x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the year ended December 31, 2017
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o
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from to
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Delaware
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36-2517428
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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2500 Lake Cook Road, Riverwoods, Illinois 60015
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(224) 405-0900
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(Address of principal executive offices, including zip code)
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(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Large accelerated filer
x
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Accelerated filer
o
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Non-accelerated filer
o
(Do not check if a smaller reporting company)
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Smaller reporting company
o
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Part I | Item 1.
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Business
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•
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Discover it
card offers 5% Cashback Bonus in categories that change each quarter up to a quarterly maximum (signing up is required) and 1% Cashback Bonus on all other purchases, as well as other benefits.
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•
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Discover it Chrome
card offers 2% Cashback Bonus at gas stations and restaurants on up to $1,000 in combined purchases each quarter and 1% Cashback Bonus on all other purchases, as well as other benefits.
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•
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The
Discover it Miles
card offers 1.5 miles for every dollar spent on purchases and an annual credit of up to $30 for in-flight Wi-Fi charges.
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•
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Di
sco
ver it Secured
card offers the same reward features as the Discover it Chrome card, as well as other benefits. Customers provide a security deposit as collateral for the credit card account. After seven months of the account opening, Discover reviews the account to determine if the security deposit can be refunded to the customer and they graduate to an unsecured line of credit.
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•
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Discover More
card offers 5% Cashback Bonus in categories that change each quarter up to a quarterly maximum (signing up is required). Customers earn .25% Cashback Bonus on their first $3,000 on all other annual purchases and on all warehouse purchases, and 1% Cashback Bonus on purchases over $3,000.
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•
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Discover Business
card offers 5% Cashback Bonus on the first $2,000 spent in office supply purchases, 2% Cashback Bonus on the first $2,000 spent in gas purchases each year, .25% Cashback Bonus on all other purchases up to $5,000 in annual spend and 1% Cashback Bonus on all other purchases over $5,000.
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•
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Identity Theft Protection.
The most comprehensive identity theft monitoring product includes an initial credit report, credit bureau report monitoring at the three major credit bureaus, prompt alerts to key changes to credit bureau files that help customers spot possible identity theft quickly, internet surveillance to monitor multiple credit and debit card numbers and social security numbers on suspicious websites, identity theft insurance up to $1,000,000 to cover certain out-of-pocket expenses due to identity theft, and access to knowledgeable professionals who can help resolve issues.
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•
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Payment Protection.
This product allows customers to suspend their payments for up to two years, depending on the qualifying event and product level, when certain qualifying life events occur. While on benefit, customers have no minimum monthly payment, and are not charged interest, late fees or the fees for the product. This product covers a variety of different events, such as unemployment, disability, natural disasters or other life
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•
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Wallet Protection.
This product offers one-call convenience if a customer’s wallet is lost or stolen, including requesting cancellation and replacement of the customer’s credit and debit cards, monitoring the customer’s credit bureau reports at the three major credit bureaus for 180 days and alerting them to key changes to their credit files, and providing up to $100 to replace the customer’s wallet or purse.
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•
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Digital servicing channels that facilitate account management, including features such as transaction review, payments and rewards;
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•
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Proactive notifications via email, text messaging and in-app messaging for monitoring transaction activity and account security;
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•
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Access to overall credit health tools such as Credit Scorecard, Social Security Number Alerts and New Account Alerts; and
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•
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24/7 customer service via multiple communication channels, including messaging, email and chat.
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Name
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Age
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Position
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David W. Nelms
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57
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Chairman and Chief Executive Officer
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Roger C. Hochschild
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53
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President and Chief Operating Officer
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R. Mark Graf
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53
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Executive Vice President, Chief Financial Officer
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Kathryn McNamara Corley
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58
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Executive Vice President, General Counsel and Secretary
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Brian D. Hughes
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50
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Executive Vice President, Chief Risk Officer
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Julie A. Loeger
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54
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Executive Vice President, Chief Marketing Officer
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Carlos M. Minetti
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55
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Executive Vice President, President of Consumer Banking
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Diane E. Offereins
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60
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Executive Vice President, President - Payment Services
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Glenn P. Schneider
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56
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Executive Vice President and Chief Information Officer
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Daniel P. Capozzi
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46
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Senior Vice President, Credit and Decision Management
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R. Douglas Rose
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49
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Senior Vice President and Chief Human Resources Officer
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Item 1A.
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Risk Factors
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•
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Security attacks can originate from a wide variety of sources and geographic locations and may be undetected for a period of time.
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•
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We rely on many third-party service providers and network participants, including merchants, and, as such, a security breach or cyber-attack affecting one of these third parties could impact us. For example, the financial services industry continues to see attacks against the environments where personal and identifiable information is handled. For additional information see the risk factor
“
—
We rely on third parties to deliver services. If we face difficulties managing our relationships with third-party service providers, our revenue or results of operations could be materially adversely affected.”
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•
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To access our products and services, our customers may use computers and mobile devices that are beyond our security control systems.
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•
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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;
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•
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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;
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•
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the actions and initiatives of current and potential competitors;
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•
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our ability to manage our expenses;
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•
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our ability to successfully achieve card acceptance across our networks and maintain relationships with network participants and merchants;
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•
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our ability to sustain and grow our card, private student loan and personal loan products;
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•
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our ability to increase or sustain Discover card usage or attract new customers;
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•
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difficulty obtaining regulatory approval for, financing, closing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies;
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•
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our ability to manage our credit risk, market risk, liquidity risk, operational risk, compliance and legal risk, and strategic risk;
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•
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the availability and cost of funding and capital;
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•
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access to deposit, securitization, equity, debt and credit markets;
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•
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the impact of rating agency actions;
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•
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the level and volatility of equity prices, commodity prices and interest rates, currency values, investments, other market fluctuations and other market indices;
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•
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losses in our investment portfolio;
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•
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limits on our ability to pay dividends and repurchase our common stock;
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•
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limits on our ability to receive payments from our subsidiaries;
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•
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fraudulent activities or material security breaches of our or others’ key systems;
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•
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our ability to remain organizationally effective;
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•
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the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events;
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•
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our ability to introduce new products or services;
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•
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our ability to manage our relationships with third-party vendors;
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•
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our ability to maintain current technology and integrate new and acquired systems and technology;
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•
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our ability to collect amounts for disputed transactions from merchants and merchant acquirers;
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•
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our ability to attract and retain employees;
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•
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our ability to protect our reputation and our intellectual property; and
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•
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new lawsuits, investigations or similar matters or unanticipated developments related to current matters.
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Item 1B.
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Unresolved Staff Comments
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Item 2.
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Properties
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Item 3.
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Legal Proceedings
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Item 4.
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Mine Safety Disclosures
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Part II | Item 5.
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Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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The table below sets forth information regarding purchases of our common stock related to our share repurchase program and employee transactions that were made by us or on our behalf during the most recent quarter:
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|||||||||||||
Period
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Total Number of Shares Purchased
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Average Price Paid Per Share
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Total Number of Shares Purchased as Part of Publicly Announced Plan or Program
(1)
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Maximum Dollar Value of Shares that may yet be purchased under the Plans or Programs
(1)
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||||||
October 1-31, 2017
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Repurchase program
(1)
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2,966,664
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$
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65.41
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2,966,664
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$
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2,142,306,984
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Employee transactions
(2)
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2,414
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$
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58.50
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N/A
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N/A
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November 1-30, 2017
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Repurchase program
(1)
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2,772,690
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$
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65.79
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2,772,690
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$
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1,959,894,666
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Employee transactions
(2)
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1,690
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$
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66.87
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N/A
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N/A
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December 1-31, 2017
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||||||
Repurchase program
(1)
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2,401,238
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$
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74.35
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2,401,238
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$
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1,781,369,730
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Employee transactions
(2)
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—
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$
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—
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N/A
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N/A
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||||||
Total
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||||||
Repurchase program
(1)
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8,140,592
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$
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68.18
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8,140,592
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$
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1,781,369,730
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Employee transactions
(2)
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4,104
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$
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61.95
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N/A
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N/A
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(1)
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On
July 25, 2017
, our Board of Directors approved a share repurchase program authorizing the repurchase of up to
$2.8 billion
of our outstanding shares of common stock. This program expires on
October 31, 2018
and may be terminated at any time.
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(2)
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Reflects shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of outstanding shares underlying restricted stock units or upon the exercise of stock options.
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December 31,
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2012
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2013
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2014
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2015
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2016
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2017
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Discover Financial Services
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$
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100.00
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$
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145.49
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$
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170.84
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$
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138.88
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$
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190.07
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$
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204.11
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S&P 500 Index
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$
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100.00
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$
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129.60
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$
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144.36
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$
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143.31
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$
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156.98
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$
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187.47
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S&P 500 Financials Index
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$
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100.00
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$
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133.21
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$
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150.66
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|
$
|
145.42
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$
|
174.71
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|
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$
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209.70
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|
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Item 6.
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Selected Financial Data
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For the Years Ended December 31,
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||||||||||||||||||
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2017
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2016
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2015
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2014
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2013
|
||||||||||
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(dollars in millions, except per share amounts)
|
||||||||||||||||||
Statement of Income Data:
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|
||||||||||
Interest income
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$
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9,648
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|
|
$
|
8,616
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|
|
$
|
7,945
|
|
|
$
|
7,596
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|
|
$
|
7,064
|
|
Interest expense
|
1,648
|
|
|
1,398
|
|
|
1,263
|
|
|
1,134
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|
|
1,146
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|
|||||
Net interest income
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8,000
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|
|
7,218
|
|
|
6,682
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|
|
6,462
|
|
|
5,918
|
|
|||||
Other income
|
1,897
|
|
|
1,881
|
|
|
2,057
|
|
|
2,015
|
|
|
2,306
|
|
|||||
Revenue net of interest expense
|
9,897
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|
|
9,099
|
|
|
8,739
|
|
|
8,477
|
|
|
8,224
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|
|||||
Provision for loan losses
|
2,579
|
|
|
1,859
|
|
|
1,512
|
|
|
1,443
|
|
|
1,086
|
|
|||||
Other expense
|
3,781
|
|
|
3,584
|
|
|
3,615
|
|
|
3,340
|
|
|
3,194
|
|
|||||
Income before income tax expense
|
3,537
|
|
|
3,656
|
|
|
3,612
|
|
|
3,694
|
|
|
3,944
|
|
|||||
Income tax expense
|
1,438
|
|
|
1,263
|
|
|
1,315
|
|
|
1,371
|
|
|
1,474
|
|
|||||
Net income
|
$
|
2,099
|
|
|
$
|
2,393
|
|
|
$
|
2,297
|
|
|
$
|
2,323
|
|
|
$
|
2,470
|
|
Net income allocated to common stockholders
|
$
|
2,031
|
|
|
$
|
2,339
|
|
|
$
|
2,246
|
|
|
$
|
2,270
|
|
|
$
|
2,414
|
|
|
|
|
|
|
|
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|
||||||||||
Statement of Financial Condition Data (as of):
|
|
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|
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|
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|
||||||||||
Loan receivables
|
$
|
84,248
|
|
|
$
|
77,254
|
|
|
$
|
72,385
|
|
|
$
|
69,969
|
|
|
$
|
65,771
|
|
Total assets
|
$
|
100,087
|
|
|
$
|
92,308
|
|
|
$
|
86,799
|
|
|
$
|
82,998
|
|
|
$
|
79,340
|
|
Total stockholders’ equity
|
$
|
10,892
|
|
|
$
|
11,323
|
|
|
$
|
11,275
|
|
|
$
|
11,134
|
|
|
$
|
10,809
|
|
Allowance for loan losses
|
$
|
2,621
|
|
|
$
|
2,167
|
|
|
$
|
1,869
|
|
|
$
|
1,746
|
|
|
$
|
1,648
|
|
Long-term borrowings
|
$
|
26,326
|
|
|
$
|
25,443
|
|
|
$
|
24,650
|
|
|
$
|
22,477
|
|
|
$
|
20,474
|
|
Per Share of Common Stock:
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic EPS from continuing operations
|
$
|
5.43
|
|
|
$
|
5.77
|
|
|
$
|
5.14
|
|
|
$
|
4.91
|
|
|
$
|
4.97
|
|
Diluted EPS from continuing operations
|
$
|
5.42
|
|
|
$
|
5.77
|
|
|
$
|
5.13
|
|
|
$
|
4.90
|
|
|
$
|
4.96
|
|
Weighted-average shares outstanding (000’s)
|
374,116
|
|
|
405,301
|
|
|
436,855
|
|
|
462,115
|
|
|
485,492
|
|
|||||
Weighted-average shares outstanding (fully diluted) (000’s)
|
374,426
|
|
|
405,687
|
|
|
437,498
|
|
|
463,412
|
|
|
486,861
|
|
|||||
Dividends declared per share of common stock
|
$
|
1.30
|
|
|
$
|
1.16
|
|
|
$
|
1.08
|
|
|
$
|
0.92
|
|
|
$
|
0.60
|
|
Common stock dividend payout ratio
|
23.94
|
%
|
|
20.10
|
%
|
|
21.01
|
%
|
|
18.73
|
%
|
|
12.07
|
%
|
|||||
Ratios:
|
|
|
|
|
|
|
|
|
|
||||||||||
Return on average total equity
|
19
|
%
|
|
21
|
%
|
|
21
|
%
|
|
21
|
%
|
|
24
|
%
|
|||||
Return on average assets
|
2
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|
3
|
%
|
|||||
Average stockholders’ equity to average total assets
|
12
|
%
|
|
13
|
%
|
|
14
|
%
|
|
14
|
%
|
|
14
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
Selected Financial Data (continued)
|
|||||||||||||||||||
|
For the Years Ended December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
|
(dollars in millions)
|
||||||||||||||||||
Selected Statistics:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total Loan Receivables
|
|
|
|
|
|
|
|
|
|
||||||||||
Loan receivables
|
$
|
84,248
|
|
|
$
|
77,254
|
|
|
$
|
72,385
|
|
|
$
|
69,969
|
|
|
$
|
65,771
|
|
Average loan receivables
|
$
|
78,525
|
|
|
$
|
72,280
|
|
|
$
|
69,061
|
|
|
$
|
65,853
|
|
|
$
|
61,820
|
|
Interest yield
|
12.06
|
%
|
|
11.78
|
%
|
|
11.40
|
%
|
|
11.40
|
%
|
|
11.28
|
%
|
|||||
Net principal charge-off rate
|
2.70
|
%
|
|
2.16
|
%
|
|
2.01
|
%
|
|
2.04
|
%
|
|
1.98
|
%
|
|||||
Delinquency rate (over 30 days)
|
2.20
|
%
|
|
1.97
|
%
|
|
1.67
|
%
|
|
1.66
|
%
|
|
1.64
|
%
|
|||||
Delinquency rate (over 90 days)
|
0.99
|
%
|
|
0.87
|
%
|
|
0.76
|
%
|
|
0.78
|
%
|
|
0.77
|
%
|
|||||
Credit Card Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||
Credit card loan receivables
|
$
|
67,291
|
|
|
$
|
61,522
|
|
|
$
|
57,896
|
|
|
$
|
56,128
|
|
|
$
|
53,150
|
|
Average credit card loan receivables
|
$
|
62,079
|
|
|
$
|
57,238
|
|
|
$
|
54,846
|
|
|
$
|
52,600
|
|
|
$
|
49,816
|
|
Interest yield
|
12.74
|
%
|
|
12.50
|
%
|
|
12.08
|
%
|
|
12.09
|
%
|
|
12.00
|
%
|
|||||
Net principal charge-off rate
|
2.91
|
%
|
|
2.34
|
%
|
|
2.22
|
%
|
|
2.27
|
%
|
|
2.21
|
%
|
|||||
Delinquency rate (over 30 days)
|
2.28
|
%
|
|
2.04
|
%
|
|
1.72
|
%
|
|
1.73
|
%
|
|
1.72
|
%
|
|||||
Delinquency rate (over 90 days)
|
1.12
|
%
|
|
0.97
|
%
|
|
0.85
|
%
|
|
0.85
|
%
|
|
0.84
|
%
|
|||||
Personal Loans
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loan receivables
|
$
|
7,374
|
|
|
$
|
6,481
|
|
|
$
|
5,490
|
|
|
$
|
5,007
|
|
|
$
|
4,191
|
|
Average personal loan receivables
|
$
|
7,020
|
|
|
$
|
5,895
|
|
|
$
|
5,245
|
|
|
$
|
4,592
|
|
|
$
|
3,706
|
|
Interest yield
|
12.25
|
%
|
|
12.19
|
%
|
|
12.04
|
%
|
|
12.36
|
%
|
|
12.52
|
%
|
|||||
Net principal charge-off rate
|
3.30
|
%
|
|
2.55
|
%
|
|
2.15
|
%
|
|
2.04
|
%
|
|
2.13
|
%
|
|||||
Delinquency rate (over 30 days)
|
1.40
|
%
|
|
1.12
|
%
|
|
0.89
|
%
|
|
0.79
|
%
|
|
0.70
|
%
|
|||||
Delinquency rate (over 90 days)
|
0.41
|
%
|
|
0.29
|
%
|
|
0.27
|
%
|
|
0.22
|
%
|
|
0.21
|
%
|
|||||
Private Student Loans (excluding PCI)
|
|
|
|
|
|
|
|
|
|
||||||||||
Private student loan receivables
|
$
|
7,076
|
|
|
$
|
6,393
|
|
|
$
|
5,647
|
|
|
$
|
4,850
|
|
|
$
|
3,969
|
|
Average private student loan receivables
|
$
|
6,764
|
|
|
$
|
6,042
|
|
|
$
|
5,272
|
|
|
$
|
4,450
|
|
|
$
|
3,561
|
|
Interest yield
|
7.72
|
%
|
|
7.35
|
%
|
|
7.16
|
%
|
|
7.02
|
%
|
|
7.07
|
%
|
|||||
Net principal charge-off rate
|
1.21
|
%
|
|
1.10
|
%
|
|
1.07
|
%
|
|
1.29
|
%
|
|
1.30
|
%
|
|||||
Delinquency rate (over 30 days)
|
2.35
|
%
|
|
2.22
|
%
|
|
1.91
|
%
|
|
1.80
|
%
|
|
1.66
|
%
|
|||||
Delinquency rate (over 90 days)
|
0.47
|
%
|
|
0.55
|
%
|
|
0.43
|
%
|
|
0.52
|
%
|
|
0.46
|
%
|
|||||
|
|
|
|
|
|
|
|
|
|
Item 7.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
•
|
Net income was
$2.1 billion
, or
$5.42
per diluted share, compared to
$2.4 billion
, or
$5.77
per diluted share, in the prior year.
