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	a4q17earningspresentatio.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex4q17ex.htm
8-K - 8-K - Discover Financial Services	a4q178k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016					Dec 31, 2017			Dec 31, 2016			2017 vs. 2016
EARNINGS SUMMARY
Interest Income		$2,556			$2,476			$2,338			$2,278			$2,258			$298		13	%		$9,648			$8,616			$1,032		12	%
Interest Expense	436			426			400			386			366			70			19	%	1,648			1,398			250			18	%
Net Interest Income	2,120			2,050			1,938			1,892			1,892			228			12	%	8,000			7,218			782			11	%
Discount/Interchange Revenue	717			675			666			596			665			52			8	%	2,654			2,497			157			6	%
Rewards Cost	434			417			388			363			411			23			6	%	1,602			1,442			160			11	%
Discount and Interchange Revenue, net	283			258			278			233			254			29			11	%	1,052			1,055			(3		)	—	%
Protection Products Revenue	54			55			56			58			59			(5		)	(8	%)	223			239			(16		)	(7	%)
Loan Fee Income	96			95			83			89			93			3			3	%	363			343			20			6	%
Transaction Processing Revenue	43			43			42			39			40			3			8	%	167			155			12			8	%
Other Income	18			24			22			28			20			(2		)	(10	%)	92			89			3			3	%
Total Other Income	494			475			481			447			466			28			6	%	1,897			1,881			16			1	%

Revenue Net of Interest Expense	2,614			2,525			2,419			2,339			2,358			256			11	%	9,897			9,099			798			9	%

Provision for Loan Losses	679			674			640			586			578			101			17	%	2,579			1,859			720			39	%

Employee Compensation and Benefits	411			371			367			363			352			59			17	%	1,512			1,379			133			10	%
Marketing and Business Development	213			203			192			168			176			37			21	%	776			731			45			6	%
Information Processing & Communications	80			78			77			80			81			(1		)	(1	%)	315			339			(24		)	(7	%)
Professional Fees	189			163			156			147			152			37			24	%	655			605			50			8	%
Premises and Equipment	26			25			23			25			23			3			13	%	99			95			4			4	%
Other Expense	117			108			97			102			113			4			4	%	424			435			(11		)	(3	%)
Total Other Expense	1,036			948			912			885			897			139			15	%	3,781			3,584			197			5	%

Income Before Income Taxes	899			903			867			868			883			16			2	%	3,537			3,656			(119		)	(3	%)
Tax Expense	512			301			321			304			320			192			60	%	1,438			1,263			175			14	%
Net Income		$387			$602			$546			$564			$563			($176	)	(31	%)		$2,099			$2,393			($294	)	(12	%)

Net Income Allocated to Common Stockholders		$359			$589			$532			$551			$550			($191	)	(35	%)		$2,031			$2,339			($308	)	(13	%)

Effective Tax Rate	57.0		%	33.3		%	37.1		%	35.0		%	36.3		%						40.7		%	34.5		%

Net Interest Margin	10.28		%	10.28		%	10.11		%	10.07		%	10.07		%	21			bps		10.19		%	9.99		%	20			bps
Operating Efficiency	39.7		%	37.5		%	37.7		%	37.9		%	38.0		%	170			bps		38.2		%	39.4		%	(120		)	bps
ROE	14		%	22		%	19		%	20		%	20		%						19		%	21		%
Capital Returned to Common Stockholders		$657			$667			$547			$620			$581			$76		13	%		$2,491			$2,306			$185		8	%
Payout Ratio	183		%	113		%	103		%	113		%	106		%						123		%	99		%	2,400			bps

Ending Common Shares Outstanding	358			366			375			382			389			(31		)	(8	%)	358			389			(31		)	(8	%)
Weighted Average Common Shares Outstanding	362			371			379			386			392			(30		)	(8	%)	374			405			(31		)	(8	%)
Weighted Average Common Shares Outstanding (fully diluted)	362			371			379			386			393			(31		)	(8	%)	374			406			(32		)	(8	%)

