Discover Financial Services (Form: 8-K, Received: 01/24/2018 16:18:01)

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): January 24, 2018

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Commission File Number: 001-33378



Delaware		36-2517428
(State or other jurisdiction of incorporation)		(IRS Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015

(Address of principal executive offices, including zip code)

(Registrant's telephone number, including area code)

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:



o	Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)



o	Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)



o	Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))



o	Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))



o	Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). Emerging growth company



o	If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Item 2.02. Results of Operations and Financial Condition.

On January 24, 2018 , Discover Financial Services (the “Company”) released financial information with respect to the quarter ended December 31, 2017 . Copies of the press release, financial data supplement and financial results presentation containing this information are attached hereto as exhibits and incorporated herein by reference.

The quotation immediately preceding the caption “Segment Results” included in Exhibit 99.1 (the “Excluded Quote”) and Exhibit 99.3 shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section nor shall it be deemed to be incorporated by reference in any filing of the Company under the Securities Act of 1933, as amended, or the Exchange Act. The information included in Exhibit 99.1, other than in the Excluded Quote, and Exhibit 99.2 shall be deemed “filed” for purposes of the Exchange Act.

Item 9.01. Financial Statements and Exhibits.




Exhibit No.		Description
99.1		Press Release of the Company dated January 24, 2018 containing financial information for the quarter ended December 31, 2017
99.2		Financial Data Supplement of the Company for the quarter and year ended December 31, 2017
99.3		Financial Results Presentation of the Company for the quarter and year ended December 31, 2017

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.




	DISCOVER FINANCIAL SERVICES

Dated: January 24, 2018	By:	/s/ D. Christopher Greene
		Name: D. Christopher Greene
		Title: Vice President, Deputy General Counsel and Assistant Secretary




Exhibit No.		Description
99.1		Press Release of the Company dated January 24, 2018 containing financial information for the quarter ended December 31, 2017
99.2		Financial Data Supplement of the Company for the quarter and year ended December 31, 2017
99.3		Financial Results Presentation of the Company for the quarter and year ended December 31, 2017

DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER NET INCOME OF $387 MILLION

OR $0.99 PER DILUTED SHARE

NET INCOME INCLUDED ONE-TIME CHARGES OF $189 MILLION RESULTING FROM ACTIONS TAKEN BY THE COMPANY IN CONNECTION WITH THE TAX CUTS AND JOBS ACT

Riverwoods, IL, January 24, 2018 - Discover Financial Services (NYSE: DFS) today reported net income of $387 million or $0.99 per diluted share for the fourth quarter of 2017 , as compared to $563 million or $1.40 per diluted share for the fourth quarter of 2016 . The company’s return on equity for the fourth quarter of 2017 was 14% . Net income included non-recurring charges of $189 million resulting from actions taken by the company in connection with the Tax Cuts and Jobs Act ("Tax Act"). These charges had the effect of reducing diluted earnings per share by $0.52.

Fourth Quarter Highlights

Total loans grew $7.0 billion ( 9% ) from the prior year to $84.2 billion .

Credit card loans grew $5.8 billion ( 9% ) to $67.3 billion , on Discover card sales volume of $35.3 billion .

Total net charge-off rate excluding PCI loans increased 53 basis points from the prior year to 2.92% and the total 30+ day delinquency rate excluding PCI loans increased 23 basis points from the prior year to 2.20% .

Consumer deposits grew $3.4 billion ( 9% ) from the prior year to $39.4 billion .

Payment Services transaction dollar volume was $54.0 billion , up 17% from the prior year.

Income tax expense includes a one-time adjustment of $179 million to reflect the impact of the Tax Act.

“Our earnings in the fourth quarter and full year were driven by strong loan and revenue growth across our businesses, the result of continued execution of our strategy,” said David Nelms, chairman and CEO of Discover. “As we move forward in 2018, this strong momentum, enhanced by the favorable economic environment, should position us well for sustained growth, strong ROE and continued return of excess capital to shareholders. While the new tax law impacted the current quarter, I am excited about the opportunity it provides to further invest in growth, our people and our communities."

Direct Banking pretax income of $870 million in the quarter rose by $2 million from the prior year as increased revenue was largely offset by higher provision for loan losses and operating expenses.

Total loans ended the quarter at $ 84.2 billion, up 9% compared to the prior year. Credit card loans ended the quarter at $67.3 billion , up 9% from the prior year. Personal loans increased $893 million ( 14% ) from the prior year. Private student loans increased $183 million ( 2% ) year-over-year, and grew $683 million ( 11% ) excluding purchased student loans.