|
•
|
Net interest income
increased
10.8%
compared to the prior year.
|
•
|
Total loans
grew
$7.0 billion
, or
9.1%
, from the prior year to
$84.2 billion
.
|
•
|
Net charge-off rate for total loans
increased
54
basis points from the prior year to
2.70%
and the total loans delinquency rate for loans over 30 days past due
increased
23
basis points to
2.20%
.
|
•
|
Credit card loans
grew
$5.8 billion
, or
9.4%
, to
$67.3 billion
and Discover card sales volume
increased
6.1%
from the prior year.
|
•
|
Net charge-off rate for credit card loans
increased
57
basis points from the prior year to
2.91%
and the credit card delinquency rate for loans over 30 days past due
increased
24
basis points to
2.28%
.
|
•
|
Payment Services transaction dollar volume for the segment was
$202.9 billion
,
up
12%
from the prior year.
|
•
|
We repurchased approximately
32 million
shares, or
8%
, of our outstanding common stock for
$2.1 billion
.
|
•
|
The effective tax rate increased 6.2%, primarily driven by a one-time adjustment of $179 million as a result of the Tax Cuts and Jobs Act.
|
•
|
Net income was $2.4 billion and $2.3 billion, or $5.77 and $5.13, respectively, per diluted share in 2016 and 2015. Return on equity was 21% in both 2016 and 2015.
|
•
|
During 2016, our net interest income increased 8.0% compared to 2015.
|
•
|
Total loans grew $4.9 billion in 2016, or 6.7%, from 2015 to $77.3 billion.
|
•
|
Net charge-off rate for our total loans increased 15 basis points in 2016 from 2015 to 2.16% and the total loans delinquency rate for loans over 30 days past due increased 30 basis points to 1.97%.
|
•
|
During 2016, our credit card loans grew $3.6 billion, or 6.3%, to $61.5 billion and Discover card sales volume increased 2.5% from 2015.
|
•
|
Net charge-off rate for our credit card loans increased 12 basis points in 2016 from 2015 to 2.34% and the credit card delinquency rate for loans over 30 days past due increased 32 basis points to 2.04%.
|
•
|
During 2016, our Payment Services transaction dollar volume for the segment was $180.4 billion, down 5% from 2015.
|
•
|
We repurchased approximately 34 million shares, or 8%, of our outstanding common stock for $1.9 billion in 2016.
|
•
|
We repurchased approximately 29 million shares, or 6%, of our outstanding common stock for $1.7 billion during the year ended December 31, 2015.
|
(1)
|
Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or amendment.
|
(2)
|
Represents gross proprietary sales volume on the Discover Network.
|
(3)
|
Represents Discover card activity related to net sales, balance transfers, cash advances and other activity.
|
(4)
|
Represents Discover card activity related to net sales.
|
•
|
The level and composition of loan receivables, including the proportion of credit card loans to other loans, the proportion of credit card customers who revolve their balances, as well as the proportion of loan receivables bearing interest at promotional rates as compared to standard rates;
|
•
|
The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce interest income;
|
•
|
The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and interest rate;
|
•
|
The level and composition of other interest-bearing assets and liabilities, including our liquidity portfolio;
|
•
|
Changes in the interest rate environment, including the levels of interest rates and the relationships among interest rate indices, such as the prime rate, the Federal Funds rate and LIBOR;
|
•
|
The effectiveness of interest rate swaps in our interest rate risk management program; and
|
•
|
The difference between the carrying amount and future cash flows expected to be collected on PCI loans.
|
Average Balance Sheet Analysis
(dollars in millions)
|
||||||||||||||||||||||||||||||||
|
For the Years Ended December 31,
|
|||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|||||||||||||||||||||||||||
|
Average Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
|
|
Rate
|
|
Interest
|
|
Average
Balance
(1)
|
|
Rate
(1)
|
|
Interest
|
|||||||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Cash and cash equivalents
|
$
|
13,300
|
|
|
1.11
|
%
|
|
$
|
148
|
|
|
$
|
10,806
|
|
|
0.52
|
%
|
|
$
|
56
|
|
|
$
|
9,840
|
|
|
0.26
|
%
|
|
$
|
26
|
|
Restricted cash
|
625
|
|
|
0.97
|
%
|
|
6
|
|
|
540
|
|
|
0.37
|
%
|
|
2
|
|
|
631
|
|
|
0.14
|
%
|
|
1
|
|
||||||
Other short-term investments
|
—
|
|
|
—
|
%
|
|
—
|
|
|
518
|
|
|
0.86
|
%
|
|
4
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
||||||
Investment securities
|
1,667
|
|
|
1.60
|
%
|
|
27
|
|
|
2,445
|
|
|
1.55
|
%
|
|
38
|
|
|
2,876
|
|
|
1.71
|
%
|
|
49
|
|
||||||
Loan receivables
(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card
(3)
|
62,079
|
|
|
12.74
|
%
|
|
7,907
|
|
|
57,238
|
|
|
12.50
|
%
|
|
7,155
|
|
|
54,846
|
|
|
12.08
|
%
|
|
6,626
|
|
||||||
Personal loans
|
7,020
|
|
|
12.25
|
%
|
|
860
|
|
|
5,895
|
|
|
12.19
|
%
|
|
719
|
|
|
5,245
|
|
|
12.04
|
%
|
|
631
|
|
||||||
Private student loans
|
6,764
|
|
|
7.72
|
%
|
|
522
|
|
|
6,042
|
|
|
7.35
|
%
|
|
444
|
|
|
5,272
|
|
|
7.16
|
%
|
|
378
|
|
||||||
PCI student loans
|
2,326
|
|
|
6.84
|
%
|
|
159
|
|
|
2,841
|
|
|
6.51
|
%
|
|
185
|
|
|
3,385
|
|
|
6.51
|
%
|
|
220
|
|
||||||
Mortgage loans held for sale
|
—
|
|
|
—
|
%
|
|
—
|
|
|
—
|
|
|
—
|
%
|
|
—
|
|
|
93
|
|
|
3.63
|
%
|
|
3
|
|
||||||
Other
|
336
|
|
|
5.56
|
%
|
|
19
|
|
|
264
|
|
|
5.01
|
%
|
|
13
|
|
|
220
|
|
|
4.90
|
%
|
|
11
|
|
||||||
Total loan receivables
|
78,525
|
|
|
12.06
|
%
|
|
9,467
|
|
|
72,280
|
|
|
11.78
|
%
|
|
8,516
|
|
|
69,061
|
|
|
11.40
|
%
|
|
7,869
|
|
||||||
Total interest-earning assets
|
94,117
|
|
|
10.25
|
%
|
|
9,648
|
|
|
86,589
|
|
|
9.95
|
%
|
|
8,616
|
|
|
82,408
|
|
|
9.64
|
%
|
|
7,945
|
|
||||||
Allowance for loan losses
|
(2,335
|
)
|
|
|
|
|
|
(1,938
|
)
|
|
|
|
|
|
(1,782
|
)
|
|
|
|
|
||||||||||||
Other assets
|
4,189
|
|
|
|
|
|
|
4,349
|
|
|
|
|
|
|
4,332
|
|
|
|
|
|
||||||||||||
Total assets
|
$
|
95,971
|
|
|
|
|
|
|
$
|
89,000
|
|
|
|
|
|
|
$
|
84,958
|
|
|
|
|
|
|||||||||
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Time deposits
(4)
|
$
|
27,123
|
|
|
1.91
|
%
|
|
519
|
|
|
$
|
24,833
|
|
|
1.77
|
%
|
|
439
|
|
|
$
|
26,415
|
|
|
1.62
|
%
|
|
427
|
|
|||
Money market deposits
(5)
|
6,799
|
|
|
1.29
|
%
|
|
88
|
|
|
6,939
|
|
|
1.08
|
%
|
|
75
|
|
|
7,280
|
|
|
0.98
|
%
|
|
71
|
|
||||||
Other interest-bearing savings deposits
|
20,155
|
|
|
1.18
|
%
|
|
239
|
|
|
16,725
|
|
|
1.04
|
%
|
|
173
|
|
|
12,538
|
|
|
1.00
|
%
|
|
125
|
|
||||||
Total interest-bearing deposits
(6)
|
54,077
|
|
|
1.56
|
%
|
|
846
|
|
|
48,497
|
|
|
1.42
|
%
|
|
687
|
|
|
46,233
|
|
|
1.35
|
%
|
|
623
|
|
||||||
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Short-term borrowings
|
2
|
|
|
1.10
|
%
|
|
—
|
|
|
2
|
|
|
0.63
|
%
|
|
—
|
|
|
84
|
|
|
1.41
|
%
|
|
1
|
|
||||||
Securitized borrowings
(4)(5)
|
16,746
|
|
|
2.26
|
%
|
|
379
|
|
|
16,784
|
|
|
2.06
|
%
|
|
346
|
|
|
16,893
|
|
|
1.95
|
%
|
|
329
|
|
||||||
Other long-term borrowings
(4)
|
9,767
|
|
|
4.33
|
%
|
|
423
|
|
|
8,430
|
|
|
4.32
|
%
|
|
365
|
|
|
6,650
|
|
|
4.65
|
%
|
|
310
|
|
||||||
Total borrowings
|
26,515
|
|
|
3.02
|
%
|
|
802
|
|
|
25,216
|
|
|
2.82
|
%
|
|
711
|
|
|
23,627
|
|
|
2.71
|
%
|
|
640
|
|
||||||
Total interest-bearing liabilities
|
80,592
|
|
|
2.04
|
%
|
|
1,648
|
|
|
73,713
|
|
|
1.90
|
%
|
|
1,398
|
|
|
69,860
|
|
|
1.81
|
%
|
|
1,263
|
|
||||||
Other liabilities and stockholders’ equity
|
15,379
|
|
|
|
|
|
|
15,287
|
|
|
|
|
|
|
15,098
|
|
|
|
|
|
||||||||||||
Total liabilities and stockholders’ equity
|
$
|
95,971
|
|
|
|
|
|
|
$
|
89,000
|
|
|
|
|
|
|
$
|
84,958
|
|
|
|
|
|
|||||||||
Net interest income
|
|
|
|
|
$
|
8,000
|
|
|
|
|
|
|
$
|
7,218
|
|
|
|
|
|
|
$
|
6,682
|
|
|||||||||
Net interest margin
(7)
|
|
|
10.19
|
%
|
|
|
|
|
|
9.99
|
%
|
|
|
|
|
|
9.68
|
%
|
|
|
||||||||||||
Net yield on interest-bearing assets
(8)
|
|
|
8.50
|
%
|
|
|
|
|
|
8.34
|
%
|
|
|
|
|
|
8.11
|
%
|
|
|
||||||||||||
Interest rate spread
(9)
|
|
|
8.21
|
%
|
|
|
|
|
|
8.05
|
%
|
|
|
|
|
|
7.83
|
%
|
|
|
||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Upon adoption of ASU 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs, certain balances as of
December 31, 2015
have been restated to reflect the classification of debt issuance costs as a direct deduction of the related liability.
|
(2)
|
Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded, there would not be a material impact on the amounts reported above.
|
(3)
|
Interest income on credit card loans includes
$218 million
,
$193 million
and
$192 million
of amortization of balance transfer fees for the
years ended December 31, 2017, 2016 and 2015
, respectively.
|
(4)
|
Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.
|
(5)
|
Includes the impact of interest rate swap agreements used to change a portion of floating-rate funding to fixed-rate funding.
|
(6)
|
Includes the impact of FDIC insurance premiums and Large Institution Surcharge.
|
(7)
|
Net interest margin represents net interest income as a percentage of average total loan receivables.
|
(8)
|
Net yield on interest-bearing assets represents net interest income as a percentage of average total interest-earning assets.
|
(9)
|
Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.
|
Rate/Volume Variance Analysis
(1)
(dollars in millions)
|
|||||||||||||||||||||||
|
Year Ended December 31, 2017 vs.
