$26.90			$26.60			$26.15			$1.74		7	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	14.7		%	15.2		%	15.7		%	15.5		%	16.3		%
Tier 1 Risk Based Capital Ratio	13.2		%	13.7		%	14.1		%	13.9		%	14.6		%
Tier 1 Leverage Ratio	11.4		%	11.8		%	11.8		%	12.3		%	12.6		%
Common Equity Tier 1 Capital Ratio	12.5		%	13.0		%	13.4		%	13.2		%	13.9		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	12.5		%	13.0		%	13.4		%	13.2		%	13.8		%

RATIO OF EARNINGS TO FIXED CHARGES
Ratio of Earnings to Fixed Charges ^{3, 4}	3.2			3.2			3.3			3.6			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 nine months ended September 30, 2017, the six months ended June 30, 2017, the three months ended March 31, 2017, the twelve months ended December 31, 2016 and the nine months ended September 30, 2016

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016
AVERAGE BALANCES
Assets
Cash and Investment Securities		$14,547			$14,616			$15,424			$13,567			$13,761			$786		6	%
Restricted Cash	848			559			819			473			621			227			37	%
Credit Card Loans	62,647			60,700			60,122			59,121			57,561			5,086			9	%
Private Student Loans	8,986			9,020			9,197			8,954			8,795			191			2	%
Personal Loans	7,208			6,820			6,582			6,425			6,036			1,172			19	%
Other Loans	348			314			284			275			276			72			26	%
Total Loans	79,189			76,854			76,185			74,775			72,668			6,521			9	%
Total Interest Earning Assets	94,584			92,029			92,428			88,815			87,050			7,534			9	%
Allowance for Loan Losses	(2,379		)	(2,262		)	(2,166		)	(2,021		)	(1,947		)	(432		)	(22	%)
Other Assets	4,192			4,147			4,166			4,162			4,282			(90		)	(2	%)
Total Assets		$96,397			$93,914			$94,428			$90,956			$89,385			$7,012		8	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$37,900			$36,956			$36,316			$35,396			$34,488			$3,412		10	%
Brokered Deposits and Other Deposits	16,192			15,600			16,242			14,355			14,267			1,925			13	%
Total Interest-bearing Deposits	54,092			52,556			52,558			49,751			48,755			5,337			11	%
Short-term Borrowings	1			2			1			1			2			(1		)	(50	%)
Securitized Borrowings	17,206			16,141			16,960			16,817			16,736			470			3	%
Other Long-term Borrowings	9,721			9,979			9,600			9,042			8,746			975			11	%
Total Interest-bearing Liabilities	81,020			78,678			79,119			75,611			74,239			6,781			9	%
Other Liabilities & Stockholders' Equity	15,377			15,236			15,309			15,345			15,146			231			2	%
Total Liabilities and Stockholders' Equity		$96,397			$93,914			$94,428			$90,956			$89,385			$7,012		8	%

AVERAGE RATES
Assets
Cash and Investment Securities	1.31		%	1.12		%	0.90		%	0.72		%	0.70		%	61			bps
Restricted Cash	1.15		%	0.89		%	0.70		%	0.37		%	0.32		%	83			bps
Credit Card Loans	12.83		%	12.66		%	12.65		%	12.62		%	12.53		%	30			bps
Private Student Loans	7.56		%	7.45		%	7.29		%	7.06		%	7.13		%	43			bps
Personal Loans	12.33		%	12.22		%	12.18		%	12.09		%	12.23		%	10			bps
Other Loans	5.56		%	5.59		%	5.39		%	4.88		%	4.96		%	60			bps
Total Loans	12.15		%	11.98		%	11.94		%	11.88		%	11.82		%	33			bps
Total Interest Earning Assets	10.39		%	10.19		%	9.99		%	10.12		%	9.98		%	41			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.37		%	1.29		%	1.25		%	1.26		%	1.26		%	11			bps
Brokered Deposits and Other Deposits	2.12		%	2.07		%	1.98		%	1.93		%	1.90		%	22			bps
Total Interest-bearing Deposits	1.59		%	1.52		%	1.48		%	1.45		%	1.45		%	14			bps
Short-term Borrowings	1.33		%	1.06		%	0.67		%	0.60		%	0.62		%	71			bps
Securitized Borrowings	2.37		%	2.31		%	2.17		%	2.09		%	2.07		%	30			bps
Other Long-term Borrowings	4.30		%	4.36		%	4.38		%	4.26		%	4.27		%	3			bps
Total Interest-bearing Liabilities	2.08		%	2.04		%	1.98		%	1.93		%	1.92		%	16			bps