Net interest income increased $228 million ( 12% ) from the prior year, driven by loan growth and a higher net interest margin. Net interest margin was 10.28% , up 21 basis points from the prior year. Card yield was 12.79% , an increase of 17 basis points from the prior year because of increases in the prime rate, partially offset by higher interest charge-offs and a change in portfolio mix. Interest expense as a percent of total loans increased 16 basis points from the prior year, as higher market rates were partially offset by tighter credit spreads on refinanced long-term debt.

Other income increased $22 million ( 5% ) from the prior year, driven by higher discount and interchange revenue.

The delinquency rate for credit card loans over 30 days past due was 2.28% , up 24 basis points from the prior year and 14 basis points from the prior quarter. The credit card net charge-off rate for the fourth quarter was 3.03% , up 56 basis points from the prior year and 23 basis points from the prior quarter. The student loan net charge-off rate excluding purchased credit-impaired ("PCI") loans was 1.34% , down 8 basis points from the prior year. The personal loans net charge-off rate of 3.62% increased by

92 basis points from the prior year. Net charge-off rates were generally higher because of supply-driven credit normalization and the seasoning of loan growth from the last few years.

Provision for loan losses of $678 million increased $99 million from the prior year due to higher net charge-offs, partially offset by a smaller reserve build. The reserve build for the fourth quarter of 2017 was $94 million, compared to a reserve build of $144 million in the fourth quarter of 2016.

Expenses increased $149 million from the prior year as a result of higher employee compensation, marketing and professional fees. Employee compensation increased as a result of higher staffing levels and higher average salaries. In addition, employee compensation includes a $16 million charge associated with a one-time bonus granted to eligible employees following passage of the new tax legislation. Marketing expenses increased as a result of higher acquisition costs and brand advertising relative to the fourth quarter of 2016. The increase in professional fees is primarily due to investments in technology and analytic capabilities.

Payment Services pretax income was $29 million in the quarter, up $14 million from the prior year, primarily driven by lower operating expenses as well as higher transaction processing and interchange revenue.

Payment Services transaction dollar volume was $54.0 billion , up 17% versus the prior year. PULSE transaction dollar volume was up 19% year-over-year. Diners Club volume increased 14% year-over-year driven by continued strength of newer franchise relationships.

During the fourth quarter of 2017 , the company repurchased approximately 8.1 million shares of common stock for $555 million. Shares of common stock outstanding declined by 2.2% from the prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results on Wednesday, January 24, 2018, at 4:00 p.m. Central time. Interested parties can listen to the conference call via a live audio webcast at https://investorrelations.discover.com.

Discover Financial Services (NYSE: DFS) is a direct banking and payment services company with one of the most recognized brands in U.S. financial services. Since its inception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America's cash rewards pioneer, and offers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business. It operates the Discover Network, with millions of retail and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global payments network with acceptance in more than 185 countries and territories. For more information, visit www.discover.com/company.

Craig Streem, 224-405-5923

craigstreem@discover.com

Jon Drummond, 224-405-1888

jondrummond@discover.com

A financial summary follows. Financial, statistical, and business related information, as well as information regarding business and segment trends, is included in the financial supplement filed as Exhibit 99.2 to the company's Current Report on Form 8-K filed today with the Securities and Exchange Commission ( “ SEC ” ). Both the earnings release and the financial supplement are available online at the SEC's website (http://www.sec.gov) and the company's website (https://investorrelations.discover.com).

This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements, which speak to our expected business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,” “would,” “likely,” and similar expressions. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significant risks and uncertainties. Actual results may differ materially from those set forth in the forward-looking statements. These forward-looking statements speak only as of the date of this press release, and there is no undertaking to update or revise them as more information becomes available.

