discover financial servicesd18rn0p25nwr6d.cloudfront.net/cik-0001393612/f512...2500 lake cook road,...

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): January 24, 2018

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

Commission File Number: 001-33378

Delaware 36-2517428(State or other jurisdiction

of incorporation) (IRS Employer

Identification No.)

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

(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 thischapter) 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 withany new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act

Item 2.02. Results of Operations and Financial Condition.

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

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

Item 9.01. Financial Statements and Exhibits.

(d) Exhibits

Exhibit No. Description99.1

Press Release of the Company dated January 24, 2018 containing financial information for the quarter ended December31, 2017

99.2 Financial Data Supplement of the Company for the quarter and year ended December 31, 201799.3 Financial Results Presentation of the Company for the quarter and year ended December 31, 2017

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 theundersigned hereunto duly authorized.

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

EXHIBIT INDEX

Exhibit No. Description

99.1 Press Release of the Company dated January 24, 2018 containing financial information for the quarter ended December31, 2017

99.2 Financial Data Supplement of the Company for the quarter and year ended December 31, 201799.3 Financial Results Presentation of the Company for the quarter and year ended December 31, 2017

Exhibit 99.1

DISCOVER FINANCIAL SERVICES REPORTS FOURTH QUARTER NET INCOME OF $387 MILLIONOR $0.99 PER DILUTED SHARE

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

Riverwoods, IL, January 24, 2018 - Discover Financial Services (NYSE: DFS) today reported net income of $387 million or $0.99 per diluted share for the fourth quarter of2017 , as compared to $563 million or $1.40 per diluted share for the fourth quarter of 2016 . The company’s return on equity for the fourth quarter of 2017 was 14% . Netincome included non-recurring charges of $189 million resulting from actions taken by the company in connection with the Tax Cuts and Jobs Act ("Tax Act"). These chargeshad the effect of reducing diluted earnings per share by $0.52.

Fourth Quarter Highlights

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

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

• Total net charge-off rate excluding PCI loans increased 53 basis points from the prior year to 2.92% and the total 30+ day delinquency rate excluding PCI loans increased23 basis points from the prior year to 2.20% .

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

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

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

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

Segment Results:

Direct Banking

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

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

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

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

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

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

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

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

Payment Services

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

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

Share Repurchases

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

Conference Call and Webcast Information

The company will host a conference call to discuss its fourth quarter results on Wednesday, January 24, 2018, at 4:00 p.m. Central time. Interested parties can listen to theconference call via a live audio webcast at https://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 itsinception in 1986, the company has become one of the largest card issuers in the United States. The company issues the Discover card, America's cash rewards pioneer, andoffers private student loans, personal loans, home equity loans, checking and savings accounts and certificates of deposit through its direct banking business. It operates theDiscover Network, with millions of retail and cash access locations; PULSE, one of the nation's leading ATM/debit networks; and Diners Club International, a global paymentsnetwork with acceptance in more than 185 countries and territories. 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 financialsupplement filed as Exhibit 99.2 to the company's Current Report on Form 8-K filed today with the Securities and Exchange Commission ( “ SEC ” ). Both the earnings releaseand 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 ourexpected business and financial performance, among other matters, contain words such as “believe,” “expect,” “anticipate,” “intend,” “plan,” “aim,” “will,” “may,” “should,” “could,”“would,” “likely,” and similar expressions. Such statements are based upon the current beliefs and expectations of the company's management and are subject to significantrisks 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 ofthis press release, and there is no undertaking to update or revise them as more information becomes available.

The following factors, among others, could cause actual results to differ materially from those set forth in the forward-looking statements: changes in economic variables, such asthe availability of consumer credit, the housing market, energy costs, the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumerconfidence 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 acrossits networks and maintain relationships with network participants; the company's ability to sustain and grow its non-card products; difficulty obtaining regulatory approval for,financing, closing, transitioning, integrating or managing the expenses of acquisitions of or investments in new businesses, products or technologies; the company's ability tomanage its credit risk, market risk, liquidity risk, operational risk, compliance and legal risk, and strategic risk; the availability and cost of funding and capital; access to deposit,securitization, equity, debt and credit markets; the impact of rating agency actions; the level and volatility of equity prices, commodity prices and interest rates, currency values,investments, other market fluctuations and other market indices; losses in the company's investment portfolio; limits on the company's ability to pay dividends and repurchase itscommon stock; limits on the company's ability to receive payments from its subsidiaries; fraudulent activities or material security breaches of key systems; the company's abilityto remain organizationally effective; the company's ability to increase or sustain Discover card usage or attract new customers; the company's ability to maintain relationshipswith merchants; the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic events; the company's ability to introduce newproducts or services; the company's ability to manage its relationships with third-party vendors; the company's ability to maintain current technology and integrate new andacquired systems; the company's ability to collect amounts for disputed transactions from merchants and merchant acquirers; the company's ability to attract and retainemployees; the company's ability to protect its reputation and its intellectual property; and new lawsuits, investigations or similar matters or unanticipated developments relatedto current matters. The company routinely evaluates and may pursue acquisitions of or investments in businesses, products, technologies, loan portfolios or deposits, which mayinvolve 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 thecompany's Annual Report on Form 10-K for the year ended December 31, 2016, and "Management's Discussion & Analysis of Financial Condition and Results of Operations" inthe company's Quarterly Report on Form 10-Q for the quarters ended September 30, 2017, June 30, 2017, and March 31, 2017, which are filed with the SEC and available atthe SEC's internet site (http://www.sec.gov).