PER SHARE STATISTICS
Basic EPS		$0.99			$1.59			$1.41			$1.43			$1.40			($0.41	)	(29	%)		$5.43			$5.77			($0.34	)	(6	%)
Diluted EPS		$0.99			$1.59			$1.40			$1.43			$1.40			($0.41	)	(29	%)		$5.42			$5.77			($0.35	)	(6	%)
Common Stock Price (period end)		$76.92			$64.48			$62.19			$68.39			$72.09			$4.83		7	%		$76.92			$72.09			$4.83		7	%
Book Value per share		$30.43			$30.56			$30.01			$29.46			$29.13			$1.30		4	%		$30.43			$29.13			$1.30		4	%

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, 2017		Sep 30, 2017		Jun 30, 2017		Mar 31, 2017		Dec 31, 2016		Dec 31, 2017 vs. Dec 31, 2016				Dec 31, 2017		Dec 31, 2016		2017 vs. 2016
SEGMENT- INCOME BEFORE INCOME TAXES
Direct Banking		$870		$867		$831		$824		$868		$2	—	%		$3,392		$3,549		($157	)	(4	%)
Payment Services	29		36		36		44		15		14		93	%	145		107		38			36	%
Total		$899		$903		$867		$868		$883		$16	2	%		$3,537		$3,656		($119	)	(3	%)

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	607		579		551		503		566		41		7	%	2,240		2,125		115			5	%
PULSE Network	1,029		996		961		870		891		138		15	%	3,856		3,456		400			12	%
Total	1,636		1,575		1,512		1,373		1,457		179		12	%	6,096		5,581		515			9	%

NETWORK VOLUME
PULSE Network		$42,386		$39,828		$38,848		$36,066		$35,554		$6,832	19	%		$157,128		$138,003		$19,125		14	%
Network Partners	3,280		3,811		3,461		3,661		3,235		45		1	%	14,213		13,833		380			3	%
Diners Club International¹	8,373		7,989		7,800		7,382		7,334		1,039		14	%	31,544		28,601		2,943			10	%
Total Payment Services	54,039		51,628		50,109		47,109		46,123		7,916		17	%	202,885		180,437		22,448			12	%
Discover Network - Proprietary	36,267		33,576		33,342		29,859		34,029		2,238		7	%	133,044		126,144		6,900			5	%
Total		$90,306		$85,204		$83,451		$76,968		$80,152		$10,154	13	%		$335,929		$306,581		$29,348		10	%


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, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$14,955			$16,155			$14,722			$17,981			$13,766			$1,189		9	%
Total Loan Receivables	84,248			80,443			77,997			75,853			77,254			6,994			9	%
Allowance for Loan Losses	(2,621		)	(2,531		)	(2,384		)	(2,264		)	(2,167		)	(454		)	(21	%)
Net Loan Receivables	81,627			77,912			75,613			73,589			75,087			6,540			9	%
Premises and Equipment, net	825			800			774			750			734			91			12	%
Goodwill and Intangible Assets, net	418			418			419			420			421			(3		)	(1	%)
Other Assets	2,262			2,323			2,229			2,055			2,300			(38		)	(2	%)
Total Assets		$100,087			$97,608			$93,757			$94,795			$92,308			$7,779		8	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$39,367			$38,703			$37,709			$37,094			$36,002			$3,365		9	%
Brokered Deposits and Other Deposits	19,397			17,432			15,155			16,428			15,990			3,407			21	%
Deposits	58,764			56,135			52,864			53,522			51,992			6,772			13	%
Borrowings	26,326			26,737			26,438			26,823			25,443			883			3	%
Accrued Expenses and Other Liabilities	4,105			3,549			3,196			3,185			3,550			555			16	%
Total Liabilities	89,195			86,421			82,498			83,530			80,985			8,210			10	%
Total Equity	10,892			11,187			11,259			11,265			11,323			(431		)	(4	%)
Total Liabilities and Stockholders' Equity		$100,087			$97,608			$93,757			$94,795			$92,308			$7,779		8	%

LIQUIDITY
Liquidity Portfolio		$13,560			$13,906			$13,865			$16,213			$12,635		925			7	%
Undrawn Credit Facilities ¹	35,153			33,696			31,877			30,823			30,194			4,959			16	%
Total Liquidity		$48,713			$47,602			$45,742			$47,036			$42,829			$5,884		14	%