Year Ended December 31, 2016
|
|
Year Ended December 31, 2016 vs.
Year Ended December 31, 2015 |
||||||||||||||||||||
|
Volume
|
|
Rate
|
|
Total
|
|
Volume
|
|
Rate
|
|
Total
|
||||||||||||
Increase/(decrease) in net interest income due to changes in:
|
|
|
|
|
|
|
|
|
|||||||||||||||
Interest-earning assets
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Cash and cash equivalents
|
$
|
16
|
|
|
$
|
76
|
|
|
$
|
92
|
|
|
$
|
3
|
|
|
$
|
27
|
|
|
$
|
30
|
|
Restricted cash
|
—
|
|
|
4
|
|
|
4
|
|
|
—
|
|
|
1
|
|
|
1
|
|
||||||
Other short-term investments
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
|
4
|
|
|
—
|
|
|
4
|
|
||||||
Investment securities
|
(12
|
)
|
|
1
|
|
|
(11
|
)
|
|
(7
|
)
|
|
(4
|
)
|
|
(11
|
)
|
||||||
Loan receivables:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Credit card
|
613
|
|
|
139
|
|
|
752
|
|
|
294
|
|
|
235
|
|
|
529
|
|
||||||
Personal loans
|
138
|
|
|
3
|
|
|
141
|
|
|
80
|
|
|
8
|
|
|
88
|
|
||||||
Private student loans
|
55
|
|
|
23
|
|
|
78
|
|
|
56
|
|
|
10
|
|
|
66
|
|
||||||
PCI student loans
|
(35
|
)
|
|
9
|
|
|
(26
|
)
|
|
(35
|
)
|
|
—
|
|
|
(35
|
)
|
||||||
Mortgage loans held for sale
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(3
|
)
|
||||||
Other
|
4
|
|
|
2
|
|
|
6
|
|
|
2
|
|
|
—
|
|
|
2
|
|
||||||
Total loan receivables
|
775
|
|
|
176
|
|
|
951
|
|
|
395
|
|
|
252
|
|
|
647
|
|
||||||
Total interest income
|
777
|
|
|
255
|
|
|
1,032
|
|
|
395
|
|
|
276
|
|
|
671
|
|
||||||
Interest-bearing liabilities
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Interest-bearing deposits
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Time deposits
|
43
|
|
|
37
|
|
|
80
|
|
|
(27
|
)
|
|
39
|
|
|
12
|
|
||||||
Money market deposits
|
(1
|
)
|
|
14
|
|
|
13
|
|
|
(3
|
)
|
|
7
|
|
|
4
|
|
||||||
Other interest-bearing savings deposits
|
40
|
|
|
26
|
|
|
66
|
|
|
43
|
|
|
5
|
|
|
48
|
|
||||||
Total interest-bearing deposits
|
82
|
|
|
77
|
|
|
159
|
|
|
13
|
|
|
51
|
|
|
64
|
|
||||||
Borrowings
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Short-term borrowings
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
||||||
Securitized borrowings
|
—
|
|
|
33
|
|
|
33
|
|
|
(2
|
)
|
|
19
|
|
|
17
|
|
||||||
Other long-term borrowings
|
58
|
|
|
—
|
|
|
58
|
|
|
78
|
|
|
(23
|
)
|
|
55
|
|
||||||
Total borrowings
|
58
|
|
|
33
|
|
|
91
|
|
|
75
|
|
|
(4
|
)
|
|
71
|
|
||||||
Total interest expense
|
140
|
|
|
110
|
|
|
250
|
|
|
88
|
|
|
47
|
|
|
135
|
|
||||||
Net interest income
|
$
|
637
|
|
|
$
|
145
|
|
|
$
|
782
|
|
|
$
|
307
|
|
|
$
|
229
|
|
|
$
|
536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between the
years ended December 31, 2017, 2016 and 2015
based on the percentage of the rate or volume variance to the sum of the two absolute variances.
|
Loan receivables consist of the following (dollars in millions):
|
|||||||||||||||||||
|
December 31,
|
||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
||||||||||
Loan portfolio
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans
|
$
|
67,291
|
|
|
$
|
61,522
|
|
|
$
|
57,896
|
|
|
$
|
56,128
|
|
|
$
|
53,150
|
|
Other loans:
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
|
7,374
|
|
|
6,481
|
|
|
5,490
|
|
|
5,007
|
|
|
4,191
|
|
|||||
Private student loans
|
7,076
|
|
|
6,393
|
|
|
5,647
|
|
|
4,850
|
|
|
3,969
|
|
|||||
Mortgage loans held for sale
(1)
|
—
|
|
|
—
|
|
|
—
|
|
|
122
|
|
|
148
|
|
|||||
Other
|
423
|
|
|
274
|
|
|
236
|
|
|
202
|
|
|
135
|
|
|||||
Total other loans
|
14,873
|
|
|
13,148
|
|
|
11,373
|
|
|
10,181
|
|
|
8,443
|
|
|||||
PCI loans
(2)
|
2,084
|
|
|
2,584
|
|
|
3,116
|
|
|
3,660
|
|
|
4,178
|
|
|||||
Total loan receivables
|
84,248
|
|
|
77,254
|
|
|
72,385
|
|
|
69,969
|
|
|
65,771
|
|
|||||
Allowance for loan losses
|
(2,621
|
)
|
|
(2,167
|
)
|
|
(1,869
|
)
|
|
(1,746
|
)
|
|
(1,648
|
)
|
|||||
Net loan receivables
|
$
|
81,627
|
|
|
$
|
75,087
|
|
|
$
|
70,516
|
|
|
$
|
68,223
|
|
|
$
|
64,123
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
On June 16, 2015, we announced the closing of our mortgage origination business. Pursuant to that announcement, we sold all mortgage loans held for sale in our portfolio and ceased originating new mortgages.
|
(2)
|
Represents PCI private student loans. See Note 4: Loan Receivables to our consolidated financial statements for more information regarding PCI loans.
|
•
|
The impact of general economic conditions on the consumer, including national and regional conditions, unemployment levels, bankruptcy trends and interest rate movements;
|
•
|
Changes in consumer spending and payment behaviors;
|
•
|
Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the portfolio and maturation of the loan portfolio;
|
•
|
The level and direction of historical and anticipated loan delinquencies and charge-offs;
|
•
|
The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and effectiveness of collection efforts; and
|
•
|
Regulatory changes or new regulatory guidance.
|
(1)
|
Includes both PCI and non-PCI private student loans.
|
(1)
|
Charge-offs for PCI loans did not result in a charge to earnings during any of the years presented and are therefore excluded from the calculation. See Note 4: Loan Receivables to our consolidated financial statements for more information regarding the accounting for charge-offs on PCI loans.
|
The following table presents the amounts and delinquency rates of key loan products that are 30 and 90 days or more delinquent, loan receivables that are not accruing interest, regardless of delinquency and restructured loans (dollars in millions):
|
||||||||||||||||||||||||||||||||||
|
Years Ended December 31,
|
|||||||||||||||||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|||||||||||||||||||||||||
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|
$
|
|
%
|
|||||||||||||||
Loans 30 or more days delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
|
$
|
1,532
|
|
|
2.28
|
%
|
|
$
|
1,252
|
|
|
2.04
|
%
|
|
$
|
995
|
|
|
1.72
|
%
|
|
$
|
971
|
|
|
1.73
|
%
|
|
$
|
912
|
|
|
1.72
|
%
|
Personal loans
|
$
|
103
|
|
|
1.40
|
%
|
|
$
|
74
|
|
|
1.12
|
%
|
|
$
|
49
|
|
|
0.89
|
%
|
|
$
|
40
|
|
|
0.79
|
%
|
|
$
|
29
|
|
|
0.70
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
167
|
|
|
2.35
|
%
|
|
$
|
141
|
|
|
2.22
|
%
|
|
$
|
108
|
|
|
1.91
|
%
|
|
$
|
87
|
|
|
1.80
|
%
|
|
$
|
66
|
|
|
1.66
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans 90 or more days delinquent
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
|
$
|
751
|
|
|
1.12
|
%
|
|
$
|
597
|
|
|
0.97
|
%
|
|
$
|
490
|
|
|
0.85
|
%
|
|
$
|
480
|
|
|
0.85
|
%
|
|
$
|
447
|
|
|
0.84
|
%
|
Personal loans
|
$
|
30
|
|
|
0.41
|
%
|
|
$
|
19
|
|
|
0.29
|
%
|
|
$
|
15
|
|
|
0.27
|
%
|
|
$
|
11
|
|
|
0.22
|
%
|
|
$
|
8
|
|
|
0.21
|
%
|
Private student loans (excluding PCI loans
(1)
)
|
$
|
33
|
|
|
0.47
|
%
|
|
$
|
35
|
|
|
0.55
|
%
|
|
$
|
24
|
|
|
0.43
|
%
|
|
$
|
25
|
|
|
0.52
|
%
|
|
$
|
18
|
|
|
0.46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Loans not accruing interest
|
$
|
233
|
|
|
0.28
|
%
|
|
$
|
216
|
|
|
0.29
|
%
|
|
$
|
224
|
|
|
0.32
|
%
|
|
$
|
183
|
|
|
0.28
|
%
|
|
$
|
200
|
|
|
0.33
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Restructured loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Credit card loans
(2)
|
$
|
1,316
|
|
|
1.96
|
%
|
|
$
|
1,085
|
|
|
1.76
|
%
|
|
$
|
1,019
|
|
|
1.76
|
%
|
|
$
|
1,037
|
|
|
1.85
|
%
|
|
$
|
1,123
|
|
|
2.11
|
%
|
Personal loans
(3)
|
$
|
111
|
|
|
1.51
|
%
|
|
$
|
81
|
|
|
1.25
|
%
|
|
$
|
68
|
|
|
1.24
|
%
|
|
$
|
55
|
|
|
1.10
|
%
|
|
$
|
31
|
|
|
0.74
|
%
|
Private student loans (excluding PCI loans
(1)
)
(4)
|
$
|
137
|
|
|
1.94
|
%
|
|
$
|
86
|
|
|
1.35
|
%
|
|
$
|
48
|
|
|
0.85
|
%
|
|
$
|
38
|
|
|
0.78
|
%
|
|
$
|
28
|
|
|
0.71
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Excludes PCI loans 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 we are recognizing interest income on a pool of loans, it is all considered to be performing.
|
(2)
|
Restructured credit card loans include
$74 million
,
$60 million
,
$44 million
,
$44 million
and
$43 million
at
December 31, 2017
,
2016
,
2015
,
2014
and
2013
, respectively, that are also included in loans over 90 days delinquent or more.
|
(3)
|
Restructured personal loans include
$5 million
,
$2 million
,
$4 million
,
$3 million
and
$2 million
at
December 31, 2017
,
2016
,
2015
,
2014
and
2013
, respectively, that are also included in loans over 90 days delinquent or more.
|
(4)
|
Restructured private student loans include
$5 million
,
$3 million
,
$3 million
,
$5 million
and
$3 million
at
December 31, 2017
,
2016
,
2015
,
2014
and
2013
, respectively, that are also included in loans over 90 days delinquent or more.
|
(1)
|
Because of the uncertainty regarding loan repayment patterns, the above amounts have been calculated using contractually required minimum payments. Historically, actual loan repayments have been higher than such minimum payments and, therefore, the above amounts may not necessarily be indicative of our actual loan repayments.
|
(1)
|
Net of rewards, including Cashback Bonus rewards, of
$1.6 billion
,
$1.4 billion
and
$1.3 billion
for the
years ended December 31, 2017, 2016 and 2015
, respectively.
|
(1)
|
See Note 3: Investments
— Other Investments to our consolidated financial statements for a description of these investments.
|
(1)
|
An “sf” in the rating denotes rating agency identification for structured finance product ratings.
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(dollars in millions)
|
||||||
Liquidity portfolio
|
|
|
|
||||
Cash and cash equivalents
(1)
|
$
|
12,213
|
|
|
$
|
11,103
|
|
Investment securities
(2)
|
1,347
|
|
|
1,532
|
|
||
Total liquidity portfolio
|
13,560
|
|
|
12,635
|
|
||
Private asset-backed securitizations
(3)
|
6,000
|
|
|
6,000
|
|
||
Primary liquidity sources
|
19,560
|
|
|
18,635
|
|
||
Federal Reserve discount window
(3)
|
29,153
|
|
|
24,194
|
|
||
Total liquidity portfolio and undrawn credit facilities
|
$
|
48,713
|
|
|
$
|
42,829
|
|
|
|
|
|
(1)
|
Cash in the process of settlement and restricted cash are excluded from cash and cash equivalents for liquidity purposes.
|
(2)
|
Excludes
$48 million
and
$73 million
of U.S. Treasury securities that have been pledged as swap collateral in lieu of cash as of
December 31, 2017 and 2016
, respectively.
|
(3)
|
See “— Additional Funding Sources” for additional information.
|
(1)
|
Total common stockholders’ equity is calculated as total stockholders’ equity less preferred stock.
|
(1)
|
Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion.
|
(2)
|
Key differences under fully phased-in Basel III rules in the calculation of risk-weighted assets include higher risk weighting for past-due loans and unfunded commitments.
|
(1)
|
Deposits do not include interest payments because payment amounts and timing cannot be reasonably estimated as certain deposit accounts have early withdrawal rights and the option to roll interest payments into the balance.
|
(2)
|
Deposits due in less than one year include deposits with indeterminate maturities.
|
(3)
|
See Note 9: Long-Term Borrowings to our consolidated financial statements for further discussion. Total future payment of interest charges for the floating-rate notes is estimated to be
$551 million
as of
December 31, 2017
, utilizing the current interest rates as of that date.
|
(4)
|
Purchase obligations for goods and services include payments under, among other things, consulting, outsourcing, data, advertising, sponsorship, software license, telecommunications agreements and global acceptance contracts. Purchase obligations also include payments under rewards program agreements with merchants. Purchase obligations at
December 31, 2017
reflect the minimum purchase obligation under legally binding contracts with contract terms that are both fixed and determinable. These amounts exclude obligations for goods and services that already have been incurred and are reflected on our consolidated statement of financial condition.
|
(5)
|
Other liabilities include our expected future contributions to our pension plan, the contingent liability associated with our other investments accounted for under the equity method and a commitment to purchase certain when-issued mortgage-backed securities under an agreement with the Delaware State Housing Authority as part of our community reinvestment initiatives.
|
Item 7A.
