discover financial servicesd18rn0p25nwr6d.cloudfront.net/cik-0001393612/d74327ed-c... · 2019. 4....

UNITED STATESSECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 8-K

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

Date of Report (Date of earliest event reported): April 25, 2019

DISCOVER FINANCIAL SERVICES(Exact name of registrant as specified in its charter)

Commission File Number: 001-33378

Delaware 36-2517428(State or other jurisdiction

of incorporation) (IRS Employer

Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015(Address of principal executive offices, including zip code)

(224) 405-0900(Registrant's telephone number, including area code)

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

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

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

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

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

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

oo

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

Emerging growth company

oo

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

Item 2.02. Results of Operations and Financial Condition.

On April 25, 2019 , Discover Financial Services (the “Company”) released financial information with respect to the quarter ended March 31, 2019 . Copies of the press release, financial data supplement and financialresults presentation containing this information are attached hereto as exhibits and incorporated herein by reference.

The information contained in this Item 2.02 of this Current Report on Form 8-K, including the exhibits, is furnished pursuant to Item 2.02 of Form 8-K and shall not be deemed to be "filed" for purposes of Section 18 ofthe Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or theSecurities Exchange Act of 1934, as amended, except as shall be expressly stated by specific reference in such filing.

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No. Description99.1 Press Release of the Company dated April 25, 2019 containing financial information for the quarter ended March 31, 201999.2 Financial Data Supplement of the Company for the quarter and the Three Months Ended March 31, 201999.3 Financial Results Presentation of the Company for the quarter ended March 31, 2019

SIGNATURES

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

DISCOVER FINANCIAL SERVICES Dated: April 25, 2019 By: /s/ D. Christopher Greene Name: D. Christopher Greene Title: Vice President, Acting General Counsel and Secretary

EXHIBIT INDEX

Exhibit No. Description99.1 Press Release of the Company dated April 25, 2019 containing financial information for the quarter ended March 31, 201999.2 Financial Data Supplement of the Company for the quarter and the Three Months Ended March 31, 201999.3 Financial Results Presentation of the Company for the quarter ended March 31, 2019

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FIRST QUARTER NET INCOME OF $726 MILLION

OR $2.15 PER DILUTED SHARE

First Quarter Results

2019 2018 YOY ChangeTotal loans, end of period (in billions) $88.7 $82.7 7%Total revenue net of interest expense (in millions) $2,763 $2,575 7%Total net charge-off rate 3.25% 3.09% 16 bpsNet income (in millions) $726 $666 9%Diluted EPS $2.15 $1.82 18%

Riverwoods, IL, April 25, 2019 - Discover Financial Services (NYSE: DFS) today reported net income of $726 million or $2.15 per diluted share for the first quarter of 2019 , as compared to $666 million or $1.82 per diluted share for thefirst quarter of 2018 . The company’s return on equity for the first quarter of 2019 was 26% .

“Once again, this quarter showed the power of the Discover business model to deliver outstanding shareholder returns. Our solid execution on growth initiatives, effective credit risk management and operating efficiency drove strongprofitability," said Roger Hochschild, CEO and president of Discover. "The Discover brand and our reputation for outstanding service continue to resonate with our customers and drive competitive differentiation."

Segment Results:

Direct Banking

Direct Banking pretax income of $879 million increased by $68 million from the prior year driven by higher net interest income, partially offset by an increase in the provision for loan losses and higher operating expenses.

Total loans ended the quarter at $ 88.7 billion, up 7% compared to the prior year. Credit card loans ended the quarter at $70.8 billion , up 8% from the prior year. Personal loans increased $121 million , or 2% , from the prior year. Privatestudent loans increased $230 million , or 2% , year-over-year, and grew $655 million , or 9% , excluding purchased student loans.

Net interest income increased $205 million , or 10% , from the prior year, driven by loan growth and net interest margin expansion. Net interest margin was 10.46% , up 23 basis points versus the prior year. Card yield was 13.42% , anincrease of 57 basis points from the prior year as a result of increases in the prime rate, partially offset by a change in portfolio mix and higher interest charge-offs. Interest expense as a percent of total loans increased 59 basis points fromthe prior year, primarily as a result of higher market rates.

Other income decreased $22 million , or 6% , from the prior year, driven by higher promotional rewards cost.

The 30+ day delinquency rate for credit card loans was 2.45% , up 12 basis points from the prior year and 2 basis points from the prior quarter. The credit card net charge-off rate was 3.50% , up 18 basis points from the prior year and 27basis points from the prior quarter. The student loan net charge-off rate, excluding PCI loans, was 0.79% , down 38 basis points from the prior year. The personal loans net charge-off rate of 4.53% increased by 50 basis points from theprior year. Net charge-off rates were generally higher because of the seasoning of recent years' loan growth and supply-driven credit normalization.