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, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016
BALANCE SHEET STATISTICS
Total Common Equity		$10,329			$10,627			$10,699			$10,705			$10,763			($434	)	(4	%)
Total Common Equity/Total Assets	10.3		%	10.9		%	11.4		%	11.3		%	11.7		%
Total Common Equity/Net Loans	12.7		%	13.6		%	14.2		%	14.5		%	14.3		%

Tangible Assets		$99,669			$97,190			$93,338			$94,375			$91,887			$7,782		8	%
Tangible Common Equity ¹		$9,911			$10,209			$10,280			$10,285			$10,342			($431	)	(4	%)
Tangible Common Equity/Tangible Assets ¹	9.9		%	10.5		%	11.0		%	10.9		%	11.3		%
Tangible Common Equity/Net Loans ¹	12.1		%	13.1		%	13.6		%	14.0		%	13.8		%
Tangible Common Equity per share¹		$27.69			$27.89			$27.40			$26.90			$26.60			$1.09		4	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	13.8		%	14.7		%	15.2		%	15.7		%	15.5		%
Tier 1 Risk Based Capital Ratio	12.3		%	13.2		%	13.7		%	14.1		%	13.9		%
Tier 1 Leverage Ratio	10.8		%	11.4		%	11.8		%	11.8		%	12.3		%
Common Equity Tier 1 Capital Ratio	11.6		%	12.5		%	13.0		%	13.4		%	13.2		%
	Basel III Fully Phased-in
Common Equity Tier 1 Capital Ratio²	11.6		%	12.5		%	13.0		%	13.4		%	13.2		%

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

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

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



DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016
AVERAGE BALANCES
Assets
Cash and Investment Securities		$15,290			$14,547			$14,616			$15,424			$13,567			$1,723		13	%
Restricted Cash	276			848			559			819			473			(197		)	(42	%)
Credit Card Loans	64,791			62,647			60,700			60,122			59,121			5,670			10	%
Private Student Loans	9,158			8,986			9,020			9,197			8,954			204			2	%
Personal Loans	7,455			7,208			6,820			6,582			6,425			1,030			16	%
Other Loans	398			348			314			284			275			123			45	%
Total Loans	81,802			79,189			76,854			76,185			74,775			7,027			9	%
Total Interest Earning Assets	97,368			94,584			92,029			92,428			88,815			8,553			10	%
Allowance for Loan Losses	(2,530		)	(2,379		)	(2,262		)	(2,166		)	(2,021		)	(509		)	(25	%)
Other Assets	4,252			4,192			4,147			4,166			4,162			90			2	%
Total Assets		$99,090			$96,397			$93,914			$94,428			$90,956			$8,134		9	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$38,807			$37,900			$36,956			$36,316			$35,396			$3,411		10	%
Brokered Deposits and Other Deposits	18,244			16,192			15,600			16,242			14,355			3,889			27	%
Total Interest-bearing Deposits	57,051			54,092			52,556			52,558			49,751			7,300			15	%
Short-term Borrowings	2			1			2			1			1			1			100	%
Securitized Borrowings	16,676			17,206			16,141			16,960			16,817			(141		)	(1	%)
Other Long-term Borrowings	9,768			9,721			9,979			9,600			9,042			726			8	%
Total Interest-bearing Liabilities	83,497			81,020			78,678			79,119			75,611			7,886			10	%
Other Liabilities & Stockholders' Equity	15,593			15,377			15,236			15,309			15,345			248			2	%
Total Liabilities and Stockholders' Equity		$99,090			$96,397			$93,914			$94,428			$90,956			$8,134		9	%

AVERAGE RATES
Assets
Cash and Investment Securities	1.34		%	1.31		%	1.12		%	0.90		%	0.72		%	62			bps
Restricted Cash	1.34		%	1.15		%	0.89		%	0.70		%	0.37		%	97			bps
Credit Card Loans	12.79		%	12.83		%	12.66		%	12.65		%	12.62		%	17			bps
Private Student Loans	7.69		%	7.56		%	7.45		%	7.29		%	7.06		%	63			bps
Personal Loans	12.27		%	12.33		%	12.22		%	12.18		%	12.09		%	18			bps
Other Loans	5.66		%	5.56		%	5.59		%	5.39		%	4.88		%	78			bps
Total Loans	12.14		%	12.15		%	11.98		%	11.94		%	11.88		%	26			bps
Total Interest Earning Assets	10.41		%	10.39		%	10.19		%	9.99		%	10.12		%	29			bps