|
Quantitative and Qualitative Disclosures About Market Risk
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(dollars in millions,
except share amounts)
|
||||||
Assets
|
|
|
|
||||
Cash and cash equivalents
|
$
|
13,306
|
|
|
$
|
11,914
|
|
Restricted cash
|
81
|
|
|
95
|
|
||
Investment securities (includes $1,395 and $1,605 at fair value at December 31, 2017 and 2016, respectively)
|
1,568
|
|
|
1,757
|
|
||
Loan receivables:
|
|
|
|
||||
Loan receivables
|
84,248
|
|
|
77,254
|
|
||
Allowance for loan losses
|
(2,621
|
)
|
|
(2,167
|
)
|
||
Net loan receivables
|
81,627
|
|
|
75,087
|
|
||
Premises and equipment, net
|
825
|
|
|
734
|
|
||
Goodwill
|
255
|
|
|
255
|
|
||
Intangible assets, net
|
163
|
|
|
166
|
|
||
Other assets
|
2,262
|
|
|
2,300
|
|
||
Total assets
|
$
|
100,087
|
|
|
$
|
92,308
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
||||
Deposits:
|
|
|
|
||||
Interest-bearing deposit accounts
|
$
|
58,165
|
|
|
$
|
51,461
|
|
Non-interest bearing deposit accounts
|
599
|
|
|
531
|
|
||
Total deposits
|
58,764
|
|
|
51,992
|
|
||
Long-term borrowings
|
26,326
|
|
|
25,443
|
|
||
Accrued expenses and other liabilities
|
4,105
|
|
|
3,550
|
|
||
Total liabilities
|
89,195
|
|
|
80,985
|
|
||
Commitments, contingencies and guarantees (Notes 15, 18 and 19)
|
|
|
|
||||
Stockholders’ Equity:
|
|
|
|
||||
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 563,497,702 and 562,414,040 shares issued at December 31, 2017 and 2016, respectively
|
6
|
|
|
5
|
|
||
Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 5,700 of Series C shares and 575,000 of Series B shares issued and outstanding and aggregate liquidation preference of $570 and $575 at December 31, 2017 and 2016, respectively
|
563
|
|
|
560
|
|
||
Additional paid-in capital
|
4,042
|
|
|
3,962
|
|
||
Retained earnings
|
16,687
|
|
|
15,130
|
|
||
Accumulated other comprehensive loss
|
(152
|
)
|
|
(161
|
)
|
||
Treasury stock, at cost; 205,577,507 and 173,648,023 shares at December 31, 2017 and 2016, respectively
|
(10,254
|
)
|
|
(8,173
|
)
|
||
Total stockholders’ equity
|
10,892
|
|
|
11,323
|
|
||
Total liabilities and stockholders’ equity
|
$
|
100,087
|
|
|
$
|
92,308
|
|
|
|
|
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(dollars in millions)
|
||||||
Assets
|
|
|
|
||||
Restricted cash
|
$
|
81
|
|
|
$
|
95
|
|
Loan receivables
|
$
|
31,781
|
|
|
$
|
33,016
|
|
Allowance for loan losses allocated to securitized loan receivables
|
$
|
(998
|
)
|
|
$
|
(955
|
)
|
Other assets
|
$
|
5
|
|
|
$
|
4
|
|
Liabilities
|
|
|
|
||||
Long-term borrowings
|
$
|
16,536
|
|
|
$
|
16,411
|
|
Accrued expenses and other liabilities
|
$
|
16
|
|
|
$
|
15
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(dollars in millions, except per share amounts)
|
||||||||||
Interest income:
|
|
|
|
|
|
||||||
Credit card loans
|
$
|
7,907
|
|
|
$
|
7,155
|
|
|
$
|
6,626
|
|
Other loans
|
1,560
|
|
|
1,361
|
|
|
1,243
|
|
|||
Investment securities
|
27
|
|
|
38
|
|
|
49
|
|
|||
Other interest income
|
154
|
|
|
62
|
|
|
27
|
|
|||
Total interest income
|
9,648
|
|
|
8,616
|
|
|
7,945
|
|
|||
Interest expense:
|
|
|
|
|
|
||||||
Deposits
|
846
|
|
|
687
|
|
|
623
|
|
|||
Short-term borrowings
|
—
|
|
|
—
|
|
|
1
|
|
|||
Long-term borrowings
|
802
|
|
|
711
|
|
|
639
|
|
|||
Total interest expense
|
1,648
|
|
|
1,398
|
|
|
1,263
|
|
|||
Net interest income
|
8,000
|
|
|
7,218
|
|
|
6,682
|
|
|||
Provision for loan losses
|
2,579
|
|
|
1,859
|
|
|
1,512
|
|
|||
Net interest income after provision for loan losses
|
5,421
|
|
|
5,359
|
|
|
5,170
|
|
|||
Other income:
|
|
|
|
|
|
||||||
Discount and interchange revenue, net
|
1,052
|
|
|
1,055
|
|
|
1,117
|
|
|||
Protection products revenue
|
223
|
|
|
239
|
|
|
261
|
|
|||
Loan fee income
|
363
|
|
|
343
|
|
|
335
|
|
|||
Transaction processing revenue
|
167
|
|
|
155
|
|
|
159
|
|
|||
Gain on investments
|
3
|
|
|
—
|
|
|
9
|
|
|||
Gain on origination and sale of mortgage loans
|
—
|
|
|
—
|
|
|
68
|
|
|||
Other income
|
89
|
|
|
89
|
|
|
108
|
|
|||
Total other income
|
1,897
|
|
|
1,881
|
|
|
2,057
|
|
|||
Other expense:
|
|
|
|
|
|
||||||
Employee compensation and benefits
|
1,512
|
|
|
1,379
|
|
|
1,327
|
|
|||
Marketing and business development
|
776
|
|
|
731
|
|
|
745
|
|
|||
Information processing and communications
|
315
|
|
|
339
|
|
|
349
|
|
|||
Professional fees
|
655
|
|
|
605
|
|
|
610
|
|
|||
Premises and equipment
|
99
|
|
|
95
|
|
|
95
|
|
|||
Other expense
|
424
|
|
|
435
|
|
|
489
|
|
|||
Total other expense
|
3,781
|
|
|
3,584
|
|
|
3,615
|
|
|||
Income before income tax expense
|
3,537
|
|
|
3,656
|
|
|
3,612
|
|
|||
Income tax expense
|
1,438
|
|
|
1,263
|
|
|
1,315
|
|
|||
Net income
|
$
|
2,099
|
|
|
$
|
2,393
|
|
|
$
|
2,297
|
|
Net income allocated to common stockholders
|
$
|
2,031
|
|
|
$
|
2,339
|
|
|
$
|
2,246
|
|
Basic earnings per common share
|
$
|
5.43
|
|
|
$
|
5.77
|
|
|
$
|
5.14
|
|
Diluted earnings per common share
|
$
|
5.42
|
|
|
$
|
5.77
|
|
|
$
|
5.13
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(dollars in millions)
|
||||||||||
Net income
|
$
|
2,099
|
|
|
$
|
2,393
|
|
|
$
|
2,297
|
|
Other comprehensive income (loss), net of taxes
|
|
|
|
|
|
||||||
Unrealized loss on available-for-sale investment securities, net of tax
|
(2
|
)
|
|
(3
|
)
|
|
(23
|
)
|
|||
Unrealized gain (loss) on cash flow hedges, net of tax
|
23
|
|
|
7
|
|
|
(13
|
)
|
|||
Unrealized pension and post-retirement plan (loss) gain, net of tax
|
(12
|
)
|
|
(5
|
)
|
|
14
|
|
|||
Other comprehensive income (loss)
|
9
|
|
|
(1
|
)
|
|
(22
|
)
|
|||
Comprehensive income
|
$
|
2,108
|
|
|
$
|
2,392
|
|
|
$
|
2,275
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
|
|
Accumulated Other Comprehensive (Loss) Income
|
|
Treasury
Stock
|
|
Total
Stockholders’
Equity
|
||||||||||||||||||||
|
|
|
|
|
|
|
|||||||||||||||||||||||||||
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
|
|
|
|
|||||||||||||||||||||
|
(dollars in millions, shares in thousands)
|
||||||||||||||||||||||||||||||||
Balance at December 31, 2014
|
575
|
|
|
$
|
560
|
|
|
558,194
|
|
|
$
|
5
|
|
|
$
|
3,790
|
|
|
$
|
11,467
|
|
|
$
|
(138
|
)
|
|
$
|
(4,550
|
)
|
|
$
|
11,134
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,297
|
|
|
—
|
|
|
—
|
|
|
2,297
|
|
|||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(22
|
)
|
|
—
|
|
|
(22
|
)
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,715
|
)
|
|
(1,715
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
83
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
2,402
|
|
|
—
|
|
|
91
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
91
|
|
|||||||
Dividends — common stock
($1.08 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(477
|
)
|
|
—
|
|
|
—
|
|
|
(477
|
)
|
|||||||
Dividends — Series B preferred stock ($65.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|||||||
Balance at December 31, 2015
|
575
|
|
|
560
|
|
|
560,679
|
|
|
5
|
|
|
3,885
|
|
|
13,250
|
|
|
(160
|
)
|
|
(6,265
|
)
|
|
11,275
|
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,393
|
|
|
—
|
|
|
—
|
|
|
2,393
|
|
|||||||
Other comprehensive loss
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,908
|
)
|
|
(1,908
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
81
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
1,654
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|||||||
Dividends — common stock
($1.16 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(476
|
)
|
|
—
|
|
|
—
|
|
|
(476
|
)
|
|||||||
Dividends — Series B preferred stock ($65.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|||||||
Balance at December 31, 2016
|
575
|
|
|
560
|
|
|
562,414
|
|
|
5
|
|
|
3,962
|
|
|
15,130
|
|
|
(161
|
)
|
|
(8,173
|
)
|
|
11,323
|
|
|||||||
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2,099
|
|
|
—
|
|
|
—
|
|
|
2,099
|
|
|||||||
Other comprehensive income
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
—
|
|
|
9
|
|
|||||||
Purchases of treasury stock
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,081
|
)
|
|
(2,081
|
)
|
|||||||
Common stock issued under employee benefit plans
|
—
|
|
|
—
|
|
|
79
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|||||||
Common stock issued and stock-based compensation expense
|
—
|
|
|
—
|
|
|
1,005
|
|
|
1
|
|
|
75
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
76
|
|
|||||||
Dividends — common stock
($1.30 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(490
|
)
|
|
—
|
|
|
—
|
|
|
(490
|
)
|
|||||||
Dividends — Series B preferred stock ($65.00 per share)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|||||||
Redemption of Series B preferred stock
|
(575
|
)
|
|
(560
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
|
(575
|
)
|
|||||||
Issuance of Series C preferred stock, net of issuance costs
|
6
|
|
|
563
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
563
|
|
|||||||
Balance at December 31, 2017
|
6
|
|
|
$
|
563
|
|
|
563,498
|
|
|
$
|
6
|
|
|
$
|
4,042
|
|
|
$
|
16,687
|
|
|
$
|
(152
|
)
|
|
$
|
(10,254
|
)
|
|
$
|
10,892
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(dollars in millions)
|
||||||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
2,099
|
|
|
$
|
2,393
|
|
|
$
|
2,297
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Provision for loan losses
|
2,579
|
|
|
1,859
|
|
|
1,512
|
|
|||
Depreciation and amortization
|
393
|
|
|
351
|
|
|
391
|
|
|||
Amortization of deferred revenues and accretion of accretable yield on acquired loans
|
(399
|
)
|
|
(395
|
)
|
|
(432
|
)
|
|||
Net loss (gain) on investments and other assets
|
55
|
|
|
57
|
|
|
(26
|
)
|
|||
Proceeds from sale of mortgage loans originated for sale
|
—
|
|
|
—
|
|
|
2,714
|
|
|||
Net principal disbursed on mortgage loans originated for sale
|
—
|
|
|
—
|
|
|
(2,519
|
)
|
|||
Other, net
|
361
|
|
|
113
|
|
|
(8
|
)
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
Increase in other assets
|
(502
|
)
|
|
(187
|
)
|
|
(237
|
)
|
|||
Increase in accrued expenses and other liabilities
|
622
|
|
|
234
|
|
|
162
|
|
|||
Net cash provided by operating activities
|
5,208
|
|
|
4,425
|
|
|
3,854
|
|
|||
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Maturities and sales of available-for-sale investment securities
|
200
|
|
|
1,342
|
|
|
1,517
|
|
|||
Purchases of available-for-sale investment securities
|
—
|
|
|
—
|
|
|
(677
|
)
|
|||
Maturities of held-to-maturity investment securities
|
16
|
|
|
24
|
|
|
17
|
|
|||
Purchases of held-to-maturity investment securities
|
(40
|
)
|
|
(56
|
)
|
|
(37
|
)
|
|||
Net principal disbursed on loans originated for investment
|
(8,701
|
)
|
|
(5,978
|
)
|
|
(3,479
|
)
|
|||
Proceeds from returns of investment
|
17
|
|
|
—
|
|
|
—
|
|
|||
Purchases of other investments
|
(65
|
)
|
|
(51
|
)
|
|
(51
|
)
|
|||
Decrease in restricted cash
|
14
|
|
|
4
|
|
|
7
|
|
|||
Net purchases of premises and equipment
|
(218
|
)
|
|
(179
|
)
|
|
(167
|
)
|
|||
Proceeds from sale of subsidiaries
|
—
|
|
|
—
|
|
|
2
|
|
|||
Net cash used for investing activities
|
(8,777
|
)
|
|
(4,894
|
)
|
|
(2,868
|
)
|
|||
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Net decrease in short-term borrowings
|
—
|
|
|
—
|
|
|
(113
|
)
|
|||
Proceeds from issuance of securitized debt
|
5,059
|
|
|
3,070
|
|
|
2,975
|
|
|||
Maturities and repayment of securitized debt
|
(4,959
|
)
|
|
(3,419
|
)
|
|
(3,634
|
)
|
|||
Proceeds from issuance of other long-term borrowings
|
1,127
|
|
|
1,122
|
|
|
2,789
|
|
|||
Maturities and repayment of other long-term borrowings
|
(404
|
)
|
|
—
|
|
|
—
|
|
|||
Proceeds from issuance of common stock
|
5
|
|
|
7
|
|
|
5
|
|
|||
Purchases of treasury stock
|
(2,081
|
)
|
|
(1,908
|
)
|
|
(1,715
|
)
|
|||
Net increase in deposits
|
6,753
|
|
|
4,453
|
|
|
1,510
|
|
|||
Proceeds from issuance of preferred stock
|
563
|
|
|
—
|
|
|
—
|
|
|||
Payments on redemption of preferred stock
|
(575
|
)
|
|
—
|
|
|
—
|
|
|||
Dividends paid on common and preferred stock
|
(527
|
)
|
|
(514
|
)
|
|
(515
|
)
|
|||
Net cash provided by financing activities
|
4,961
|
|
|
2,811
|
|
|
1,302
|
|
|||
Net increase in cash and cash equivalents
|
1,392
|
|
|
2,342
|
|
|
2,288
|
|
|||
Cash and cash equivalents, at beginning of period
|
11,914
|
|
|
9,572
|
|
|
7,284
|
|
|||
Cash and cash equivalents, at end of period
|
$
|
13,306
|
|
|
$
|
11,914
|
|
|
$
|
9,572
|
|
|
|
|
|
|
|
||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Interest expense
|
$
|
1,396
|
|
|
$
|
1,211
|
|
|
$
|
1,070
|
|
Income taxes, net of income tax refunds
|
$
|
1,424
|
|
|
$
|
1,300
|
|
|
$
|
1,341
|
|
|
|
|
|
|
|
1.