Provision for loan losses of $809 million increased $58 million from the prior year due to higher net charge-offs, partially offset by a lower reserve build. The reserve build for the first quarter of 2019 was $94 million, compared to a reservebuild of $116 million in the first quarter of 2018.

Expenses increased $57 million from the prior year primarily as a result of higher employee compensation and information processing expenses. Employee compensation increased as a result of higher average salaries. Informationprocessing increased due to ongoing investments in infrastructure and analytic capabilities.

Payment Services

Payment Services pretax income was $51 million in the quarter, up $6 million from the prior year, due to higher revenue driven by transaction volume growth.

Payment Services transaction dollar volume was $61.0 billion , up 9% versus the prior year. PULSE transaction dollar volume was up 9% year-over-year, which reflects the impact of new issuers on the network as well as strong growthfrom existing issuers. Network Partners volume increased by 24% from the prior year driven by AribaPay.

Share Repurchases

During the first quarter of 2019 , the company repurchased approximately 7.2 million shares of common stock for $487 million. Shares of common stock outstanding declined by 1.8% from the prior quarter.

Conference Call and Webcast Information

The company will host a conference call to discuss its first quarter results on Thursday, April 25, 2019, at 5:00 p.m. Central time. Interested parties can listen to the conference call via a live audio webcast athttps://investorrelations.discover.com.

About Discover

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

Contacts:

Investors:

Craig Streem, 224-405-5923

[email protected]

Media:

Jon Drummond, 224-405-1888

[email protected]

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

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

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

Additional factors that could cause the company's results to differ materially from those described in the forward-looking statements can be found under “Risk Factors,” “Business - Competition,” “Business - Supervision and Regulation”and “Management's Discussion and Analysis of Financial Condition and Results of Operations” in the company's Annual Report on Form 10-K for the year ended December 31, 2018, which is filed with the SEC and available at the SEC'sinternet site (http://www.sec.gov).

DISCOVER FINANCIAL SERVICES Exhibit 99.2

EARNINGS SUMMARY

(unaudited, in millions, except per share statistics)

Quarter Ended

Mar 31, 2019 Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Mar 31, 2018 Mar 31, 2019 vs. Mar 31, 2018

EARNINGS SUMMARY

Interest Income $2,937 $2,907 $2,781 $2,636 $2,569 $368 14%

Interest Expense 632 605 558 507 469 163 35%

Net Interest Income 2,305 2,302 2,223 2,129 2,100 205 10%

Discount/Interchange Revenue 677 752 753 724 646 31 5%

Rewards Cost 446 475 473 461 392 54 14%

Discount and Interchange Revenue, net 231 277 280 263 254 (23) (9%)

Protection Products Revenue 49 50 51 50 53 (4) (8%)

Loan Fee Income 104 108 103 95 96 8 8%

Transaction Processing Revenue 46 46 47 42 43 3 7%

Other Income 28 24 20 24 29 (1) (3%)

Total Other Income 458 505 501 474 475 (17) (4%) Revenue Net of Interest Expense 2,763 2,807 2,724 2,603 2,575 188 7% Provision for Loan Losses 809 800 742 742 751 58 8% Employee Compensation and Benefits 425 414 408 400 405 20 5%

Marketing and Business Development 195 230 218 224 185 10 5%

Information Processing & Communications 99 93 89 86 82 17 21%

Professional Fees 167 190 166 161 155 12 8%

Premises and Equipment 28 26 26 24 26 2 8%

Other Expense 110 157 108 89 115 (5) (4%)

Total Other Expense 1,024 1,110 1,015 984 968 56 6% Income Before Income Taxes 930 897 967 877 856 74 9%

Tax Expense 204 210 247 208 190 14 7%

Net Income $726 $687 $720 $669 $666 $60 9%

Net Income Allocated to Common Stockholders $705 $681 $699 $663 $646 $59 9%

Effective Tax Rate 21.9% 23.5% 25.5% 23.7% 22.2% Net Interest Margin 10.46% 10.35% 10.28% 10.21% 10.23% 23 bps

Operating Efficiency 37.1% 39.6% 37.2% 37.8% 37.6% (50) bps

ROE 26% 25% 26% 25% 25%

Capital Returned to Common Stockholders $601 $578 $580 $656 $684 ($83) (12%)

Payout Ratio 85% 85% 83% 99% 106% Ending Common Shares Outstanding 325 331 338 344 351 (26) (7%)

Weighted Average Common Shares Outstanding 328 335 341 348 355 (27) (8%)

Weighted Average Common Shares Outstanding (fully diluted) 328 335 342 348 355 (27) (8%) PER SHARE STATISTICS

Basic EPS $2.15 $2.04 $2.05 $1.91 $1.82 $0.33 18%

Diluted EPS $2.15 $2.03 $2.05 $1.91 $1.82 $0.33 18%

Common Stock Price (period end) $71.16 $58.98 $76.45 $70.41 $71.93 ($0.77) (1%)

Book Value per share $34.60 $33.58 $32.60 $31.66 $30.93 $3.67 12% Note: See Glossary of Financial Terms for definitions of financial terms