The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: changes in economic variables, such as the availability of consumer credit, the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumer confidence and consumer debt, and investor sentiment; the impact of current, pending and future legislation, regulation, supervisory guidance, and regulatory and legal actions, including, but not limited to, those related to tax reform, financial regulatory reform, consumer financial services practices, anti-corruption, and funding, capital and liquidity; the actions and initiatives of current and potential competitors; the company's ability to manage its expenses; the company's ability to successfully achieve card acceptance across its networks and maintain relationships with network participants; the company's ability to sustain and grow its non-card products; difficulty obtaining regulatory approval for, financing, closing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies; the company's ability to manage its credit risk, market risk, liquidity risk, operational risk, compliance and legal risk, and strategic risk; the availability and cost of funding and capital; access to deposit, securitization, equity, debt and credit markets; the impact of rating agency actions; the level and volatility of equity prices, commodity prices and interest rates, currency values, investments, other market fluctuations and other market indices; losses in the company's investment portfolio; limits on the company's ability to pay dividends and repurchase its common stock; limits on the company's ability to receive payments from its subsidiaries; fraudulent activities or material security breaches of key systems; the company's ability to remain organizationally effective; the company's ability to increase or sustain Discover card usage or attract new customers; the company's ability to maintain relationships with merchants; the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events; the company's ability to introduce new products or services; the company's ability to manage its relationships with third-party vendors; the company's ability to maintain current technology and integrate new and acquired systems; the company's ability to collect amounts for disputed transactions from merchants and merchant acquirers; the company's ability to attract and retain employees; the company's ability to protect its reputation and its intellectual property; and new lawsuits, investigations or similar matters or unanticipated developments related to current matters. The company routinely evaluates and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which may involve payment in cash or the company's debt or equity securities.

Additional factors that could cause the company's results to differ materially from those described in the forward-looking statements can be found under “Risk Factors,” “Business - Competition,” “Business - Supervision and Regulation” and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's Annual Report on Form 10-K for the year ended December 31, 2016, and "Management's Discussion & Analysis of Financial Condition and Results of Operations" in the company's Quarterly Report on Form 10-Q for the quarters ended September 30, 2017, June 30, 2017, and March 31, 2017, which are filed with the SEC and available at the SEC's internet site (http://www.sec.gov).



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 International ¹	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 share ¹		$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 Ratio ²	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

² 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

³ 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

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 Loans ³	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 Loans ²	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

The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as well as information regarding business and segment trends, see the earnings release and financial supplement included as exhibits to the Company’s Current Report on Form 8-K filed today and available on the Company’s website (www.discover.com) and the SEC’s website (www.sec.gov). The information provided herein includes certain non-GAAP financial measures. The reconciliations of such measures to the comparable GAAP figures are included at the end of this presentation, which is available on the Company’s website and the SEC’s website. The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business – Competition," "Business – Supervision and Regulation" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016, and under “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the company’s Quarterly Report on Form 10-Q for the quarters ended September 30, 2017, June 30, 2017, and March 31, 2017, which are filed with the SEC and available at the SEC's website (www.sec.gov). The Company does not undertake to update or revise forward-looking statements as more information becomes available. Notice 2

• Solid execution drove net income of $2.1Bn, diluted EPS of $5.42 and 19% return on equity • Adjusted to exclude non-recurring charges, primarily related to the passage of tax reform, diluted EPS was $5.98(1) • Continued focus on prime revolvers led to strong card receivables and revenue growth • Record originations in personal loans and student loans • Credit normalization continued as a result of secular growth of consumer credit as well as our organic growth; credit environment remains benign and risk-adjusted returns are strong • Payment Services network volume increased 12% to $203Bn and income before taxes increased 36% • Achieved positive operating leverage of 4% driven by prudent expense management, while continuing to invest for growth and new capabilities • Achieved a 123% payout ratio via return of $2.5Bn of capital through dividends and share repurchases 2017 Full Year Performance 3 Note(s) 1. Adjusted diluted EPS is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of activities that are not expected to continue and provides a useful metric to evaluate the Company's ongoing operating performance; see appendix for a reconciliation

Receivables YOY Growth 2013 2014 2015 2016 2017 $65.8 $70.0 $72.4 $77.3 $84.2 5% 6% 3% 7% 9% Ending Loans ($Bn) Net Charge-off Rate Solid loan growth and credit performance 4 2013 2014 2015 2016 2017 1.98% 2.04% 2.01% 2.16% 2.70%