|
Background and Basis of Presentation
|
2.
|
Summary of Significant Accounting Policies
|
3.
|
Investments
|
(1)
|
Includes
$48 million
,
$73 million
and
$7 million
of U.S. Treasury securities pledged as swap collateral as of
December 31, 2017
,
2016
and
2015
, respectively.
|
(2)
|
Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.
|
(1)
|
Available-for-sale investment securities are reported at fair value.
|
(2)
|
Held-to-maturity investment securities are reported at amortized cost.
|
(3)
|
Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company’s community reinvestment initiatives.
|
(1)
|
Maturities of residential mortgage-backed securities are reflective of the contractual maturities of the investment.
|
|
One Year
or
Less
|
|
After One
Year
Through
Five Years
|
|
After Five
Years
Through
Ten Years
|
|
After Ten
Years
|
|
Total
|
|||||
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
|||||
Available-for-Sale—Weighted-Average Yields
(1)
|
|
|
|
|
|
|
|
|
|
|||||
U.S Treasury securities
|
0.91
|
%
|
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
0.91
|
%
|
Residential mortgage-backed securities - Agency
|
—
|
%
|
|
1.28
|
%
|
|
1.92
|
%
|
|
2.50
|
%
|
|
1.92
|
%
|
Total available-for-sale investment securities
|
0.91
|
%
|
|
1.28
|
%
|
|
1.92
|
%
|
|
2.50
|
%
|
|
1.44
|
%
|
|
|
|
|
|
|
|
|
|
|
|||||
Held-to-Maturity—Weighted-Average Yields
|
|
|
|
|
|
|
|
|
|
|||||
State and political subdivisions of states
|
—
|
%
|
|
—
|
%
|
|
—
|
%
|
|
5.45
|
%
|
|
5.45
|
%
|
Residential mortgage-backed securities
|
—
|
%
|
|
—
|
%
|
|
6.08
|
%
|
|
2.72
|
%
|
|
2.72
|
%
|
Total held-to-maturity investment securities
|
—
|
%
|
|
—
|
%
|
|
6.08
|
%
|
|
2.73
|
%
|
|
2.73
|
%
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The weighted-average yield for available-for-sale investment securities is calculated based on the amortized cost.
|
4.
|
Loan Receivables
|
(1)
|
Amounts include
$21.2 billion
and
$20.8 billion
underlying investors’ interest in trust debt at
December 31, 2017
and
2016
, respectively, and
$9.9 billion
and
$10.8 billion
in seller’s interest at
December 31, 2017
and
2016
, respectively.
|
(2)
|
Amounts include
$0.8 billion
and
$1.4 billion
of loans pledged as collateral against the notes issued from the SLC securitization trusts at
December 31, 2017
and
2016
, respectively. See Note 5: Credit Card and Student Loan Securitization Activities.
|
Information related to the delinquent and non-accruing loans in the Company’s loan portfolio is shown below by each class of loan receivables except for PCI student loans, which is shown under the heading “— Purchased Credit-Impaired Loans” (dollars in millions):
|
|||||||||||||||||||
|
30-89 Days
Delinquent
|
|
90 or
More Days
Delinquent
|
|
Total Past
Due
|
|
90 or
More Days
Delinquent
and
Accruing
|
|
Total
Non-accruing
(1)
|
||||||||||
At December 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans
(2)
|
$
|
781
|
|
|
$
|
751
|
|
|
$
|
1,532
|
|
|
$
|
693
|
|
|
$
|
203
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
(3)
|
73
|
|
|
30
|
|
|
103
|
|
|
28
|
|
|
10
|
|
|||||
Private student loans (excluding PCI)
(4)
|
134
|
|
|
33
|
|
|
167
|
|
|
33
|
|
|
2
|
|
|||||
Other
|
3
|
|
|
1
|
|
|
4
|
|
|
—
|
|
|
18
|
|
|||||
Total other loans (excluding PCI)
|
210
|
|
|
64
|
|
|
274
|
|
|
61
|
|
|
30
|
|
|||||
Total loan receivables (excluding PCI)
|
$
|
991
|
|
|
$
|
815
|
|
|
$
|
1,806
|
|
|
$
|
754
|
|
|
$
|
233
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
At December 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit card loans
(2)
|
$
|
655
|
|
|
$
|
597
|
|
|
$
|
1,252
|
|
|
$
|
544
|
|
|
$
|
189
|
|
Other loans
|
|
|
|
|
|
|
|
|
|
||||||||||
Personal loans
(3)
|
55
|
|
|
19
|
|
|
74
|
|
|
18
|
|
|
8
|
|
|||||
Private student loans (excluding PCI)
(4)
|
106
|
|
|
35
|
|
|
141
|
|
|
35
|
|
|
—
|
|
|||||
Other
|
1
|
|
|
1
|
|
|
2
|
|
|
—
|
|
|
19
|
|
|||||
Total other loans (excluding PCI)
|
162
|
|
|
55
|
|
|
217
|
|
|
53
|
|
|
27
|
|
|||||
Total loan receivables (excluding PCI)
|
$
|
817
|
|
|
$
|
652
|
|
|
$
|
1,469
|
|
|
$
|
597
|
|
|
$
|
216
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was
$35 million
,
$31 million
and
$30 million
for the
years ended December 31, 2017, 2016 and 2015
, respectively. The Company does not separately track the amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers’ current balances and most recent interest rates.
|
(2)
|
Credit card loans that are 90 or more days delinquent and accruing interest include
$72 million
and
$58 million
of loans accounted for as troubled debt restructurings at
December 31, 2017
and
2016
, respectively.
|
(3)
|
Personal loans that are 90 or more days delinquent and accruing interest include
$5 million
and
$2 million
of loans accounted for as troubled debt restructurings at both
December 31, 2017
and
2016
, respectively.
|
(4)
|
Private student loans that are 90 or more days delinquent and accruing interest include
$5 million
and
$3 million
of loans accounted for as troubled debt restructurings at
December 31, 2017
and
2016
.
|
(1)
|
Net charge-off rate represents net charge-off dollars (annualized) divided by average loans for the reporting period.
|
(1)
|
PCI loans are discussed under the heading “— Purchased Credit-Impaired Loans.”
|
The following tables provide changes in the Company’s allowance for loan losses for the periods presented (dollars in millions):
|
|||||||||||||||||||
|
For the Year Ended December 31, 2017
|
||||||||||||||||||
|
Credit Card
|
|
Personal Loans
|
|
Student
Loans
(1)
|
|
Other
|
|
Total
|
||||||||||
Balance at beginning of period
|
$
|
1,790
|
|
|
$
|
200
|
|
|
$
|
158
|
|
|
$
|
19
|
|
|
$
|
2,167
|
|
Additions
|
|
|
|
|
|
|
|
|
|
||||||||||
Provision for loan losses
|
2,159
|
|
|
332
|
|
|
93
|
|
|
(5
|
)
|
|
2,579
|
|
|||||
Deductions
|
|
|
|
|
|
|
|
|
|
||||||||||
Charge-offs
|
(2,263
|
)
|
|
(258
|
)
|
|
(94
|
)
|
|
(3
|
)
|
|
(2,618
|
)
|
|||||
Recoveries
|
461
|
|
|
27
|
|
|
11
|
|
|
—
|
|
|
499
|
|
|||||
Net charge-offs
|
(1,802
|
)
|
|
(231
|
)
|
|
(83
|
)
|
|
(3
|
)
|
|
(2,119
|
)
|
|||||
Other
(2)
|
—
|
|
|
—
|
|
|
(6
|
)
|
|
—
|
|
|
(6
|
)
|
|||||
Balance at end of period
|
$
|
2,147
|
|
|
$
|
301
|
|
|
$
|
162
|
|
|
$
|
11
|
|
|
$
|
2,621
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
For the Year Ended December 31, 2016
|
||||||||||||||||||
|
Credit Card
|
|
Personal Loans
|
|
Student
Loans (1) |
|
Other
|
|
Total
|
||||||||||
Balance at beginning of period
|
$
|
1,554
|
|
|
$
|
155
|
|
|
$
|
143
|
|
|
$
|
17
|
|
|
$
|
1,869
|
|
Additions
|
|
|
|
|
|
|
|
|
|
||||||||||
Provision for loan losses
|
1,579
|
|
|
196
|
|
|
82
|
|
|
2
|
|
|
1,859
|
|
|||||
Deductions
|
|
|
|
|
|
|
|
|
|
||||||||||
Charge-offs
|
(1,786
|
)
|
|
(172
|
)
|
|
(76
|
)
|
|
—
|
|
|
(2,034
|
)
|
|||||
Recoveries
|
443
|
|
|
21
|
|
|
9
|
|
|
—
|
|
|
473
|
|
|||||
Net charge-offs
|
(1,343
|
)
|
|
(151
|
)
|
|
(67
|
)
|
|
—
|
|
|
(1,561
|
)
|
|||||
Balance at end of period
|
$
|
1,790
|
|
|
$
|
200
|
|
|
$
|
158
|
|
|
$
|
19
|
|
|
$
|
2,167
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
For the Year Ended December 31, 2015
|
||||||||||||||||||
|
Credit Card
|
|
Personal Loans
|
|
Student
Loans (1) |
|
Other
|
|
Total
|
||||||||||
Balance at beginning of period
|
$
|
1,474
|
|
|
$
|
120
|
|
|
$
|
135
|
|
|
$
|
17
|
|
|
$
|
1,746
|
|
Additions
|
|
|
|
|
|
|
|
|
|
||||||||||
Provision for loan losses
|
1,300
|
|
|
147
|
|
|
64
|
|
|
1
|
|
|
1,512
|
|
|||||
Deductions
|
|
|
|
|
|
|
|
|
|
||||||||||
Charge-offs
|
(1,660
|
)
|
|
(129
|
)
|
|
(65
|
)
|
|
(1
|
)
|
|
(1,855
|
)
|
|||||
Recoveries
|
440
|
|
|
17
|
|
|
9
|
|
|
—
|
|
|
466
|
|
|||||
Net charge-offs
|
(1,220
|
)
|
|
(112
|
)
|
|
(56
|
)
|
|
(1
|
)
|
|
(1,389
|
)
|
|||||
Balance at end of period
|
$
|
1,554
|
|
|
$
|
155
|
|
|
$
|
143
|
|
|
$
|
17
|
|
|
$
|
1,869
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes both PCI and non-PCI private student loans.
|
(2)
|
Net change in reserves on PCI pools having no remaining non-accretable difference.
|
(1)
|
Includes both PCI and non-PCI private student loans.
|
(2)
|
Loan receivables evaluated for impairment in accordance with Accounting Standards Codification (“ASC”) 310-10-35 include credit card loans, personal loans and student loans collectively evaluated for impairment in accordance with ASC Subtopic 310-40,
Receivables,
which consists of modified loans accounted for as troubled debt restructurings. Other loans are individually evaluated for impairment and generally do not represent troubled debt restructurings.
|
(3)
|
The unpaid principal balance of credit card loans was
$1.1 billion
and
$0.9 billion
at
December 31, 2017
and
2016
respectively. The unpaid principal balance of personal loans was
$109 million
and
$79 million
at
December 31, 2017
and
2016
, respectively. The unpaid principal balance of student loans was
$135 million
and
$84 million
at
December 31, 2017
and
2016
, respectively. All loans accounted for as troubled debt restructurings have a related allowance for loan losses.
|
(1)
|
The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the average loans in the various modification programs.
|
(2)
|
The Company does not separately track the amount of additional gross interest income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between the average interest rate earned on non-impaired loans and the average interest rate earned on loans in the modification programs to the average loans in the modification programs.
|
(3)
|
Includes credit card loans that were modified in troubled debt restructurings, but are no longer enrolled in a troubled debt restructuring program due to noncompliance with the terms of the modification or due to successful completion of a program after which charging privileges may be reinstated based on customer-level evaluation. The average balance of credit card loans that were no longer enrolled in a troubled debt restructuring program was
$339 million
,
$282 million
and
$261 million
, respectively, for the
years ended December 31, 2017, 2016 and 2015
.
|
(4)
|
As a result of the updates implemented in the third quarter of 2016, some student loans accounted for as troubled debt restructurings have additional gross income that would have been recorded if the loans in modification programs had not been restructured and interest had instead been recorded in accordance with the original terms. For the
years ended December 31, 2017 and 2016
, the gross income that would have been recorded with original terms for student loans in modification program was not material.
|
(1)
|
Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked in most cases.
|
(2)
|
For credit card loans and personal loans, a customer defaults from a modification program after
two
consecutive missed payments. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.
|
(3)
|
For student loans, defaults have been defined as loans that are
60
or more days delinquent. The outstanding balance upon default is generally the loan balance at the end of the month prior to default.
|
5.
|
Credit Card and Student Loan Securitization Activities
|
(1)
|
The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.
|
(1)
|
The Company maintains its allowance for loan losses on PCI loans sufficient to absorb probable decreases in cash flows that were previously expected. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP. During
2017
, the outstanding borrowings from one of the student loan trusts were extinguished. The remaining loans in the trust and related allowance for loan losses were transferred to Discover Bank.
|
6.
|
Premises and Equipment
|
7.
|
Goodwill and Intangible Assets
|
8.
|
Deposits
|
(1)
|
Includes
$1.4 billion
in certificates of deposit greater than $250,000, the Federal Deposit Insurance Corporation (“FDIC”) insurance limit, as of
December 31, 2017 and 2016
.
|
9.
|
Long-Term Borrowings
|
(1)
|
The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in London Interbank Offered Rate (“LIBOR”). Use of these interest rate swaps impacts carrying value of the debt. See Note 21: Derivatives and Hedging Activities.
|
(2)
|
Discover Card Execution Note Trust floating-rate asset-backed securities include issuances with the following interest rate terms:
1-month LIBOR + 23 to 60 basis points
as of
December 31, 2017
.
|
(3)
|
The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from interest payments on a portion of these long-term borrowings. There is no impact on debt carrying value from use of these interest rate swaps. See Note 21: Derivatives and Hedging Activities.
|
(4)
|
SLC Private Student Loan Trusts floating-rate asset-backed securities include issuances with the following interest rate terms:
3-month LIBOR + 17 to 45 basis points
and
Prime rate + 100 basis points
as of
December 31, 2017
.
|
(5)
|
The interest rate swap related to the SLC securitized debt matured during 2017. The swap did not qualify for hedge accounting and had no impact on debt carrying value. See Note 21: Derivatives and Hedging Activities.