DISCOVER FINANCIAL SERVICES

EARNINGS SUMMARY

(unaudited, in millions)

Quarter Ended


SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $879 $874 $923 $837 $811 $68 8%

Payment Services 51 23 44 40 45 6 13%

Total $930 $897 $967 $877 $856 $74 9%

TRANSACTIONS PROCESSED ON NETWORKS

Discover Network 605 663 642 614 550 55 10%

PULSE Network 1,132 1,169 1,151 1,055 989 143 14%

Total 1,737 1,832 1,793 1,669 1,539 198 13%

NETWORK VOLUME

PULSE Network $47,106 $47,082 $45,244 $44,308 $43,158 $3,948 9%

Network Partners 5,663 4,680 5,113 4,602 4,553 1,110 24%

Diners Club International 1 8,278 8,700 8,370 8,417 8,390 (112) (1%)

Total Payment Services 61,047 60,462 58,727 57,327 56,101 4,946 9%

Discover Network - Proprietary 34,051 38,502 36,642 36,339 32,382 1,669 5%

Total $95,098 $98,964 $95,369 $93,666 $88,483 $6,615 7%

1 Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment

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


BALANCE SHEET SUMMARY


Quarter Ended


BALANCE SHEET SUMMARY

Assets

Cash and Investment Securities $21,456 $18,515 $18,410 $17,441 $18,641 $2,815 15%

Total Loan Receivables 88,743 90,512 86,894 84,789 82,744 5,999 7%

Allowance for Loan Losses (3,134) (3,041) (2,927) (2,828) (2,736) (398) (15%)

Net Loan Receivables 85,609 87,471 83,967 81,961 80,008 5,601 7%

Premises and Equipment, net 980 936 896 874 848 132 16%

Goodwill and Intangible Assets, net 415 416 417 417 417 (2) —%

Other Assets 2,260 2,215 2,152 2,058 2,053 207 10%

Total Assets $110,720 $109,553 $105,842 $102,751 $101,967 $8,753 9%

Liabilities & Stockholders' Equity

Direct to Consumer and Affinity Deposits $47,730 $44,669 $43,411 $42,256 $41,321 $6,409 16%

Brokered Deposits and Other Deposits 21,186 23,090 20,263 19,427 19,809 1,377 7%

Deposits 68,916 67,759 63,674 61,683 61,130 7,786 13%

Borrowings 26,276 27,228 26,998 26,252 26,244 32 —%

Accrued Expenses and Other Liabilities 4,269 3,436 4,154 3,927 3,722 547 15%

Total Liabilities 99,461 98,423 94,826 91,862 91,096 8,365 9%

Total Equity 11,259 11,130 11,016 10,889 10,871 388 4%

Total Liabilities and Stockholders' Equity $110,720 $109,553 $105,842 $102,751 $101,967 $8,753 9%

LIQUIDITY

Liquidity Portfolio $20,050 $15,923 $16,370 $15,703 $17,550 2,500 14%

Undrawn Credit Facilities 1 37,870 36,986 36,257 36,422 35,099 2,771 8%

Total Liquidity $57,920 $52,909 $52,627 $52,125 $52,649 $5,271 10%

1 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio Note: See Glossary of Financial Terms for definitions of financial terms


BALANCE SHEET STATISTICS


Quarter Ended


BALANCE SHEET STATISTICS

Total Common Equity $10,696 $10,567 $10,453 $10,326 $10,308 $388 4%

Total Common Equity/Total Assets 9.7% 9.6% 9.9% 10.1% 10.1%

Total Common Equity/Net Loans 12.5% 12.1% 12.4% 12.6% 12.9% Tangible Assets $110,305 $109,137 $105,425 $102,334 $101,550 $8,755 9%

Tangible Common Equity 1 $10,281 $10,151 $10,036 $9,909 $9,891 $390 4%

Tangible Common Equity/Tangible Assets 1 9.3% 9.3% 9.5% 9.7% 9.7%

Tangible Common Equity/Net Loans 1 12.0% 11.6% 12.0% 12.1% 12.4%

Tangible Common Equity per share 1 $31.60 $30.63 $29.70 $28.82 $28.15 $3.45 12% REGULATORY CAPITAL RATIOS Basel III Transition

Total Risk Based Capital Ratio 13.9% 13.5% 13.9% 13.6% 14.0%

Tier 1 Risk Based Capital Ratio 12.1% 11.7% 12.1% 12.3% 12.5%

Tier 1 Leverage Ratio 10.0% 10.1% 10.4% 10.5% 10.6%

Common Equity Tier 1 Capital Ratio 11.5% 11.1% 11.4% 11.6% 11.9% 1 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure see Reconciliation of GAAP to non-GAAP Data schedule Note: See Glossary of Financial Terms for definitions of financial terms

DISCOVER FINANCIAL SERVICESAVERAGE BALANCE SHEET(unaudited, in millions)