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	1.44		%	1.37		%	1.29		%	1.25		%	1.26		%	18			bps
Brokered Deposits and Other Deposits	2.12		%	2.12		%	2.07		%	1.98		%	1.93		%	19			bps
Total Interest-bearing Deposits	1.65		%	1.59		%	1.52		%	1.48		%	1.45		%	20			bps
Short-term Borrowings	1.31		%	1.33		%	1.06		%	0.67		%	0.60		%	71			bps
Securitized Borrowings	2.19		%	2.37		%	2.31		%	2.17		%	2.09		%	10			bps
Other Long-term Borrowings	4.30		%	4.30		%	4.36		%	4.38		%	4.26		%	4			bps
Total Interest-bearing Liabilities	2.07		%	2.08		%	2.04		%	1.98		%	1.93		%	14			bps

Net Interest Margin	10.28		%	10.28		%	10.11		%	10.07		%	10.07		%	21			bps
Net Yield on Interest-earning Assets	8.64		%	8.60		%	8.44		%	8.30		%	8.47		%	17			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, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016					Dec 31, 2017			Dec 31, 2016			2017 vs. 2016
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$84,248			$80,443			$77,997			$75,853			$77,254			$6,994		9	%		$84,248			$77,254			$6,994	9	%
Average Loans ^{1, 2}		$81,802			$79,189			$76,854			$76,185			$74,775			$7,027		9	%		$78,525			$72,280			$6,245	9	%

Interest Yield	12.14		%	12.15		%	11.98		%	11.94		%	11.88		%	26			bps		12.06		%	11.78		%	28		bps
Gross Principal Charge-off Rate	3.45		%	3.26		%	3.36		%	3.25		%	2.91		%	54			bps		3.33		%	2.81		%	52		bps
Gross Principal Charge-off Rate excluding PCI Loans³	3.54		%	3.35		%	3.47		%	3.37		%	3.02		%	52			bps		3.43		%	2.93		%	50		bps
Net Principal Charge-off Rate	2.85		%	2.63		%	2.71		%	2.60		%	2.31		%	54			bps		2.70		%	2.16		%	54		bps
Net Principal Charge-off Rate excluding PCI Loans ³	2.92		%	2.71		%	2.79		%	2.69		%	2.39		%	53			bps		2.78		%	2.24		%	54		bps
Delinquency Rate (over 30 days) excluding PCI Loans ³	2.20		%	2.05		%	1.93		%	1.97		%	1.97		%	23			bps		2.20		%	1.97		%	23		bps
Delinquency Rate (over 90 days) excluding PCI Loans ³	0.99		%	0.91		%	0.88		%	0.92		%	0.87		%	12			bps		0.99		%	0.87		%	12		bps
Gross Principal Charge-off Dollars		$711			$651			$645			$611			$548			$163		30	%		$2,618			$2,034			$584	29	%
Net Principal Charge-off Dollars		$583			$527			$520			$489			$435			$148		34	%		$2,119			$1,561			$558	36	%
Net Interest and Fee Charge-off Dollars		$119			$107			$110			$106			$94			$25		27	%		$442			$344			$98	28	%
Loans Delinquent Over 30 Days ³		$1,806			$1,605			$1,457			$1,445			$1,469			$337		23	%		$1,806			$1,469			$337	23	%
Loans Delinquent Over 90 Days ³		$815			$709			$667			$675			$652			$163		25	%		$815			$652			$163	25	%

Allowance for Loan Loss (period end)		$2,621			$2,531			$2,384			$2,264			$2,167			$454		21	%		$2,621			$2,167			$454	21	%
Reserve Change Build/ (Release) ⁴		$96			$147			$120			$97			$143			($47	)				$460			$298			$162
Reserve Rate	3.11		%	3.15		%	3.06		%	2.98		%	2.80		%	31			bps		3.11		%	2.80		%	31		bps
Reserve Rate Excluding PCI Loans ³	3.15		%	3.20		%	3.11		%	3.04		%	2.86		%	29			bps		3.15		%	2.86		%	29		bps