|
(6)
|
Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The dates shown represent final maturity dates.
|
(7)
|
Includes
$236 million
of senior notes maturing in 2031and
$374 million
of senior and subordinated notes maturing in 2036 as of
December 31, 2017
.
|
10.
|
Stock-Based Compensation Plans
|
The following table sets forth the activity related to vested and unvested RSUs:
|
|||||||||
|
Number of Units
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate
Intrinsic Value
(in millions)
|
||||
RSUs at December 31, 2016
|
2,932,053
|
|
|
|
|
$
|
211
|
|
|
Granted
|
629,984
|
|
|
|
|
|
|||
Conversions to common stock
|
(605,558
|
)
|
|
|
|
|
|||
Forfeited
|
(54,089
|
)
|
|
|
|
|
|||
RSUs at December 31, 2017
|
2,902,390
|
|
|
0.95
|
|
|
$
|
223
|
|
Vested and Convertible RSUs at December 31, 2017
|
1,289,654
|
|
|
—
|
|
|
$
|
99
|
|
|
|
|
|
|
|
(1)
|
Unvested RSUs represent awards where recipients have yet to satisfy either explicit vesting terms or retirement-eligibility requirements.
|
The following table sets forth the activity related to vested and unvested PSUs:
|
||||||||||||
|
Number of Units
|
|
Weighted-Average Grant-Date Fair Value
|
|
Weighted-Average Remaining Contractual Term (in years)
|
|
Aggregate Intrinsic Value (in millions)
|
|||||
PSUs at December 31, 2016
(1)
|
1,095,454
|
|
|
$
|
52.58
|
|
|
|
|
$
|
79
|
|
Granted
|
257,110
|
|
|
$
|
71.17
|
|
|
|
|
|
||
Conversions to common stock
|
(333,063
|
)
|
|
$
|
53.66
|
|
|
|
|
|
||
Forfeited
|
(19,502
|
)
|
|
$
|
61.59
|
|
|
|
|
|
||
PSUs at December 31, 2017
(1)(2)(3)(4)
|
999,999
|
|
|
$
|
56.82
|
|
|
1.03
|
|
$
|
77
|
|
|
|
|
|
|
|
|
|
(2)
|
Includes
303,492
PSUs granted in
2015
that are earned based on the Company’s achievement of EPS during the
three-year performance period which ends December 31, 2017
and are subject to the requisite service period which ended
February 1, 2018
.
|
(3)
|
Includes
449,303
PSUs granted in
2016
that are earned based on the Company’s achievement of EPS during the
three-year performance period which ends December 31, 2018
and are subject to the requisite service period which ends
February 1, 2019
.
|
(4)
|
Includes
247,204
PSUs granted in
2017
that may be earned based on the Company’s achievement of EPS during the
three-year performance period which ends December 31, 2019
and are subject to the requisite service period which ends
February 1, 2020
.
|
11.
|
Employee Benefit Plans
|
Pretax amounts recognized in AOCI that have not yet been recognized as components of net periodic benefit cost consist of (dollars in millions):
|
|||
|
December 31, 2017
|
||
Prior service credit
|
$
|
3
|
|
Net loss
|
(265
|
)
|
|
Total
|
$
|
(262
|
)
|
|
|
The following table provides a reconciliation of the changes in the benefit obligation and fair value of plan assets as well as a summary of the Discover Pension Plan’s funded status (dollars in millions):
|
|||||||
|
For the Years Ended December 31,
|
||||||
|
2017
|
|
2016
|
||||
Reconciliation of benefit obligation
|
|
|
|
||||
Benefit obligation at beginning of year
|
$
|
546
|
|
|
$
|
528
|
|
Service cost
|
—
|
|
|
—
|
|
||
Interest cost
|
23
|
|
|
23
|
|
||
Employee contributions
|
—
|
|
|
—
|
|
||
Actuarial loss
|
54
|
|
|
13
|
|
||
Plan amendments
|
—
|
|
|
—
|
|
||
Benefits paid
|
(20
|
)
|
|
(18
|
)
|
||
Benefit obligation at end of year
|
603
|
|
|
546
|
|
||
|
|
|
|
||||
Reconciliation of fair value of plan assets
|
|
|
|
||||
Fair value of plan assets at beginning of year
|
381
|
|
|
378
|
|
||
Actual return on plan assets
|
63
|
|
|
21
|
|
||
Employer contributions
|
—
|
|
|
—
|
|
||
Employee contributions
|
—
|
|
|
—
|
|
||
Benefits paid
|
(20
|
)
|
|
(18
|
)
|
||
Fair value of plan assets at end of year
|
424
|
|
|
381
|
|
||
|
|
|
|
||||
Unfunded status (recorded in accrued expenses and other liabilities)
|
$
|
(179
|
)
|
|
$
|
(165
|
)
|
|
|
|
|
The following table presents the assumptions used to determine the benefit obligation:
|
|||||
|
December 31,
|
||||
|
2017
|
|
2016
|
||
Discount rate
|
3.68
|
%
|
|
4.29
|
%
|
|
|
|
|
12.
|
Common and Preferred Stock
|
13.
|
Accumulated Other Comprehensive Income
|
14.
|
Other Expense
|
15.
|
Income Taxes
|
(1)
|
See Note 3: Investments — Other Investments for a description of these investments.
|
(1)
|
The change in net deferred tax assets attributable to the TCJA is reflected on the Consolidated Statements of Cash Flows under “Other, net”.
|
(1)
|
Overpayment of taxes in 2013 to 2015 for the timing of deductions resulting from uncertain tax positions for the years 1999 through 2012.
|
(2)
|
For the
years ended December 31, 2017, 2016 and 2015
, amounts included
$105 million
,
$110 million
and
$138 million
respectively, of unrecognized tax benefits, which, if recognized, would favorably affect the effective tax rate.
|
16.
|
Earnings Per Share
|
17.
|
Capital Adequacy
|
•
|
8.0%
Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets;
|
•
|
6.0%
Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets;
|
•
|
4.0%
Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known as the “leverage ratio”); and
|
•
|
4.5%
CET1 to risk-weighted assets.
|
(1)
|
The Basel III rules do not establish well-capitalized thresholds for these measures for bank holding companies. Existing well-capitalized thresholds established in the Federal Reserve’s Regulation Y have been included where available.
|
18.
|
Commitments, Contingencies and Guarantees
|
•
|
Merchant Guarantee
. Diners Club has entered into contractual relationships with certain international merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The licensees hold the primary liability to settle the transactions of their customers with these merchants. However, Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one of these merchants.
|
•
|
ATM Guarantee.
PULSE entered into contractual relationships with certain international ATM acquirers in which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.
|
•
|
Network Alliance Guarantee.
Discover Network, Diners Club and PULSE have entered into contractual relationships with certain international payment networks in which DFS Services LLC retains the counterparty exposure if a network fails to fulfill its settlement obligation.
|
(1)
|
Represents period transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume.
|
19.
|
Litigation and Regulatory Matters
|
20.
|
Fair Value Measurements
|
•
|
Level 1
: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access.
|
•
|
Level 2
: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If relevant and observable prices are available, the fair values of the related assets or liabilities would be classified as Level 2.
|
•
|
Level 3
: Fair values determined by Level 3 inputs are those based on unobservable inputs and include situations where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company may utilize both observable and unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category.
|
(1)
|
Beginning in 2017, certain cash collateral amounts (variation margin) associated with derivative positions that are cleared through an exchange are reflected as offsets to the associated derivative asset and derivative liability balances, generally reducing the fair values to approximately zero. See Note 21: Derivatives and Hedging Activities for additional information.
|
The following tables disclose the estimated fair value of the Company’s financial assets and financial liabilities that are not required to be carried at fair value (dollars in millions):
|
|||||||||||||||||||
|
Quoted Prices in Active Markets for Identical Assets
(Level 1)
|
|
Significant Other Observable Inputs (Level 2)
|
|
Significant Unobservable Inputs (Level 3)
|
|
Total
|
|
Carrying Value
|
||||||||||
Balance at December 31, 2017
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
States and political subdivisions of states
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
Residential mortgage-backed securities - Agency
|
—
|
|
|
172
|
|
|
—
|
|
|
172
|
|
|
172
|
|
|||||
Held-to-maturity investment securities
|
$
|
—
|
|
|
$
|
173
|
|
|
$
|
—
|
|
|
$
|
173
|
|
|
$
|
173
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
13,306
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
13,306
|
|
|
$
|
13,306
|
|
Restricted cash
|
$
|
81
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81
|
|
|
$
|
81
|
|
Net loan receivables
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
85,108
|
|
|
$
|
85,108
|
|
|
$
|
81,627
|
|
Accrued interest receivables
|
$
|
—
|
|
|
$
|
818
|
|
|
$
|
—
|
|
|
$
|
818
|
|
|
$
|
818
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits
|
$
|
—
|
|
|
$
|
58,861
|
|
|
$
|
—
|
|
|
$
|
58,861
|
|
|
$
|
58,764
|
|
Long-term borrowings - owed to securitization investors
|
$
|
—
|
|
|
$
|
15,851
|
|
|
$
|
640
|
|
|
$
|
16,491
|
|
|
$
|
16,536
|
|
Other long-term borrowings
|
$
|
—
|
|
|
$
|
10,293
|
|
|
$
|
—
|
|
|
$
|
10,293
|
|
|
$
|
9,790
|
|
Accrued interest payables
|
$
|
—
|
|
|
$
|
214
|
|
|
$
|
—
|
|
|
$
|
214
|
|
|
$
|
214
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Balance at December 31, 2016
|
|
|
|
|
|
|
|
|
|
||||||||||
Assets
|
|
|
|
|
|
|
|
|
|
||||||||||
States and political subdivisions of states
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
2
|
|
Residential mortgage-backed securities - Agency
|
—
|
|
|
150
|
|
|
—
|
|
|
150
|
|
|
150
|
|
|||||
Held-to-maturity investment securities
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
—
|
|
|
$
|
152
|
|
|
$
|
152
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents
|
$
|
11,914
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
11,914
|
|
|
$
|
11,914
|
|
Restricted cash
|
$
|
95
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
95
|
|
|
$
|
95
|
|
Net loan receivables
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
78,252
|
|
|
$
|
78,252
|
|
|
$
|
75,087
|
|
Accrued interest receivables
|
$
|
—
|
|
|
$
|
724
|
|
|
$
|
—
|
|
|
$
|
724
|
|
|
$
|
724
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities
|
|
|
|
|
|
|
|
|
|
||||||||||
Deposits
|
$
|
—
|
|
|
$
|
52,183
|
|
|
$
|
—
|
|
|
$
|
52,183
|
|
|
$
|
51,992
|
|
Long-term borrowings - owed to securitization investors
|
$
|
—
|
|
|
$
|
15,617
|
|
|
$
|
900
|
|
|
$
|
16,517
|
|
|
$
|
16,411
|
|
Other long-term borrowings
|
$
|
—
|
|
|
$
|
9,470
|
|
|
$
|
—
|
|
|
$
|
9,470
|
|
|
$
|
9,032
|
|
Accrued interest payables
|
$
|
—
|
|
|
$
|
168
|
|
|
$
|
—
|
|
|
$
|
168
|
|
|
$
|
168
|
|
|
|
|
|
|
|
|
|
|
|
21.
|
Derivatives and Hedging Activities
|
(1)
|
Beginning in 2017, certain cash collateral amounts (variation margin) associated with derivative positions that are cleared through an exchange are reflected as offsets to the associated derivative asset and derivative liability balances, generally reducing the fair values to approximately zero. The affected contracts remain term instruments and are reflected in notional amounts and number of outstanding derivative contracts.
|
(2)
|
The foreign exchange forward contracts have notional amounts of EUR
7 million
, GBP
5 million
, SGD
1 million
and INR
464 million
as of
December 31, 2017
and notional amounts of EUR
6 million
, GBP
5 million
and SGD
1 million
as of
December 31, 2016
. The Company did not have foreign exchange forward contracts designated in INR as of
December 31, 2016
.
|
(3)
|
The interest rate swap related to the SLC securitized debt matured during 2017.
|
(4)
|
In addition to the derivatives disclosed in the table, the Company enters into forward contracts to purchase when-issued mortgage-backed securities as part of its community reinvestment initiatives. At
December 31, 2017
, the Company had
one
outstanding contract with a notional amount of
$54 million
and immaterial fair value. At
December 31, 2016
, the Company had
one
outstanding contract with a notional amount of
$36 million
and immaterial fair value.
|
(5)
|
Collateral amounts, which consist of both cash and investment securities, are limited to the related derivative asset/liability balance and do not include excess collateral received/pledged. Beginning in 2017, collateral held/posted excludes amounts that are recorded as offsets to the associated derivative asset or derivative liability balances.
|
(1)
|
During the
year ended December 31, 2015
, the Company recognized in income total gains of
$2 million
and
$71 million
on forward delivery contracts and interest rate lock commitments, respectively, related to the mortgage loan business that was closed during 2015.
|
22.
|
Segment Disclosures
|
•
|
Direct Banking:
The Direct Banking segment includes Discover-branded credit cards issued to individuals on the Discover Network and other consumer products and services, including private student loans, personal loans, home equity loans, and other consumer lending and deposit products. The majority of Direct Banking revenues relate to interest income earned on the segment’s loan products. Additionally, the Company’s credit card products generate substantially all revenues related to discount and interchange, protection products and loan fee income.
|
•
|
Payment Services:
The Payment Services segment includes PULSE, an automated teller machine, debit and electronic funds transfer network; Diners Club, a global payments network; and the Company’s Network Partners business, which provides payment transaction processing and settlement services on the Discover Network. The majority of Payment Services revenues relate to transaction processing revenue from PULSE and royalty and licensee revenue from Diners Club.
|
•
|
The Company aggregates operating segments when determining reportable segments.
|
•
|
Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct Banking segment.
|
•
|
Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing and infrastructure costs that are not specifically allocated among the segments, with the exception of an allocation of direct and incremental costs driven by the Company’s Payment Services segment.
|
•
|
The assets of the Company are not allocated among the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
•
|
The revenues of each segment are derived from external sources. The segments do not earn revenue from intercompany sources.
|
•
|
Income taxes are not specifically allocated between the operating segments in the information reviewed by the Company’s chief operating decision maker.
|
23.
|
Related Party Transactions
|
24.
|
Parent Company Condensed Financial Information
|
|
December 31,
|
||||||
|
2017
|
|
2016
|
||||
|
(dollars in millions)
|
||||||
Assets:
|
|
|
|
||||
Cash and cash equivalents
(1)
|
$
|
2,043
|
|
|
$
|
1,901
|
|
Notes receivable from subsidiaries
(2)
|
759
|
|
|
751
|
|
||
Investments in bank subsidiaries
|
10,560
|
|
|
10,454
|
|
||
Investments in non-bank subsidiaries
|
1,048
|
|
|
861
|
|
||
Other assets
|
258
|
|
|
202
|
|
||
Total assets
|
$
|
14,668
|
|
|
$
|
14,169
|
|
|
|
|
|
||||
Liabilities and Stockholders’ Equity:
|
|
|
|
||||
Non-interest bearing deposit accounts
|
$
|
2
|
|
|
$
|
14
|
|
Interest-bearing deposit accounts
|
—
|
|
|
—
|
|
||
Total deposits
|
2
|
|
|
14
|
|
||
Short-term borrowings from subsidiaries
|
351
|
|
|
221
|
|
||
Other long-term borrowings
|
3,012
|
|
|
2,259
|
|
||
Accrued expenses and other liabilities
|
411
|
|
|
352
|
|
||
Total liabilities
|
3,776
|
|
|
2,846
|
|
||
Stockholders’ equity
|
10,892
|
|
|
11,323
|
|
||
Total liabilities and stockholders’ equity
|
$
|
14,668
|
|
|
$
|
14,169
|
|
|
|
|
|
(1)
|
The Parent Company had
$2.0 billion
and
$1.9 billion
in a money market deposit account at Discover Bank as of
December 31, 2017 and 2016
, respectively, which is included in cash and cash equivalents. These funds are available to the Parent for liquidity purposes.
|
(2)
|
The Parent Company advanced
$500 million
to Discover Bank as of
December 31, 2017 and 2016
, which is included in notes receivable from subsidiaries. These funds are available to the Parent for liquidity purposes.