Quarter Ended


AVERAGE BALANCES

Assets

Cash and Investment Securities $18,417 $17,660 $16,474 $16,395 $15,058 $3,359 22%

Restricted Cash 804 609 638 466 821 (17) (2%)

Credit Card Loans 71,363 70,563 68,613 66,594 65,983 5,380 8%

Private Student Loans 9,654 9,344 9,158 9,219 9,432 222 2%

Personal Loans 7,468 7,540 7,460 7,304 7,387 81 1%

Other Loans 868 760 624 531 452 416 92%

Total Loans 89,353 88,207 85,855 83,648 83,254 6,099 7%

Total Interest Earning Assets 108,574 106,476 102,967 100,509 99,133 9,441 10%

Allowance for Loan Losses (3,040) (2,924) (2,827) (2,731) (2,615) (425) (16%)

Other Assets 4,455 4,520 4,377 4,170 4,221 234 6%

Total Assets $109,989 $108,072 $104,517 $101,948 $100,739 $9,250 9%

Liabilities and Stockholders' Equity

Direct to Consumer and Affinity Deposits $45,841 $43,514 $42,498 $41,459 $39,825 $6,016 15%

Brokered Deposits and Other Deposits 21,799 21,574 19,939 19,166 19,638 2,161 11%

Total Interest-bearing Deposits 67,640 65,088 62,437 60,625 59,463 8,177 14%

Short-term Borrowings 1 2 3 1 1 — —%

Securitized Borrowings 15,865 16,427 16,141 16,121 16,180 (315) (2%)

Other Long-term Borrowings 10,711 10,756 10,351 9,866 9,945 766 8%

Total Interest-bearing Liabilities 94,217 92,273 88,932 86,613 85,589 8,628 10%

Other Liabilities & Stockholders' Equity 15,772 15,799 15,585 15,335 15,150 622 4%

Total Liabilities and Stockholders' Equity $109,989 $108,072 $104,517 $101,948 $100,739 $9,250 9%

AVERAGE RATES

Assets

Cash and Investment Securities 2.51% 2.35% 2.01% 1.82% 1.57% 94 bps

Restricted Cash 2.35% 2.28% 1.92% 1.85% 1.68% 67 bps

Credit Card Loans 13.42% 13.20% 13.06% 12.88% 12.85% 57 bps

Private Student Loans 8.63% 8.31% 8.19% 8.05% 7.89% 74 bps

Personal Loans 12.86% 12.76% 12.66% 12.55% 12.43% 43 bps

Other Loans 6.85% 6.57% 6.38% 6.02% 5.98% 87 bps

Total Loans 12.79% 12.59% 12.45% 12.28% 12.21% 58 bps

Total Interest Earning Assets 10.97% 10.83% 10.72% 10.52% 10.51% 46 bps

Liabilities and Stockholders' Equity

Direct to Consumer and Affinity Deposits 2.15% 2.00% 1.88% 1.71% 1.59% 56 bps

Brokered Deposits and Other Deposits 2.67% 2.58% 2.51% 2.33% 2.19% 48 bps

Total Interest-bearing Deposits 2.32% 2.20% 2.08% 1.90% 1.79% 53 bps

Short-term Borrowings 2.59% 2.42% 2.09% 1.89% 1.75% 84 bps

Securitized Borrowings 3.05% 2.87% 2.71% 2.67% 2.43% 62 bps

Other Long-term Borrowings 4.81% 4.65% 4.56% 4.57% 4.49% 32 bps

Total Interest-bearing Liabilities 2.72% 2.60% 2.49% 2.35% 2.22% 50 bps

Net Interest Margin 10.46% 10.35% 10.28% 10.21% 10.23% 23 bps

Net Yield on Interest-earning Assets 8.61% 8.57% 8.57% 8.50% 8.59% 2 bps



LOAN STATISTICS


Quarter Ended


TOTAL LOAN RECEIVABLES

Ending Loans 1, 2 $88,743 $90,512 $86,894 $84,789 $82,744 $5,999 7%

Average Loans 1, 2 $89,353 $88,207 $85,855 $83,648 $83,254 $6,099 7% Interest Yield 12.79% 12.59% 12.45% 12.28% 12.21% 58 bps

Gross Principal Charge-off Rate 4.02% 3.77% 3.63% 3.78% 3.74% 28 bps

Gross Principal Charge-off Rate excluding PCI Loans 3 4.10% 3.85% 3.71% 3.87% 3.84% 26 bps

Net Principal Charge-off Rate 3.25% 3.08% 2.97% 3.11% 3.09% 16 bps

Net Principal Charge-off Rate excluding PCI Loans 3 3.31% 3.14% 3.03% 3.18% 3.17% 14 bps

Delinquency Rate (30 or more days) excluding PCI Loans 3 2.28% 2.31% 2.22% 2.08% 2.23% 5 bps