Note(s) 1. Adjusted Diluted EPS is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of activities that are not expected to continue and provides a useful metric to evaluate the Company's ongoing operating performance; see appendix for a reconciliation 2. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company’s performance; see appendix for a reconciliation Highlights • Diluted EPS of $0.99 • Revenue net of interest expense of $2.6Bn, up 11% YOY, driven by higher net interest income • Provision for loan losses increased $101MM YOY (17%) on higher net charge-offs, partially offset by a smaller reserve build • Expenses rose 15%, driven by investments to support growth and new capabilities • Income tax expense includes non- recurring charges of $179MM associated with the passage of tax reform 4Q17 Summary Financial Results B / (W) ($MM, except per share data) 4Q17 4Q16 $ Δ % Δ Revenue Net of Interest Expense $2,614 $2,358 $256 11% Net Principal Charge-off 583 435 (148) (34%) Reserve Change build/(release) 96 143 47 33% Provision for Loan Losses 679 578 (101) (17%) Operating Expense 1,036 897 (139) (15%) Direct Banking 870 868 2 —% Payment Services 29 15 14 93% Total Pre-Tax Income 899 883 16 2% Income Tax Expense 512 320 (192) (60%) Net Income $387 $563 ($176) (31%) ROE 14% 20% Diluted EPS $0.99 $1.40 ($0.41) (29%) EPS From Non-Recurring Charges ($0.56) Adjusted Diluted EPS (1) $1.55 $ 1.40 $0.15 11% Pre-Tax, Pre-Provision Income (2) $1,578 $1,461 $117 8% 5

Payment Services 4Q16 4Q17 $77.3 $61.5 $9.0 $6.5 $84.2 $67.3 $9.2 $7.4 +9% +9% +2% +14% Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment Total Network Volume up 13% YOY Ending Loans ($Bn) Volume ($Bn) 4Q16 4Q17 $34.0 $35.6 $7.3 $3.2 $36.3 $42.4 $8.4 $3.3 Total Card Student Personal +7% +19% +14% 1% Proprietary PULSE Network PartnersDiners (1) 4Q17 Loan and Volume Growth 6

Note(s) 1. Rewards cost divided by Discover card sales volume Highlights • Receivables growth and margin expansion drove 12% YOY increase in net interest income • Net discount and interchange revenue increased $29MM (11%) YOY driven by a 9% increase in card sales volume • Rewards rate decreased by 3 bps YOY as a result of lower promotional rewards 4Q17 Revenue Detail B / (W) ($MM) 4Q17 4Q16 $ Δ % Δ Interest Income $2,556 $2,258 $298 13% Interest Expense 436 366 (70) (19%) Net Interest Income 2,120 1,892 228 12% Discount/Interchange Revenue 717 665 52 8% Rewards Cost 434 411 (23) (6%) Net Discount/Interchange Revenue 283 254 29 11% Protection Products Revenue 54 59 (5) (8%) Loan Fee Income 96 93 3 3% Transaction Processing Revenue 43 40 3 8% Other Income 18 20 (2) (10%) Total Non-Interest Income 494 466 28 6% Revenue Net of Interest Expense $2,614 $2,358 $256 11% Direct Banking $2,543 $2,293 $250 11% Payment Services 71 65 6 9% Revenue Net of Interest Expense $2,614 $2,358 $256 11% Change ($MM) 4Q17 4Q16 QOQ YOY Discover Card Sales Volume $35,339 $32,486 10% 9% Rewards Rate (1) 1.23% 1.26% -7 bps -3 bps 7

Highlights • Net interest margin on receivables increased 21 bps YOY on higher loan yields, partially offset by higher funding costs • Credit card yield increased 17 bps YOY as the prime rate increased, partially offset by portfolio mix and higher interest charge-offs • Average consumer deposits grew 10% YOY and composed 46% of total average funding • Funding costs on interest-bearing liabilities increased 14 bps YOY, driven by higher market rates partially offset by tighter credit spreads on refinanced long-term debt 4Q17 Net Interest Margin 4Q17 4Q16 ($MM) Average Balance Rate Average Balance Rate Credit Card $64,791 12.79% $59,121 12.62% Private Student 9,158 7.69% 8,954 7.06% Personal 7,455 12.27% 6,425 12.09% Other 398 5.66% 275 4.88% Total Loans 81,802 12.14% 74,775 11.88% Other Interest-Earning Assets 15,566 1.34% 14,040 0.71% Total Interest-Earning Assets $97,368 10.41% $88,815 10.12% Direct to Consumer and Affinity $38,807 1.44% $35,396 1.26% Brokered Deposits and Other 18,244 2.12% 14,355 1.93% Interest Bearing Deposits 57,051 1.65% 49,751 1.45% Borrowings 26,446 2.97% 25,860 2.85% Total Interest-Bearing Liabilities $83,497 2.07% $75,611 1.93% Change (%) 4Q17 QOQ YOY Total Interest Yield 12.14% -1bps 26bps NIM on Receivables 10.28% 0bps 21bps NIM on Interest-Earning Assets 8.64% 4bps 17bps 8

Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense Highlights • Employee compensation and benefits up 17% YOY, primarily on higher staffing levels, as well as higher average salaries • Also includes $16MM related to a one-time bonus granted to eligible employees following the passage of tax reform • Marketing up 21% YOY as a result of higher acquisition costs and brand advertising • Professional fees up 24% YOY, primarily due to investments in technology and analytic capabilities 4Q17 Operating Expense Detail B / (W) ($MM) 4Q17 4Q16 $ Δ % Δ Employee Compensation and Benefits $411 $352 ($59) (17%) Marketing and Business Development 213 176 (37) (21%) Information Processing & Communications 80 81 1 1% Professional Fees 189 152 (37) (24%) Premises and Equipment 26 23 (3) (13%) Other Expense 117 113 (4) (4%) Total Operating Expense $1,036 $897 ($139) (15%) Direct Banking 995 846 ($149) (18%) Payment Services 41 51 10 20% Total Operating Expense $1,036 $897 ($139) (15%) Operating Efficiency(1) 39.7% 38.0% (170) bps 9

Total Company Loans Credit Card Loans Private Student Loans Personal Loans NCO rate (%) 30+ day DQ rate ex-PCI (%) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1.85 2.02 2.11 2.18 2.02 2.31 2.60 2.71 2.63 2.85 1.60 1.67 1.64 1.60 1.79 1.97 1.97 1.93 2.05 2.20 NCO rate (%) 30+ day DQ rate (%) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2.04 2.18 2.34 2.39 2.17 2.47 2.84 2.94 2.80 3.03 1.65 1.72 1.68 1.63 1.87 2.04 2.06 2.00 2.14 2.28 NCO rate (%) 30+ day DQ rate (%) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1.99 2.28 2.45 2.38 2.63 2.70 3.16 3.18 3.19 3.62 0.80 0.89 0.97 1.02 0.98 1.12 1.12 1.14 1.27 1.40 NCO rate (%) 30+ day DQ rate ex-PCI (%) 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 0.57 0.82 0.56 0.74 0.70 1.00 0.60 0.85 1.14 1.03 1.88 1.91 1.92 1.88 1.87 2.22 2.04 2.12 2.14 2.35 Credit Performance Trends 10

4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 93 95 94 99 99 104 108 109 123 13.9 14.3 14.3 13.9 13.2 13.4 13.0 12.5 11.6 Capital Trends Note(s) 1. Common Equity Tier 1 Capital Ratio (Basel III Transition) 2. Payout Ratio is displayed on a trailing twelve month basis. This represents the trailing twelve months’ Capital Return to Common Stockholders divided by the trailing twelve months’ Net Income Allocated to Common Stockholders Common Equity Tier 1 (CET1) Capital Ratio(1) (%) Payout Ratio(2) (%) 11

Balance Sheet • Total loans grew 9% ($7.0Bn) YOY with strong contributions from all primary lending products • Credit card loans grew 9% ($5.8Bn) YOY as sales volume increased 9% • Average consumer deposits grew 10% ($3.4Bn) YOY, while deposit rates increased 18 bps 4Q17 Financial Summary 12 • Total NCO rate of 2.85%, up 54 bps YOY • Driven by supply- induced credit normalization and loan seasoning • Capital plan execution • Repurchased 8.1MM shares of common stock for $555MM • CET1 capital ratio(1) of 11.6%, down 160 bps YOY • Net income of $387MM and diluted EPS of $0.99 • Revenue growth of 11% on higher net interest income • NIM of 10.28%, up 21 bps YOY • Efficiency ratio up 170 bps YOY to 40% reflecting investments in growth and technology Credit and Capital Profitability Note(s) 1. Basel III Transition

2018 Guidance 2017 Actual 2018 Guidance Total Loan Growth 9% 7 - 9% Operating Expense $3.8Bn $4.0 - 4.1Bn Rewards Rate 1.24% 1.28 - 1.30% Total Company NIM 10.2% 10.3 - 10.4% Total Net Charge-off Rate 2.7% 3.0 - 3.25% Effective Tax Rate 24% 13

Note(s) 1. Pre-tax, pre-provision income, which is derived by adding provision for loan losses to pre-tax income, is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company's reported results. Management believes this information helps investors understand the effect of provision for loan losses on reported results and provides an alternate presentation of the Company's performance Appendix Reconciliation of GAAP to Non-GAAP Data (unaudited, $MM) 4Q17 4Q16 Provision for loan losses $679 $578 Income before income taxes 899 883 Pre-tax, pre-provision income(1) $1,578 $1,461 15