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(dollars in millions)
|
||||||||||
Interest income
|
$
|
55
|
|
|
$
|
39
|
|
|
$
|
29
|
|
Interest expense
|
178
|
|
|
139
|
|
|
128
|
|
|||
Net interest expense
|
(123
|
)
|
|
(100
|
)
|
|
(99
|
)
|
|||
Dividends from bank subsidiaries
|
1,895
|
|
|
1,800
|
|
|
1,780
|
|
|||
Dividends from non-bank subsidiaries
|
15
|
|
|
269
|
|
|
—
|
|
|||
Total income
|
1,787
|
|
|
1,969
|
|
|
1,681
|
|
|||
Other expense
|
—
|
|
|
1
|
|
|
1
|
|
|||
Income before income tax expense and equity in undistributed net income of subsidiaries
|
1,787
|
|
|
1,968
|
|
|
1,680
|
|
|||
Income tax benefit
|
40
|
|
|
40
|
|
|
37
|
|
|||
Equity in undistributed net income of subsidiaries
|
272
|
|
|
385
|
|
|
580
|
|
|||
Net income
|
2,099
|
|
|
2,393
|
|
|
2,297
|
|
|||
OCI, net
|
9
|
|
|
(1
|
)
|
|
(22
|
)
|
|||
Comprehensive income
|
$
|
2,108
|
|
|
$
|
2,392
|
|
|
$
|
2,275
|
|
|
|
|
|
|
|
|
For the Years Ended December 31,
|
||||||||||
|
2017
|
|
2016
|
|
2015
|
||||||
|
(dollars in millions)
|
||||||||||
Cash flows from operating activities
|
|
|
|
|
|
||||||
Net income
|
$
|
2,099
|
|
|
$
|
2,393
|
|
|
$
|
2,297
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|
||||||
Equity in undistributed net income of subsidiaries
|
(272
|
)
|
|
(385
|
)
|
|
(580
|
)
|
|||
Stock-based compensation expense
|
75
|
|
|
64
|
|
|
56
|
|
|||
Deferred income taxes
|
1
|
|
|
(9
|
)
|
|
(10
|
)
|
|||
Depreciation and amortization
|
31
|
|
|
27
|
|
|
23
|
|
|||
Changes in assets and liabilities:
|
|
|
|
|
|
||||||
(Increase) decrease in other assets
|
(54
|
)
|
|
10
|
|
|
(13
|
)
|
|||
Increase in other liabilities and accrued expenses
|
43
|
|
|
52
|
|
|
83
|
|
|||
Net cash provided by operating activities
|
1,923
|
|
|
2,152
|
|
|
1,856
|
|
|||
|
|
|
|
|
|
||||||
Cash flows from investing activities
|
|
|
|
|
|
||||||
Decrease (increase) in investment in subsidiaries
|
—
|
|
|
(1
|
)
|
|
(21
|
)
|
|||
(Increase) decrease in loans to subsidiaries
|
(8
|
)
|
|
(15
|
)
|
|
1,700
|
|
|||
Net cash (used for) provided by investing activities
|
(8
|
)
|
|
(16
|
)
|
|
1,679
|
|
|||
|
|
|
|
|
|
||||||
Cash flows from financing activities
|
|
|
|
|
|
||||||
Net increase (decrease) in short-term borrowings from subsidiaries
|
130
|
|
|
(93
|
)
|
|
206
|
|
|||
Proceeds from issuance of common stock
|
5
|
|
|
7
|
|
|
5
|
|
|||
Proceeds from issuance of long-term borrowings
|
1,127
|
|
|
130
|
|
|
539
|
|
|||
Maturities and repayment of other long-term borrowings
|
(404
|
)
|
|
—
|
|
|
—
|
|
|||
Purchases of treasury stock
|
(2,081
|
)
|
|
(1,908
|
)
|
|
(1,715
|
)
|
|||
Net (decrease) increase in deposits
|
(11
|
)
|
|
10
|
|
|
(1
|
)
|
|||
Proceeds from issuance of preferred stock
|
563
|
|
|
—
|
|
|
—
|
|
|||
Payments on redemption of preferred stock
|
(575
|
)
|
|
—
|
|
|
—
|
|
|||
Dividends paid on common and preferred stock
|
(527
|
)
|
|
(514
|
)
|
|
(515
|
)
|
|||
Net cash used for financing activities
|
(1,773
|
)
|
|
(2,368
|
)
|
|
(1,481
|
)
|
|||
Increase (decrease) in cash and cash equivalents
|
142
|
|
|
(232
|
)
|
|
2,054
|
|
|||
Cash and cash equivalents, at beginning of period
|
1,901
|
|
|
2,133
|
|
|
79
|
|
|||
Cash and cash equivalents, at end of period
|
$
|
2,043
|
|
|
$
|
1,901
|
|
|
$
|
2,133
|
|
|
|
|
|
|
|
||||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Interest expense
|
$
|
132
|
|
|
$
|
112
|
|
|
$
|
97
|
|
Income taxes, net of income tax refunds
|
$
|
(27
|
)
|
|
$
|
23
|
|
|
$
|
109
|
|
|
|
|
|
|
|
25.
|
Subsequent Events
|
26.
|
Quarterly Results
|
(1)
|
Because the inputs to net income allocated to common stockholders and earnings per share are calculated using weighted averages for the quarter, the sum of all four quarters may differ from the year to date amounts in the consolidated statements of income.
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
Item 9A.
|
Controls and Procedures
|
Item 9B.
|
Other Information
|
Part III | Item 10.
|
Directors, Executive Officers and Corporate Governance
|
Item 11.
|
Executive Compensation
|
Item 12.
|
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|
Plan Category
|
Number of securities to be issued upon exercise of outstanding warrants and rights
(1)
|
|
Weighted-average exercise price of outstanding warrants and rights
|
|
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
|
||
|
(a)
|
|
(b)
|
|
(c)
|
||
Equity compensation plans approved by security holders
|
3,902,389
|
|
|
N/A
|
|
24,953,542
|
|
Equity compensation plans not approved by security holders
|
N/A
|
|
|
N/A
|
|
N/A
|
|
Total
|
3,902,389
|
|
|
N/A
|
|
24,953,542
|
|
|
|
|
|
|
|
(1)
|
Includes 2,902,390 vested and unvested restricted stock units and 999,999 vested and unvested performance stock units that can be converted to up to 1.5 shares per each unit dependent on the performance factor.
|
Item 13.
|
Certain Relationships and Related Transactions, and Director Independence
|
Item 14.
|
Principal Accounting Fees and Services
|
Part IV | Item 15.
|
Exhibits, Financial Statement Schedules
|
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
|
|
Reports of Independent Registered Public Accounting Firm
|
|
Consolidated Statements of Financial Condition as of December 31, 2017 and 2016
|
|
Consolidated Statements of Income for the years ended December 31, 2017, 2016 and 2015
|
|
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 2016 and
2015
|
|
Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2017, 2016 and 2015
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016 and 2015
|
|
Notes to the Consolidated Financial Statements
|
|
|
|
Exhibit
Number
|
|
Description
|
2.1*
|
|
Separation and Distribution Agreement, dated as of June 29, 2007, between Morgan Stanley and Discover Financial Services (filed as
Exhibit 2.1
to Discover Financial Services’ Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto), as amended by the First Amendment to the Separation and Distribution Agreement dated as of June 29, 2007 between Discover Financial Services and Morgan Stanley, dated February 11, 2010 (filed as
Exhibit 10.2
to Discover Financial Services’ Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference thereto).
|
|
|
|
2.2*
|
|
Agreement for the Sale and Purchase of the Goldfish Credit Card Business, dated February 7, 2008, among Discover Financial Services, Goldfish Bank Limited, Discover Bank, SCFC Receivables Corporation, and Barclays Bank Plc (filed as
Exhibit 2.1
to Discover Financial Services’ Current Report on Form 8-K filed on February 7, 2008 and incorporated herein by reference thereto), as amended and restated by Amended and Restated Agreement for the Sale and Purchase of the Goldfish Credit Card Business, dated March 31, 2008, among Discover Financial Services, Goldfish Bank Limited, Discover Bank, SCFC Receivables Corporation, Barclays Bank PLC, and Barclays Group US Inc. (filed as
Exhibit 2.1
to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 14, 2008 and incorporated herein by reference thereto).
|
|
|
|
Exhibit
Number
|
|
Description
|
|
|
Agreement and Plan of Merger by and among Discover Bank, Academy Acquisition Corp. and The Student Loan Corporation dated as of September 17, 2010 (filed as Exhibit 2.3 to Discover Financial Services’ Annual Report on Form 10-K for the fiscal year ended November 30, 2010 filed on January 26, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amended and Restated Certificate of Incorporation of Discover Financial Services (filed as Exhibit 3.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 1, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amended and Restated By-Laws of Discover Financial Services (filed as Exhibit 3.1 to Discover Financial Services’ Current Report on Form 8-K filed on December 19, 2016 and incorporated herein by reference thereto).
|
|
|
|
|
Certificate of Elimination of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Discover Financial Services (filed as Exhibit 3.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on June 26, 2012 and incorporated herein by reference thereto).
|
|
|
|
|
|
Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B (filed as Exhibit 3.1 to Discover Financial Services’ Current Report on Form 8-K filed on October 16, 2012 and incorporated herein by reference thereto).
|
|
|
|
|
|
Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C (filed as Exhibit 3.1 to Discover Financial Services' Current Report on Form 8-K filed on October 31, 2017 and incorporated herein by reference thereto).
|
|
|
|
|
|
Certificate of Elimination of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B (filed as Exhibit 3.1 to Discover Financial Services' Current Report on Form 8-K filed on December 4, 2017 and incorporated herein by reference thereto).
|
|
|
|
|
|
|
Senior Indenture, dated as of June 12, 2007, by and between Discover Financial Services and U.S. Bank National Association, as trustee (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
Subordinated Indenture, dated as of September 8, 2015, by and between Discover Financial Services and U.S. Bank National Association (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on September 8, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated November 16, 2009, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on November 16, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated April 15, 2010, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on April 16, 2010 and incorporated herein by reference thereto).
|
|
|
|
|
|
Deposit Agreement, dated October 31, 2017 (filed as Exhibit 4.1 to Discover Financial Services' Current Report on Form 8-K filed on October 31, 2017 and incorporated herein by reference thereto).
|
|
|
|
|
|
Form of Certificate Representing the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C (filed as Exhibit 4.2 to Discover Financial Services' Current Report on Form 8-K filed on October 31, 2017 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement between Discover Bank and U.S. Bank National Association dated as of February 21, 2013 (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on February 21, 2013 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated as of August 8, 2013, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on August 8, 2013 and incorporated herein by reference thereto).
|
|
|
|
|
Exhibit
Number
|
|
Description
|
|
Fiscal and Paying Agency Agreement, dated as of March 13, 2014, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on March 13, 2014 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated as of August 7, 2014, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K filed on August 7, 2014 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated June 4, 2015, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ current report on Form 8-K filed on June 4, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated August 13, 2015, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ current report on Form 8-K filed on August 13, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Fiscal and Paying Agency Agreement, dated July 27, 2016, between Discover Bank, as issuer, and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’ current report on Form 8-K filed on July 28, 2016 and incorporated herein by reference thereto).
|
|
|
|
|
|
|
Other instruments defining the rights of holders of long-term debt securities of Discover Financial Services and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. Discover Financial Services agrees to furnish copies of these instruments to the SEC upon request
.
|
|
|
|
|
|
Tax Sharing Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
U.S. Employee Matters Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.2 to Discover Financial Services’ Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
Transition Services Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial Services (filed as Exhibit 10.3 to Discover Financial Services’ Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
Transitional Trade Mark License Agreement, dated as of June 30, 2007, between Morgan Stanley & Co. PLC and Goldfish Bank Limited (filed as Exhibit 10.4 to Discover Financial Services’ Current Report on Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amended and Restated Trust Agreement, dated as of December 22, 2015, between Discover Funding LLC, as Beneficiary, and Wilmington Trust Company, as Owner Trustee (filed as Exhibit 4.6 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Third Amended and Restated Pooling and Servicing Agreement, dated as of December 22, 2015, between Discover Bank, as Master Servicer and Servicer, Discover Funding LLC, as Transferor, and U.S. Bank National Association, as Trustee (filed as Exhibit 4.2 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amended and Restated Series Supplement for Series 2007-CC, dated as of December 22, 2015, among Discover Bank, as Master Servicer and Servicer, Discover Funding LLC, as Transferor, and U.S. Bank National Association, as Trustee (filed as Exhibit 4.3 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.8
†
|
|
Discover Financial Services Omnibus Incentive Plan (filed as an attachment to Discover Financial Services’ Proxy Statement on Schedule 14A filed on February 27, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.9
†
|
|
Amended Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.6 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
Exhibit
Number
|
|
Description
|
10.10†
|
|
Directors’ Compensation Plan of Discover Financial Services (filed as
Exhibit 10.3
to Discover Financial Services’ Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference thereto), as amended and restated as of January 20, 2011 (filed as
Exhibit A
to the Discover Financial Services’ definitive proxy statement filed on February 18, 2011 and incorporated herein by reference thereto), as further amended by Amendment No. 2, effective as of December 1, 2011 (filed as
Exhibit 10.10
to the Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2012 and incorporated herein by reference thereto).