Delinquency Rate (90 or more days) excluding PCI Loans 3 1.10% 1.08% 1.00% 0.99% 1.06% 4 bps

Gross Principal Charge-off Dollars $887 $839 $785 $789 $769 $118 15%

Net Principal Charge-off Dollars $715 $686 $642 $649 $635 $80 13%

Net Interest and Fee Charge-off Dollars $158 $142 $135 $138 $136 $22 16%

Loans Delinquent 30 or more days 3 $1,988 $2,049 $1,894 $1,725 $1,800 $188 10%

Loans Delinquent 90 or more days 3 $959 $961 $854 $821 $855 $104 12% Allowance for Loan Loss (period end) $3,134 $3,041 $2,927 $2,828 $2,736 $398 15%

Reserve Change Build/ (Release) 4 $94 $114 $100 $93 $116 ($22)

Reserve Rate 3.53% 3.36% 3.37% 3.34% 3.31% 22 bps

Reserve Rate Excluding PCI Loans 3 3.57% 3.39% 3.41% 3.38% 3.35% 22 bps CREDIT CARD LOANS

Ending Loans $70,789 $72,876 $69,253 $67,812 $65,577 $5,212 8%

Average Loans $71,363 $70,563 $68,613 $66,594 $65,983 $5,380 8% Interest Yield 13.42% 13.20% 13.06% 12.88% 12.85% 57 bps

Gross Principal Charge-off Rate 4.40% 4.01% 3.90% 4.12% 4.08% 32 bps


Delinquency Rate (30 or more days) 2.45% 2.43% 2.32% 2.16% 2.33% 12 bps

Delinquency Rate (90 or more days) 1.26% 1.22% 1.12% 1.09% 1.18% 8 bps

Gross Principal Charge-off Dollars $774 $713 $674 $684 $663 $111 17%

Net Principal Charge-off Dollars $616 $575 $543 $555 $540 $76 14%

Loans Delinquent 30 or more days $1,731 $1,772 $1,608 $1,466 $1,529 $202 13%

Loans Delinquent 90 or more days $891 $887 $777 $743 $777 $114 15% Allowance for Loan Loss (period end) $2,622 $2,528 $2,424 $2,334 $2,252 $370 16%

Reserve Change Build/ (Release) $94 $104 $90 $82 $105 ($11)

Reserve Rate 3.70% 3.47% 3.50% 3.44% 3.43% 27 bps Total Discover Card Volume $36,386 $40,655 $39,414 $38,430 $34,327 $2,059 6%

Discover Card Sales Volume $32,899 $37,208 $35,896 $35,077 $30,850 $2,049 7%

Rewards Rate 1.35% 1.28% 1.31% 1.31% 1.27% 8 bps 1 Total Loans includes Home Equity and other loans 2 Purchased Credit Impaired ("PCI") loans are loans that were acquired in which a deterioration in credit quality occurred between the origination date and the acquisition date. These loans were initially recorded at fair value and accrete interest income over the estimated lives of the loans as long as cashflows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables 3 Excludes PCI loans (described above) which are accounted for on a pooled basis. Since a pool is accounted for as a single asset with a single composite interest rate and aggregate expectation of cash flows, the past-due status of a pool, or that of the individual loans within a pool, is not meaningful. Becausethe Company is recognizing interest income on a pool of loans, it is all considered to be performing 4 Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses Note: See Glossary of Financial Terms for definitions of financial terms


LOAN STATISTICS


Quarter Ended


PRIVATE STUDENT LOANS

Ending Loans (excluding PCI) $8,071 $7,728 $7,668 $7,260 $7,416 $655 9%

Ending PCI Loans 1 1,531 1,637 1,735 1,842 1,956 (425) (22%)

Ending Loans $9,602 $9,365 $9,403 $9,102 $9,372 $230 2% Interest Yield 8.63% 8.31% 8.19% 8.05% 7.89% 74 bps

Net Principal Charge-off Rate 0.66% 0.86% 0.96% 0.92% 0.92% (26) bps

Net Principal Charge-off Rate excluding PCI Loans 2 0.79% 1.05% 1.19% 1.16% 1.17% (38) bps

Delinquency Rate (30 or more days) excluding PCI Loans 2 1.76% 2.00% 2.13% 2.10% 2.25% (49) bps Reserve Rate 1.75% 1.80% 1.80% 1.87% 1.82% (7) bps

Reserve Rate excluding PCI Loans 2 1.78% 1.85% 1.87% 1.97% 1.93% (15) bps PERSONAL LOANS

Ending Loans $7,428 $7,454 $7,545 $7,304 $7,307 $121 2% Interest Yield 12.86% 12.76% 12.66% 12.55% 12.43% 43 bps


Delinquency Rate (30 or more days) 1.51% 1.60% 1.57% 1.42% 1.37% 14 bps Reserve Rate 4.55% 4.53% 4.28% 4.29% 4.12% 43 bps