Net Interest Margin	10.28		%	10.11		%	10.07		%	10.07		%	9.99		%	29			bps
Net Yield on Interest-earning Assets	8.60		%	8.44		%	8.30		%	8.47		%	8.34		%	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, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016				Sep 30, 2017			Sep 30, 2016			2017 vs. 2016
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$80,443			$77,997			$75,853			$77,254			$73,551			$6,892	9	%		$80,443			$73,551			$6,892	9	%
Average Loans ^{1, 2}		$79,189			$76,854			$76,185			$74,775			$72,668			$6,521	9	%		$77,420			$71,442			$5,978	8	%

Interest Yield	12.15		%	11.98		%	11.94		%	11.88		%	11.82		%	33		bps		12.03		%	11.75		%	28		bps
Gross Principal Charge-off Rate	3.26		%	3.36		%	3.25		%	2.91		%	2.66		%	60		bps		3.29		%	2.78		%	51		bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.35		%	3.47		%	3.37		%	3.02		%	2.77		%	58		bps		3.40		%	2.89		%	51		bps
Net Principal Charge-off Rate	2.63		%	2.71		%	2.60		%	2.31		%	2.02		%	61		bps		2.65		%	2.10		%	55		bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.71		%	2.79		%	2.69		%	2.39		%	2.10		%	61		bps		2.73		%	2.19		%	54		bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	2.05		%	1.93		%	1.97		%	1.97		%	1.79		%	26		bps		2.05		%	1.79		%	26		bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.91		%	0.88		%	0.92		%	0.87		%	0.77		%	14		bps		0.91		%	0.77		%	14		bps
Gross Principal Charge-off Dollars		$651			$645			$611			$548			$488			$163	33	%		$1,907			$1,486			$421	28	%
Net Principal Charge-off Dollars		$527			$520			$489			$435			$370			$157	42	%		$1,536			$1,126			$410	36	%
Net Interest and Fee Charge-off Dollars		$107			$110			$106			$94			$80			$27	34	%		$323			$250			$73	29	%
Loans Delinquent Over 30 Days ³		$1,605			$1,457			$1,445			$1,469			$1,269			$336	26	%		$1,605			$1,269			$336	26	%
Loans Delinquent Over 90 Days ³		$709			$667			$675			$652			$545			$164	30	%		$709			$545			$164	30	%

Allowance for Loan Loss (period end)		$2,531			$2,384			$2,264			$2,167			$2,024			$507	25	%		$2,531			$2,024			$507	25	%
Change in Loan Loss Reserves		$147			$120			$97			$143			$75			$72				$364			$155			$209
Reserve Rate	3.15		%	3.06		%	2.98		%	2.80		%	2.75		%	40		bps		3.15		%	2.75		%	40		bps
Reserve Rate Excluding PCI Loans ³	3.20		%	3.11		%	3.04		%	2.86		%	2.81		%	39		bps		3.20		%	2.81		%	39		bps

CREDIT CARD LOANS
Ending Loans		$63,475			$61,797			$59,757			$61,522			$58,006			$5,469	9	%		$63,475			$58,006			$5,469	9	%
Average Loans		$62,647			$60,700			$60,122			$59,121			$57,561			$5,086	9	%		$61,165			$56,606			$4,559	8	%