|
|
|
|
10.11
†
|
|
Amended Form of Restricted Stock Unit Award Under Discover Financial Services Directors’ Compensation Plan (filed as Exhibit 10.7 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.12†
|
|
Discover Financial Services Employee Stock Purchase Plan (filed as
Exhibit 10.2
to Discover Financial Services’ Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference thereto) as amended by Amendment No. 1 to Discover Financial Services Employee Stock Purchase Plan effective as of May 1, 2008 (filed as
Exhibit 10.12
to Discover Financial Services’ Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto); Amendment No. 2 to Discover Financial Services Employee Stock Purchase Plan, effective as of December 1, 2009 (filed as
Exhibit 10.2
to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 9, 2010 and incorporated herein by reference thereto); and Amendment No. 3 to Discover Financial Services Employee Stock Purchase Plan (filed as
Exhibit 10.3
to Discover Financial Services’ Quarterly Report on Form 10-Q filed on September 28, 2011 and incorporated herein by reference thereto).
|
|
|
|
10.13
†
|
|
Offer of Employment, dated as of January 8, 1999 (filed as Exhibit 10.2 to Discover Financial Services’ Current Report on Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).
|
|
|
|
10.14
†
|
|
Waiver of Change of Control Benefits, dated September 24, 2007 (filed as Exhibit 10.15 to Discover Financial Services’ Registration Statement on Form S-4 filed on November 27, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
Collateral Certificate Transfer Agreement, dated as of July 26, 2007 between Discover Bank, as Depositor and Discover Card Execution Note Trust (filed as Exhibit 4.4 to Discover Bank’s Current Report on Form 8-K filed on July 27, 2007 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amended and Restated Indenture, dated as of December 22, 2015, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.4 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Second Amended and Restated Indenture Supplement for the DiscoverSeries Notes, dated as of December 22, 2015, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.5 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
|
Omnibus Amendment to Indenture Supplement and Terms Documents, dated as of July 2, 2009, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.1 to Discover Bank’s Current Report on Form 8-K filed on July 6, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
10.19
†
|
|
Discover Financial Services Change-in-Control Severance Policy Amended and Restated October 15, 2014 (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on October 16, 2014 and incorporated herein by reference thereto).
|
|
|
|
|
Release and Settlement Agreement, executed as of October 27, 2008, by and among Discover Financial Services, DFS Services, LLC, Discover Bank, and their Subsidiaries and Affiliates; MasterCard Incorporated and MasterCard International Incorporated and their Affiliates; and Visa Inc. and its Affiliates and Predecessors including Visa U.S.A. Inc. and Visa International Service Association (filed as Exhibit 99.1 to Discover Financial Services’ Current Report on Form 8-K filed on October 28, 2008 and incorporated herein by reference thereto).
|
|
|
|
|
10.21
†
|
|
2008 Year End Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.21 to Discover Financial Services’ Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto).
|
|
|
|
Exhibit
Number
|
|
Description
|
10.22
†
|
|
2008 Special Grant Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan (filed as Exhibit 10.22 to Discover Financial Services’ Annual Report on Form 10-K filed on January 28, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
Form of Waiver, executed by each of Discover Financial Services’ senior executive officers and certain other employees (filed as Exhibit 10.3 to Discover Financial Services’ Current Report on Form 8-K filed on March 13, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
|
Form of Executive Compensation Agreement, dated March 13, 2009, executed by each of Discover Financial Services’ senior executive officers and certain other employees (filed as Exhibit 10.4 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 8, 2009 and incorporated herein by reference thereto).
|
|
|
|
|
10.25
†
|
|
Form of Share Award Agreement Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10(a) to Discover Financial Services’ Current Report on Form 8-K filed on December 11, 2009 and incorporated herein by reference thereto).
|
|
|
|
10.26
†
|
|
Amendment to 2009 Year End Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan, effective December 1, 2009 (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 9, 2010 and incorporated herein by reference thereto).
|
|
|
|
|
Settlement Agreement and Mutual Release between Discover Financial Services and Morgan Stanley, dated February 11, 2010 (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by reference thereto).
|
|
|
|
|
|
Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and Discover Bank, dated September 17, 2010 (filed as Exhibit 10.32 to Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
|
Amendment to Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and Discover Bank, dated December 30, 2010 (filed as Exhibit 10.33 to Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
|
Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated September 17, 2010 (filed as Exhibit 10.34 to Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
|
|
First Amendment to Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated December 30, 2010 (filed as Exhibit 10.35 to Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference thereto).
|
|
|
|
10.32
†
|
|
Form Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.4 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 8, 2011 and incorporated herein by reference thereto).
|
|
|
|
10.33
†
|
|
Form Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.5 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 8, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
Asset Purchase Agreement between Discover Bank and Citibank, N.A. dated August 31, 2011 (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on September 28, 2011 and incorporated herein by reference thereto).
|
|
|
|
|
10.35
†
|
|
Form 2012 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 4, 2012 and incorporated herein by reference thereto).
|
|
|
|
10.36
†
|
|
Form 2012 Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 4, 2012 and incorporated herein by reference thereto).
|
|
|
|
Exhibit
Number
|
|
Description
|
10.37
†
|
|
Form 2013 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 30, 2013 and incorporated herein by reference thereto).
|
|
|
|
10.38
†
|
|
Form 2013 Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 30, 2013 and incorporated herein by reference thereto).
|
|
|
|
10.39
†
|
|
Amendment No. 3 to the Directors’ Compensation Plan of Discover Financial Services, effective as of July 1, 2013 (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 30, 2013 and incorporated herein by reference thereto).
|
|
|
|
10.40
†
|
|
Form of 2013 Special Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on December 26, 2013 and incorporated herein by reference thereto).
|
|
|
|
10.41
†
|
|
Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as an attachment to Discover Financial Services’ Proxy Statement on Schedule 14A filed on March 19, 2014 and incorporated herein by reference thereto).
|
|
|
|
10.42
†
|
|
Form 2014 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 29, 2014 and incorporated herein by reference thereto).
|
|
|
|
10.43
†
|
|
Form 2014 Award Certificate for Performance Stock Units Under Discover Financial Services Amended
and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on April 29, 2014 and incorporated herein by reference thereto).
|
|
|
|
10.44
†
|
|
Amendment No. 4 to the Directors’ Compensation Plan of Discover Financial Services, effective as of May 7, 2014 (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on
August 1, 2014 and incorporated herein by reference thereto).
|
|
|
|
10.45
†
|
|
Form 2015 Award Certificate for Cash-Converted Restricted Stock Units Under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.46
†
|
|
Form 2015 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.47
†
|
|
Form 2015 Award Certificate for Performance Stock Units Under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.3 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.48
†
|
|
Form of 2015 Special Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on April 30, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.49
†
|
|
Amendment No. 4 to Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on October 29, 2015 and incorporated herein by reference thereto).
|
|
|
|
10.50
†
|
|
Form of 2015 Special Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on December 21, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
Receivables Sale and Contribution Agreement, dated as of December 22, 2015 between Discover Bank and Discover Funding LLC (filed as Exhibit 4.1 to Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference thereto).
|
|
|
|
|
Exhibit
Number
|
|
Description
|
10.52
†
|
|
Form 2016 Award Certificate for Restricted Stock Units under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.52 to Discover Financial Services’ Annual Report on Form 10-K filed on February 24, 2016 and incorporated herein by reference thereto).
|
|
|
|
10.53
†
|
|
Form 2016 Award Certificate for Performance Stock Units under Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.53 to Discover Financial Services’ Annual Report on Form 10-K filed on February 24, 2016 and incorporated herein by reference thereto).
|
|
|
|
10.54
†
|
|
Amendment No. 5 to Directors’ Compensation Plan of Discover Financial Services, effective as of January 1, 2017 (filed as Exhibit 10.54 to Discover Financial Services’ Annual Report on Form 10-K filed on February 23, 2017 and incorporated herein by reference thereto).
|
|
|
|
10.55
†
|
|
Form 2017 Award Certificate for Restricted Stock Units under Discover Financial Services Amended and
Restated Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on May 2, 2017 and incorporated herein by reference thereto).
|
|
|
|
10.56
†
|
|
Form 2017 Award Certificate for Performance Stock Units under Discover Financial Services Amended and Restated Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on May 2, 2017 and incorporated herein by reference thereto.
|
|
|
|
|
Statement Re: Computation of Per Share Earnings (the calculation of per share earnings is in Part II, Item 8, Note 16: Earnings Per Share to the consolidated financial statements and is omitted in accordance with Section (b)(11) of Item 601 of Regulation S-K).
|
|
|
|
|
|
Statement Re: Computation of Ratio of Earnings to Fixed Charges and Computation of Ratio of Earnings to Fixed Charges and Preferred Stock Dividends.
|
|
|
|
|
|
Subsidiaries of the Registrant.
|
|
|
|
|
|
Consent of Independent Registered Public Accounting Firm.
|
|
|
|
|
|
Powers of Attorney (included on signature page).
|
|
|
|
|
|
Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
|
|
Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of 1934.
|
|
|
|
|
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
|
|
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
*
|
We agree to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon the request of the Commission in accordance with Item 601(b)(2) of Regulation S-K.
|
†
|
Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 15(b) of this report.
|
Item 16.
|
Form 10-K Summary
|
|
Discover Financial Services
(Registrant)
|
||
|
|
|
|
|
By:
|
|
/s/ R. M
ARK
G
RAF
|
|
|
|
R. Mark Graf
Executive Vice President, Chief Financial Officer
|
Signature
|
Title
|
|
|
/
S
/ D
AVID
W. N
ELMS
|
Chairman and Chief Executive Officer
|
David W. Nelms
|
|
|
|
/
S
/ R
.
M
ARK
G
RAF
|
Executive Vice President, Chief Financial Officer (Principal Financial Officer)
|
R. Mark Graf
|
|
|
|
/
S
/ E
DWARD
W. M
c
G
ROGAN
|
Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)
|
Edward W. McGrogan
|
|
|
|
/
S
/ L
AWRENCE
A. W
EINBACH
|
Lead Director
|
Lawrence A. Weinbach
|
|
|
|
/
S
/ J
EFFREY
S. A
RONIN
|
Director
|
Jeffrey S. Aronin
|
|
|
|
/
S
/ M
ARY
K. B
USH
|
Director
|
Mary K. Bush
|
|
|
|
/
S
/ G
REGORY
C. C
ASE
|
Director
|
Gregory C. Case
|
|
|
|
/
S
/ C
ANDACE
H. D
UNCAN
|
Director
|
Candace H. Duncan
|
|
|
|
/
S
/ J
OSEPH
F. E
AZOR
|
Director
|
Joseph F. Eazor
|
|
|
|
/
S
/ C
YNTHIA
A. G
LASSMAN
|
Director
|
Cynthia A. Glassman
|
|
|
|
/
S
/ R
ICHARD
H. L
ENNY
|
Director
|
Richard H. Lenny
|
|
|
|
/
S
/ T
HOMAS
G. M
AHERAS
|
Director
|
Thomas G. Maheras
|
|
|
|
/
S
/ M
ICHAEL
H. M
OSKOW
|
Director
|
Michael H. Moskow
|
|
|
|
/
S
/ M
ARK
A
.
T
HIERER
|
Director
|
Mark A. Thierer
|
|
|
For the Calendar Years Ended December 31,
|
|
For the Fiscal Year Ended November 30, 2012
|
|
For the One Month Ended December 31, 2012
|
||||||||||||||||||||||
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|
2013
|
|
|
||||||||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Income before income tax expense
|
$
|
3,537
|
|
|
$
|
3,656
|
|
|
$
|
3,612
|
|
|
$
|
3,694
|
|
|
$
|
3,944
|
|
|
$
|
3,753
|
|
|
$
|
274
|
|
Losses from unconsolidated investees
|
55
|
|
|
58
|
|
|
50
|
|
|
29
|
|
|
18
|
|
|
12
|
|
|
1
|
|
|||||||
Total earnings
|
$
|
3,592
|
|
|
$
|
3,714
|
|
|
$
|
3,662
|
|
|
$
|
3,723
|
|
|
$
|
3,962
|
|
|
$
|
3,765
|
|
|
$
|
275
|
|
Fixed charges:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Total interest expense
|
$
|
1,648
|
|
|
$
|
1,398
|
|
|
$
|
1,263
|
|
|
$
|
1,134
|
|
|
$
|
1,146
|
|
|
$
|
1,331
|
|
|
$
|
103
|
|
Interest factor in rents
|
4
|
|
|
5
|
|
|
6
|
|
|
5
|
|
|
5
|
|
|
6
|
|
|
1
|
|
|||||||
Total fixed charges
|
$
|
1,652
|
|
|
$
|
1,403
|
|
|
$
|
1,269
|
|
|
$
|
1,139
|
|
|
$
|
1,151
|
|
|
$
|
1,337
|
|
|
$
|
104
|
|
Combined fixed charges and preferred stock dividends:
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Total interest expense
|
$
|
1,648
|
|
|
$
|
1,398
|
|
|
$
|
1,263
|
|
|
$
|
1,134
|
|
|
$
|
1,146
|
|
|
$
|
1,331
|
|
|
$
|
103
|
|
Interest factor in rents
|
4
|
|
|
5
|
|
|
6
|
|
|
5
|
|
|
5
|
|
|
6
|
|
|
1
|
|
|||||||
Preferred stock dividends
|
87
|
|
|
57
|
|
|
59
|
|
|
60
|
|
|
60
|
|
|
—
|
|
|
—
|
|
|||||||
Total combined fixed charges and preferred stock dividends
|
$
|
1,739
|
|
|
$
|
1,460
|
|
|
$
|
1,328
|
|
|
$
|
1,199
|
|
|
$
|
1,211
|
|
|
$
|
1,337
|
|
|
$
|
104
|
|
Earnings before income tax expense and fixed charges
|
$
|
5,244
|
|
|
$
|
5,117
|
|
|
$
|
4,931
|
|
|
$
|
4,862
|
|
|
$
|
5,113
|
|
|
$
|
5,102
|
|
|
$
|
379
|
|
Earnings before income tax expense and combined fixed charges and preferred stock dividends
|
$
|
5,331
|
|
|
$
|
5,174
|
|
|
$
|
4,990
|
|
|
$
|
4,922
|
|
|
$
|
5,173
|
|
|
$
|
5,102
|
|
|
$
|
379
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Ratio of earnings to fixed charges
|
3.2
|
|
|
3.6
|
|
|
3.9
|
|
|
4.3
|
|
|
4.4
|
|
|
3.8
|
|
|
3.6
|
|
|||||||
Ratio of earnings to combined fixed charges and preferred stock dividends
|
3.1
|
|
|
3.5
|
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3.8
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4.1
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4.3
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3.8
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3.6
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(1)
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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. Combined fixed charges and preferred stock requirements are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness, an estimate of interest within rental expense and preference security dividend requirements.
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1.
|
I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”);
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2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ D
AVID
W. N
ELMS
|
|
David W. Nelms
|
|
Chairman of the Board and
Chief Executive Officer
|
|
1.
|
I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”);
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a)
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b)
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c)
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d)
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
|
a)
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b)
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
/s/ R. M
ARK
G
RAF
|
|
R. Mark Graf
|
|
Executive Vice President, Chief Financial Officer
|
|
1.
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
2.
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
/s/ D
AVID
W. N
ELMS
|
|
David W. Nelms
|
|
Chairman of the Board and Chief Executive Officer
|
|
/s/ R. M
ARK
G
RAF
|
|
R. Mark Graf
|
|
Executive Vice President, Chief Financial Officer
|
|