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

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



SEGMENT RESULTS


Quarter Ended


DIRECT BANKING

Interest Income $2,937 $2,906 $2,781 $2,636 $2,569 $368 14%

Interest Expense 632 605 558 507 469 163 35%

Net Interest Income 2,305 2,301 2,223 2,129 2,100 205 10%

Other Income 372 432 421 398 394 (22) (6%)

Revenue Net of Interest Expense 2,677 2,733 2,644 2,527 2,494 183 7%

Provision for Loan Losses 809 800 742 742 751 58 8%

Total Other Expense 989 1,059 979 948 932 57 6%

Income Before Income Taxes $879 $874 $923 $837 $811 $68 8%

Net Interest Margin 10.46% 10.35% 10.28% 10.21% 10.23% 23 bps

Pretax Return on Loan Receivables 3.99% 3.93% 4.27% 4.01% 3.95% 4 bps Allowance for Loan Loss (period end) $3,133 $3,039 $2,920 $2,821 $2,728 $405 15%

Reserve Change Build/ (Release) 1 $94 $120 $100 $93 $116 ($22)

PAYMENT SERVICES

Interest Income $— $1 $— $— $— $— NM

Interest Expense — — — — — — NM

Net Interest Income — 1 — — — — NM

Other Income 86 73 80 76 81 5 6%

Revenue Net of Interest Expense 86 74 80 76 81 5 6%

Provision for Loan Losses — — — — — — NM

Total Other Expense 35 51 36 36 36 (1) (3%)

Income Before Income Taxes $51 $23 $44 $40 $45 $6 13%

1 Allowance for loan loss includes the net change in reserves on PCI pools having no remaining non-accretable difference which does not impact the reserve change build/(release) in provision for loan losses Note: See Glossary of Financial Terms for definitions of financial terms

DISCOVER FINANCIAL SERVICESGLOSSARY OF FINANCIAL TERMS Book Value per share represents total equity divided by ending common shares outstanding Capital Returned to Common Stockholders represents common stock dividends declared plus treasury share repurchases minus common stock issued under employee benefit plans and stock based compensation

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

Delinquency Rate (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective loans, as appropriate ) Delinquency Rate (90 or more days) represents loans delinquent ninety days or more divided by ending loans (total or respective loans, as appropriate)

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

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

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

Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding Effective Tax Rate represents tax expense divided by income before income taxes Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period

Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities Net Interest Margin represents net interest income (annualized) divided by average total loans for the period Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period

Operating Efficiency represents total other expense divided by revenue net of interest expense Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders

Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period Proprietary Network Volume represents gross proprietary sales volume on the Discover Network

Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. Under Basel III, for a Bank Holding Company to be considered "well-capitalized," total risk-based and tier 1 risk-based capital ratios of 10% and 6% respectively must be maintained. Under Basel III, to meet the regulatory minimum a Bank Holding Company must maintain total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 8%, 6%, 4%, and 4.5% respectively. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III Reserve Rate represents the allowance for loan losses divided by total loans Return on Equity represents net income (annualized) divided by average total equity for the reporting period Rewards Rate represents rewards cost divided by Discover Card sales volume

Tangible Assets represents total assets less goodwill and intangibles Tangible Common Equity ("TCE") , a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP data schedule Tangible Common Equity/Net Loans , a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end) Tangible Common Equity per Share , a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding Tangible Common Equity/Tangible Assets , a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles

Total Volume represents the transaction dollar volume from the PULSE network, Network Partners, Diners Club and proprietary Discover Network Undrawn Credit Facilities represents asset-backed conduit funding facilities and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio)

DISCOVER FINANCIAL SERVICESRECONCILIATION OF GAAP TO NON-GAAP DATA(unaudited, in millions) Quarter Ended

Mar 31, 2019 Dec 31, 2018 Sep 30, 2018 Jun 30, 2018 Mar 31, 2018

GAAP Total Common Equity $10,696 $10,567 $10,453 $10,326 $10,308

Less: Goodwill (255) (255) (255) (255) (255)

Less: Intangibles (160) (161) (162) (162) (162)

Tangible Common Equity 1 $10,281 $10,151 $10,036 $9,909 $9,891

GAAP Book Value Per Share $34.60 $33.58 $32.60 $31.66 $30.93

Less: Goodwill (0.78) (0.77) (0.76) (0.73) (0.72)

Less: Intangibles (0.49) (0.48) (0.48) (0.47) (0.46)

Less: Preferred Stock (1.73) (1.70) (1.66) (1.64) (1.60)

Tangible Common Equity Per Share $31.60 $30.63 $29.70 $28.82 $28.15

1 Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents common equity less goodwill and intangibles. A reconciliation of TCE to common equity, a GAAP financial measure, is shown above. Other financial services companies may also use TCE anddefinitions may vary, so users of this information are advised to exercise caution in comparing TCE of different companies. TCE is included because management believes that common equity excluding goodwill and intangibles is a more meaningful measure to investors of thetrue net asset value of the Company