CREDIT CARD LOANS
Ending Loans		$67,291			$63,475			$61,797			$59,757			$61,522			$5,769		9	%		$67,291			$61,522			$5,769	9	%
Average Loans		$64,791			$62,647			$60,700			$60,122			$59,121			$5,670		10	%		$62,079			$57,238			$4,841	8	%

Interest Yield	12.79		%	12.83		%	12.66		%	12.65		%	12.62		%	17			bps		12.74		%	12.50		%	24		bps
Gross Principal Charge-off Rate	3.73		%	3.53		%	3.71		%	3.61		%	3.19		%	54			bps		3.65		%	3.12		%	53		bps
Net Principal Charge-off Rate	3.03		%	2.80		%	2.94		%	2.84		%	2.47		%	56			bps		2.91		%	2.34		%	57		bps
Delinquency Rate (over 30 days)	2.28		%	2.14		%	2.00		%	2.06		%	2.04		%	24			bps		2.28		%	2.04		%	24		bps
Delinquency Rate (over 90 days)	1.12		%	1.02		%	0.98		%	1.03		%	0.97		%	15			bps		1.12		%	0.97		%	15		bps
Gross Principal Charge-off Dollars		$612			$555			$561			$535			$474			$138		29	%		$2,263			$1,786			$477	27	%
Net Principal Charge-off Dollars		$496			$439			$445			$422			$369			$127		34	%		$1,802			$1,343			$459	34	%
Loans Delinquent Over 30 Days		$1,532			$1,359			$1,237			$1,233			$1,252			$280		22	%		$1,532			$1,252			$280	22	%
Loans Delinquent Over 90 Days		$751			$646			$603			$616			$597			$154		26	%		$751			$597			$154	26	%

Allowance for Loan Loss (period end)		$2,147			$2,091			$1,980			$1,892			$1,790			$357		20	%		$2,147			$1,790			$357	20	%
Reserve Change Build/ (Release)		$56			$111			$88			$102			$129			($73	)				$357			$236			$121
Reserve Rate	3.19		%	3.29		%	3.21		%	3.17		%	2.91		%	28			bps		3.19		%	2.91		%	28		bps

Total Discover Card Volume		$38,574			$35,581			$35,297			$32,406			$35,440			$3,134		9	%		$141,858			$132,324			$9,534	7	%
Discover Card Sales Volume		$35,339			$32,161			$32,172			$29,134			$32,486			$2,853		9	%		$128,806			$121,423			$7,383	6	%
Rewards Rate	1.23		%	1.30		%	1.20		%	1.25		%	1.26		%	(3		)	bps		1.24		%	1.19		%	5		bps
1 Total 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

4 Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses

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, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016					Dec 31, 2017			Dec 31, 2016			2017 vs. 2016
PRIVATE STUDENT LOANS
Ending Loans		$9,160			$9,200			$8,916			$9,138			$8,977			$183		2	%		$9,160			$8,977			$183		2	%
Ending PCI Loans ¹		$2,084			$2,202			$2,322			$2,449			$2,584			($500	)	(19	%)		$2,084			$2,584			($500	)	(19	%)

Interest Yield	7.69		%	7.56		%	7.45		%	7.29		%	7.06		%	63			bps		7.50		%	7.09		%	41			bps
Net Principal Charge-off Rate	1.03		%	1.14		%	0.85		%	0.60		%	1.00		%	3			bps		0.90		%	0.75		%	15			bps
Net Principal Charge-off Rate excluding PCI Loans²	1.34		%	1.52		%	1.15		%	0.83		%	1.42		%	(8		)	bps		1.21		%	1.10		%	11			bps
Delinquency Rate (over 30 days) excluding PCI Loans ²	2.35		%	2.14		%	2.12		%	2.04		%	2.22		%	13			bps		2.35		%	2.22		%	13			bps

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

PERSONAL LOANS
Ending Loans		$7,374			$7,397			$6,955			$6,663			$6,481			$893		14	%		$7,374			$6,481			$893		14	%

Interest Yield	12.27		%	12.33		%	12.22		%	12.18		%	12.09		%	18			bps		12.25		%	12.19		%	6			bps
Net Principal Charge-off Rate	3.62		%	3.19		%	3.18		%	3.16		%	2.70		%	92			bps		3.30		%	2.55		%	75			bps
Delinquency Rate (over 30 days)	1.40		%	1.27		%	1.14		%	1.12		%	1.12		%	28			bps		1.40		%	1.12		%	28			bps