Interest Yield	12.83		%	12.66		%	12.65		%	12.62		%	12.53		%	30		bps		12.72		%	12.46		%	26		bps
Gross Principal Charge-off Rate	3.53		%	3.71		%	3.61		%	3.19		%	2.93		%	60		bps		3.61		%	3.09		%	52		bps
Net Principal Charge-off Rate	2.80		%	2.94		%	2.84		%	2.47		%	2.17		%	63		bps		2.86		%	2.30		%	56		bps
Delinquency Rate (over 30 days)	2.14		%	2.00		%	2.06		%	2.04		%	1.87		%	27		bps		2.14		%	1.87		%	27		bps
Delinquency Rate (over 90 days)	1.02		%	0.98		%	1.03		%	0.97		%	0.86		%	16		bps		1.02		%	0.86		%	16		bps
Gross Principal Charge-off Dollars		$555			$561			$535			$474			$425			$130	31	%		$1,651			$1,312			$339	26	%
Net Principal Charge-off Dollars		$439			$445			$422			$369			$314			$125	40	%		$1,306			$974			$332	34	%
Loans Delinquent Over 30 Days		$1,359			$1,237			$1,233			$1,252			$1,086			$273	25	%		$1,359			$1,086			$273	25	%
Loans Delinquent Over 90 Days		$646			$603			$616			$597			$500			$146	29	%		$646			$500			$146	29	%

Allowance for Loan Loss (period end)		$2,091			$1,980			$1,892			$1,790			$1,661			$430	26	%		$2,091			$1,661			$430	26	%
Change in Loan Loss Reserves		$111			$88			$102			$129			$58			$53				$301			$107			$194
Reserve Rate	3.29		%	3.21		%	3.17		%	2.91		%	2.86		%	43		bps		3.29		%	2.86		%	43		bps

Total Discover Card Volume		$35,581			$35,297			$32,406			$35,440			$33,471			$2,110	6	%		$103,284			$96,884			$6,400	7	%
Discover Card Sales Volume		$32,161			$32,172			$29,134			$32,486			$30,683			$1,478	5	%		$93,467			$88,937			$4,530	5	%
Rewards Rate	1.30		%	1.20		%	1.25		%	1.26		%	1.20		%	10		bps		1.25		%	1.16		%	9		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, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016					Sep 30, 2017			Sep 30, 2016			2017 vs. 2016
PRIVATE STUDENT LOANS
Ending Loans		$9,200			$8,916			$9,138			$8,977			$8,995			$205		2	%		$9,200			$8,995			$205		2	%
Ending PCI Loans ¹		$2,202			$2,322			$2,449			$2,584			$2,708			($506	)	(19	%)		$2,202			$2,708			($506	)	(19	%)

Interest Yield	7.56		%	7.45		%	7.29		%	7.06		%	7.13		%	43			bps		7.43		%	7.09		%	34			bps
Net Principal Charge-off Rate	1.14		%	0.85		%	0.60		%	1.00		%	0.70		%	44			bps		0.86		%	0.67		%	19			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.52		%	1.15		%	0.83		%	1.42		%	1.02		%	50			bps		1.17		%	0.99		%	18			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	2.14		%	2.12		%	2.04		%	2.22		%	1.87		%	27			bps		2.14		%	1.87		%	27			bps

Reserve Rate	1.77		%	1.78		%	1.70		%	1.74		%	1.74		%	3			bps		1.77		%	1.74		%	3			bps
Reserve Rate excluding PCI Loans ²	1.89		%	1.91		%	1.80		%	1.91		%	1.92		%	(3		)	bps		1.89		%	1.92		%	(3		)	bps

PERSONAL LOANS
Ending Loans		$7,397			$6,955			$6,663			$6,481			$6,273			$1,124		18	%		$7,397			$6,273			$1,124		18	%