Notice The following slides are part of a presentation by Discover Financial Services (the "Company") in connection with reporting quarterly financial results and are intended to be viewed as part of that presentation. No representation is made that the information in these slides is complete. For additional financial, statistical, and business related information, as well as information regarding business and segment trends, see the earnings release and financial supplement included as exhibits to the Company’s Current Report on Form 8-K filed today and available on the Company’s website (www.discover.com) and the SEC’s website (www.sec.gov). The presentation contains forward-looking statements. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date on which they are made, which reflect management’s estimates, projections, expectations or beliefs at that time, and which are subject to risks and uncertainties that may cause actual results to differ materially. For a discussion of certain risks and uncertainties that may affect the future results of the Company, please see "Special Note Regarding Forward-Looking Statements," "Risk Factors," "Business – Competition," "Business – Supervision and Regulation" and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" in the Company’s Annual Report on Form 10-K for the year ended December 31, 2018, which is filed with the SEC and available at the SEC's website (www.sec.gov). The Company does not undertake to update or revise forward-looking statements as more information becomes available. 2

1Q19 Highlights(1) • Net income of $726MM, diluted EPS of $2.15; return on equity of 26% • Total loan growth of 7% led by an 8% increase in credit card loans; revenue growth of 7% • Strong credit performance reflecting disciplined underwriting, continued efficiency and effectiveness in servicing • Efficiency ratio improved 50 bps to 37.1% • Payment Services continued to drive strong network volume growth (up 9%) • Returned $601MM of capital through dividends and share repurchases Note(s) (1) All comparisons stated on a year-over-year basis 3

1Q19 Summary Financial Results Highlights B / (W) ($MM, except per share data) 1Q19 1Q18 $ Δ % Δ Revenue Net of Interest Expense $2,763 $2,575 $188 7% • Diluted EPS of $2.15, up 18% Net Principal Charge-off 715 635 (80) (13%) • Revenue net of interest expense of Reserve Change build/(release) 94 116 22 19% $2.8Bn, up 7%, driven by higher net Provision for Loan Losses 809 751 (58) (8%) interest income Operating Expense 1,024 968 (56) (6%) • Provision for loan losses increased Direct Banking 879 811 68 8% $58MM, or 8%, on higher net charge- Payment Services 51 45 6 13% offs, partially offset by a lower reserve Total Pre-Tax Income 930 856 74 9% build Income Tax Expense 204 190 (14) (7%) • Expenses rose 6%, primarily driven Net Income $726 $666 $60 9% by higher compensation expense, as well as investments to support growth ROE 26% 25% and new capabilities Diluted EPS $2.15 $1.82 $0.33 18% 4

1Q19 Loan and Volume Growth Ending Loans ($Bn) Volume ($Bn) Payment Services Network (1) Total Card Student Personal Proprietary PULSE Diners Partners +7% +8% +2% +2% +5% +9% -1% +24% $88.7 $82.7 $70.8 $65.6 $47.1 $43.2 $32.4$34.1 $9.4 $9.6 $7.4 $8.4 $8.3 $7.3 $4.6 $5.7 1Q18 1Q19 1Q18 1Q19 Total Network Volume up 7% YOY Note(s) 1. Volume is derived from data provided by licensees for Diners Club branded cards issued outside of North America and is subject to subsequent revision or amendment 5

1Q19 Revenue B / (W) Highlights ($MM) 1Q19 1Q18 $ Δ % Δ Interest Income $2,937 $2,569 $368 14% • Loan growth and higher net interest Interest Expense 632 469 (163) (35%) margin drove 10% increase in net Net Interest Income 2,305 2,100 205 10% interest income Discount/Interchange Revenue 677 646 31 5% Rewards Cost 446 392 (54) (14%) • Net discount and interchange Net Discount/Interchange Revenue 231 254 (23) (9%) revenue decreased 9% driven by Protection Products Revenue 49 53 (4) (8%) higher promotional rewards cost Loan Fee Income 104 96 8 8% Transaction Processing Revenue 46 43 3 7% • Rewards rate up 8 bps, due to Other Income 28 29 (1) (3%) greater customer engagement in Total Non-Interest Income 458 475 (17) (4%) 5% category this quarter Revenue Net of Interest Expense $2,763 $2,575 $188 7% Direct Banking $2,677 $2,494 $183 7% Payment Services 86 81 5 6% Revenue Net of Interest Expense $2,763 $2,575 $188 7% Change ($MM) 1Q19 1Q18 QOQ YOY Discover Card Sales Volume $32,899 $30,850 (12%) 7% Rewards Rate (1) 1.35% 1.27% 7 bps 8 bps Note(s) 1. Rewards cost divided by Discover card sales volume 6