Reserve Rate	4.08		%	3.63		%	3.38		%	3.10		%	3.09		%	99			bps		4.08		%	3.09		%	99			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, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016			Dec 31, 2017 vs. Dec 31, 2016					Dec 31, 2017			Dec 31, 2016			2017 vs. 2016
DIRECT BANKING
Interest Income		$2,556			$2,476			$2,338			$2,278			$2,258			$298		13	%		$9,648			$8,616			$1,032		12	%
Interest Expense	436			426			400			386			366			70			19	%	1,648			1,398			250			18	%
Net Interest Income	2,120			2,050			1,938			1,892			1,892			228			12	%	8,000			7,218			782			11	%
Other Income	423			401			408			375			401			22			5	%	1,607			1,611			(4		)	—	%
Revenue Net of Interest Expense	2,543			2,451			2,346			2,267			2,293			250			11	%	9,607			8,829			778			9	%
Provision for Loan Losses	678			675			639			594			579			99			17	%	2,586			1,858			728			39	%
Total Other Expense	995			909			876			849			846			149			18	%	3,629			3,422			207			6	%
Income Before Income Taxes		$870			$867			$831			$824			$868			$2		—	%		$3,392			$3,549			($157	)	(4	%)

Net Interest Margin	10.28		%	10.28		%	10.11		%	10.07		%	10.07		%	21			bps		10.19		%	9.99		%	20			bps
Pretax Return on Loan Receivables	4.22		%	4.35		%	4.34		%	4.39		%	4.62		%	(40		)	bps		4.32		%	4.91		%	(59		)	bps

Allowance for Loan Loss (period end)		$2,613			$2,525			$2,377			$2,258			$2,151			$462		21	%		$2,613			$2,151			$462		21	%
Reserve Change Build/ (Release) ¹		$94			$148			$119			$107			$144			($50	)				$468			$300			$168

PAYMENT SERVICES
Interest Income		$—			$—			$—			$—			$—			$—		NM			$—			$—			$—		NM
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			—			—			—			—			NM		—			—			—			NM
Other Income	71			74			73			72			65			6			9	%	290			270			20			7	%
Revenue Net of Interest Expense	71			74			73			72			65			6			9	%	290			270			20			7	%
Provision for Loan Losses	1			(1		)	1			(8		)	(1		)	2			(200	%)	(7		)	1			(8		)	NM
Total Other Expense	41			39			36			36			51			(10		)	(20	%)	152			162			(10		)	(6	%)
Income Before Income Taxes		$29			$36			$36			$44			$15			$14		93	%		$145			$107			$38		36	%


1 Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses

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
	Dec 31, 2017			Sep 30, 2017			Jun 30, 2017			Mar 31, 2017			Dec 31, 2016
GAAP Total Common Equity		$10,329			$10,627			$10,699			$10,705			$10,763
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(163		)	(163		)	(164		)	(165		)	(166		)
Tangible Common Equity ¹		$9,911			$10,209			$10,280			$10,285			$10,342

Common Equity Tier 1 Capital (Basel III Transition)		$10,114			$10,419			$10,492			$10,501			$10,592
Adjustments Related To Capital Components During Transition ²	(27		)	(25		)	(25		)	(26		)	(52		)
Common Equity Tier 1 Capital (Basel III Fully Phased-in)		$10,087			$10,394			$10,467			$10,475			$10,540

Common Equity Tier 1 Capital Ratio (Basel III Transition)	11.6		%	12.5		%	13.0		%	13.4		%	13.2		%
Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) ³	11.6		%	12.5		%	13.0		%	13.4		%	13.2		%

GAAP Book Value Per Share		$30.43			$30.56			$30.01			$29.46			$29.13
Less: Goodwill	(0.72		)	(0.69		)	(0.68		)	(0.67		)	(0.67		)
Less: Intangibles	(0.45		)	(0.45		)	(0.44		)	(0.43		)	(0.42		)
Less: Preferred Stock	(1.57		)	(1.53		)	(1.49		)	(1.46		)	(1.44		)
Tangible Common Equity Per Share		$27.69			$27.89			$27.40			$26.90			$26.60

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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