Interest Yield	12.33		%	12.22		%	12.18		%	12.09		%	12.23		%	10			bps		12.24		%	12.23		%	1			bps
Net Principal Charge-off Rate	3.19		%	3.18		%	3.16		%	2.70		%	2.63		%	56			bps		3.18		%	2.49		%	69			bps
Delinquency Rate (over 30 days)	1.27		%	1.14		%	1.12		%	1.12		%	0.98		%	29			bps		1.27		%	0.98		%	29			bps

Reserve Rate	3.63		%	3.38		%	3.10		%	3.09		%	2.98		%	65			bps		3.63		%	2.98		%	65			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, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016			Sep 30, 2017 vs. Sep 30, 2016					Sep 30, 2017			Sep 30, 2016			2017 vs. 2016
DIRECT BANKING
Interest Income		$2,476			$2,338			$2,278			$2,258			$2,184			$292		13	%		$7,092			$6,358			$734		12	%
Interest Expense	426			400			386			366			359			67			19	%	1,212			1,032			180			17	%
Net Interest Income	2,050			1,938			1,892			1,892			1,825			225			12	%	5,880			5,326			554			10	%
Other Income	401			408			375			401			408			(7		)	(2	%)	1,184			1,210			(26		)	(2	%)
Revenue Net of Interest Expense	2,451			2,346			2,267			2,293			2,233			218			10	%	7,064			6,536			528			8	%
Provision for Loan Losses	675			639			594			579			445			230			52	%	1,908			1,279			629			49	%
Total Other Expense	909			876			849			846			857			52			6	%	2,634			2,576			58			2	%
Income Before Income Taxes		$867			$831			$824			$868			$931			($64	)	(7	%)		$2,522			$2,681			($159	)	(6	%)

Net Interest Margin	10.28		%	10.11		%	10.07		%	10.07		%	10.00		%	28			bps		10.16		%	9.96		%	20			bps
Pretax Return on Loan Receivables	4.35		%	4.34		%	4.39		%	4.62		%	5.10		%	(75		)	bps		4.36		%	5.01		%	(65		)	bps

Allowance for Loan Loss (period end)		$2,525			$2,377			$2,258			$2,151			$2,007			$518		26	%		$2,525			$2,007			$518		26	%
Change in Loan Loss Reserves		$148			$119			$107			$144			$75			$73					$374			$154			$220

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	74			73			72			65			68			6			9	%	219			205			14			7	%
Revenue Net of Interest Expense	74			73			72			65			68			6			9	%	219			205			14			7	%
Provision for Loan Losses	(1		)	1			(8		)	(1		)	—			(1		)	NM		(8		)	2			(10		)	NM
Total Other Expense	39			36			36			51			38			1			3	%	111			111			—			—	%
Income Before Income Taxes		$36			$36			$44			$15			$30			$6		20	%		$116			$92			$24		26	%

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
	Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Sep 30, 2016
GAAP Total Common Equity		$10,627			$10,699			$10,705			$10,763			$10,787
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(163		)	(164		)	(165		)	(166		)	(166		)
Tangible Common Equity ¹		$10,209			$10,280			$10,285			$10,342			$10,366

Common Equity Tier 1 Capital (Basel III Transition)		$10,419			$10,492			$10,501			$10,592			$10,618
Adjustments Related To Capital Components During Transition ²	(25		)	(25		)	(26		)	(52		)	(52		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)		$10,394			$10,467			$10,475			$10,540			$10,566

Common Equity Tier 1 Capital Ratio (Basel III Transition)	12.5		%	13.0		%	13.4		%	13.2		%	13.9		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ³	12.5		%	13.0		%	13.4		%	13.2		%	13.8		%

GAAP Book Value Per Share		$30.56			$30.01			$29.46			$29.13			$28.62
Less: Goodwill	(0.69		)	(0.68		)	(0.67		)	(0.67		)	(0.64		)
Less: Intangibles	(0.45		)	(0.44		)	(0.43		)	(0.42		)	(0.42		)
Less: Preferred Stock	(1.53		)	(1.49		)	(1.46		)	(1.44		)	(1.41		)
Tangible Common Equity Per Share		$27.89			$27.40			$26.90			$26.60			$26.15

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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