1Q19 Net Interest Margin 1Q19 1Q18 Highlights Average Average ($MM) Balance Rate Balance Rate • Net interest margin on loans up 23 Credit Card $71,363 13.42% $65,983 12.85% bps driven by higher loan yields, Private Student 9,654 8.63% 9,432 7.89% partially offset by higher funding costs Personal 7,468 12.86% 7,387 12.43% Other 868 6.85% 452 5.98% Total Loans 89,353 12.79% 83,254 12.21% • Credit card yield increased 57 bps as Other Interest-Earning Assets 19,221 2.50% 15,879 1.58% increases in the prime rate were Total Interest-Earning Assets $108,574 10.97% $99,133 10.51% partially offset by portfolio mix and higher interest charge-offs Direct to Consumer and Affinity $45,841 2.15% $39,825 1.59% Brokered Deposits and Other 21,799 2.67% 19,638 2.19% Interest Bearing Deposits 67,640 2.32% 59,463 1.79% • Average consumer deposits grew Borrowings 26,577 3.76% 26,126 3.21% 15% and composed 49% of total Total Interest-Bearing Liabilities $94,217 2.72% $85,589 2.22% funding Change • Funding costs on interest-bearing (%) 1Q19 QOQ YOY liabilities increased 50 bps, primarily Total Interest Yield on Loans 12.79% 20bps 58bps driven by higher market rates NIM on Loans 10.46% 11bps 23bps NIM on Interest-Earning Assets 8.61% 4bps 2bps 7

1Q19 Operating Expense B / (W) Highlights ($MM) 1Q19 1Q18 $ Δ % Δ Employee Compensation and Benefits $425 $405 ($20) (5%) • Employee compensation and benefits Marketing and Business Development 195 185 (10) (5%) up 5%, primarily due to higher Information Processing & Communications 99 82 (17) (21%) average salaries Professional Fees 167 155 (12) (8%) Premises and Equipment 28 26 (2) (8%) Other Expense 110 115 5 4% • Information processing up 21% due to Total Operating Expense $1,024 $968 ($56) (6%) investments in infrastructure and analytic capabilities Direct Banking 989 932 ($57) (6%) Payment Services 35 36 1 3% • Professional fees up 8%, primarily Total Operating Expense $1,024 $968 ($56) (6%) related to achieving a higher level of Operating Efficiency(1) 37.1% 37.6% 50 bps recoveries • Marketing up 5% as a result of higher investment in brand advertising and initiatives to drive deposits growth • Operating efficiency improved 50 bps on strong revenue growth combined with disciplined expense growth Note(s) 1. Defined as reported total operating expense divided by revenue net of interest expense 8

Credit Performance Trends Total Company Loans Credit Card Loans 3.32 3.34 3.50 3.09 3.11 3.08 3.25 3.14 3.23 2.85 2.97 2.84 2.94 3.03 2.60 2.71 2.63 2.80 2.31 2.47 2.43 2.45 2.20 2.23 2.22 2.31 2.28 2.28 2.33 2.16 2.32 1.97 1.97 1.93 2.05 2.08 2.04 2.06 2.00 2.14 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) Private Student Loans Personal Loans 4.49 4.53 4.03 3.97 4.09 3.62 3.16 3.18 3.19 2.22 2.35 2.25 2.04 2.12 2.14 2.10 2.13 2.00 2.70 1.76 1.14 1.40 1.37 1.42 1.57 1.60 1.51 1.00 0.85 1.03 0.92 0.92 0.96 0.86 1.12 1.12 1.14 1.27 0.60 0.66 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 NCO rate (%) 30+ day DQ rate ex-PCI (%) NCO rate (%) 30+ day DQ rate (%) 9

Capital Trends 13.4 13.0 12.5 11.9 11.6 11.6 11.4 11.5 11.1 123 120 118 109 109 104 108 93 88 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 4Q18 1Q19 Common Equity Tier 1 (CET1) Capital Ratio(1) (%) Payout Ratio(2) (%) Note(s) 1. Common Equity Tier 1 Capital Ratio (Basel III Transition) 2. Payout Ratio is displayed on a trailing twelve month basis. This represents the trailing twelve months’ Capital Return to Common Stockholders divided by the trailing twelve months’ Net Income Allocated to Common Stockholders 10

1Q19 Financial Summary Balance Sheet Credit and Capital Profitability • Total loans grew 7% • Total NCO rate of 3.25%, • Net income of $726MM ($6.0Bn) YOY up 16 bps YOY and diluted EPS of $2.15 • Driven by loan • Credit card loans grew 8% seasoning and supply- • Revenue growth of 7% on ($5.2Bn) YOY as sales induced credit higher net interest income volume increased 7% normalization • NIM of 10.46%, up 23 bps • Capital return • Average consumer YOY deposits grew 15% • Repurchased 7.2MM ($6.0Bn) YOY, while shares of common • Efficiency ratio improved deposit rates increased 56 stock for $487MM (1) 50 bps YOY to 37% bps • CET1 capital ratio of 11.5% down 40 bps YOY • Strong return on equity at 26% Note(s) 1. Basel III Transition 11

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