DISCOVER FINANCIAL SERVICES Exhibit 99.2

EARNINGS SUMMARY

(unaudited, in millions, except per share statistics)

Quarter Ended Twelve Months Ended

Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Dec 31, 2017 vs. Dec 31,2016 Dec 31, 2017 Dec 31, 2016 2017 vs. 2016

EARNINGS SUMMARY

Interest Income $2,556 $2,476 $2,338 $2,278 $2,258 $298 13% $9,648 $8,616 $1,032 12%

Interest Expense 436 426 400 386 366 70 19% 1,648 1,398 250 18%

Net Interest Income 2,120 2,050 1,938 1,892 1,892 228 12% 8,000 7,218 782 11%

Discount/Interchange Revenue 717 675 666 596 665 52 8% 2,654 2,497 157 6%

Rewards Cost 434 417 388 363 411 23 6% 1,602 1,442 160 11%

Discount and Interchange Revenue, net 283 258 278 233 254 29 11% 1,052 1,055 (3) —%

Protection Products Revenue 54 55 56 58 59 (5) (8%) 223 239 (16) (7%)

Loan Fee Income 96 95 83 89 93 3 3% 363 343 20 6%

Transaction Processing Revenue 43 43 42 39 40 3 8% 167 155 12 8%

Other Income 18 24 22 28 20 (2) (10%) 92 89 3 3%

Total Other Income 494 475 481 447 466 28 6% 1,897 1,881 16 1% Revenue Net of Interest Expense 2,614 2,525 2,419 2,339 2,358 256 11% 9,897 9,099 798 9% Provision for Loan Losses 679 674 640 586 578 101 17% 2,579 1,859 720 39% Employee Compensation and Benefits 411 371 367 363 352 59 17% 1,512 1,379 133 10%

Marketing and Business Development 213 203 192 168 176 37 21% 776 731 45 6%

Information Processing & Communications 80 78 77 80 81 (1) (1%) 315 339 (24) (7%)

Professional Fees 189 163 156 147 152 37 24% 655 605 50 8%

Premises and Equipment 26 25 23 25 23 3 13% 99 95 4 4%

Other Expense 117 108 97 102 113 4 4% 424 435 (11) (3%)

Total Other Expense 1,036 948 912 885 897 139 15% 3,781 3,584 197 5% Income Before Income Taxes 899 903 867 868 883 16 2% 3,537 3,656 (119) (3%)

Tax Expense 512 301 321 304 320 192 60% 1,438 1,263 175 14%

Net Income $387 $602 $546 $564 $563 ($176) (31%) $2,099 $2,393 ($294) (12%)

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

Effective Tax Rate 57.0% 33.3% 37.1% 35.0% 36.3% 40.7% 34.5% Net Interest Margin 10.28% 10.28% 10.11% 10.07% 10.07% 21 bps 10.19% 9.99% 20 bps

Operating Efficiency 39.7% 37.5% 37.7% 37.9% 38.0% 170 bps 38.2% 39.4% (120) bps

ROE 14% 22% 19% 20% 20% 19% 21%

Capital Returned to Common Stockholders $657 $667 $547 $620 $581 $76 13% $2,491 $2,306 $185 8%

Payout Ratio 183% 113% 103% 113% 106% 123% 99% 2,400 bps Ending Common Shares Outstanding 358 366 375 382 389 (31) (8%) 358 389 (31) (8%)

Weighted Average Common Shares Outstanding 362 371 379 386 392 (30) (8%) 374 405 (31) (8%)

Weighted Average Common Shares Outstanding (fully diluted) 362 371 379 386 393 (31) (8%) 374 406 (32) (8%) PER SHARE STATISTICS

Basic EPS $0.99 $1.59 $1.41 $1.43 $1.40 ($0.41) (29%) $5.43 $5.77 ($0.34) (6%)

Diluted EPS $0.99 $1.59 $1.40 $1.43 $1.40 ($0.41) (29%) $5.42 $5.77 ($0.35) (6%)

Common Stock Price (period end) $76.92 $64.48 $62.19 $68.39 $72.09 $4.83 7% $76.92 $72.09 $4.83 7%

Book Value per share $30.43 $30.56 $30.01 $29.46 $29.13 $1.30 4% $30.43 $29.13 $1.30 4% Note: See Glossary of Financial Terms for definitions of financial terms

DISCOVER FINANCIAL SERVICES

EARNINGS SUMMARY

(unaudited, in millions)


Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31,

2017 Dec 31, 2016 Dec 31, 2017 vs. Dec 31,

2016 Dec 31, 2017 Dec 31, 2016 2017 vs. 2016

SEGMENT- INCOME BEFORE INCOME TAXES

Direct Banking $870 $867 $831 $824 $868 $2 —% $3,392 $3,549 ($157) (4%)

Payment Services 29 36 36 44 15 14 93% 145 107 38 36%

Total $899 $903 $867 $868 $883 $16 2% $3,537 $3,656 ($119) (3%)

TRANSACTIONS PROCESSED ON NETWORKS

Discover Network 607 579 551 503 566 41 7% 2,240 2,125 115 5%

PULSE Network 1,029 996 961 870 891 138 15% 3,856 3,456 400 12%

Total 1,636 1,575 1,512 1,373 1,457 179 12% 6,096 5,581 515 9%

NETWORK VOLUME

PULSE Network $42,386 $39,828 $38,848 $36,066 $35,554 $6,832 19% $157,128 $138,003 $19,125 14%

Network Partners 3,280 3,811 3,461 3,661 3,235 45 1% 14,213 13,833 380 3%

Diners Club International 1 8,373 7,989 7,800 7,382 7,334 1,039 14% 31,544 28,601 2,943 10%

Total Payment Services 54,039 51,628 50,109 47,109 46,123 7,916 17% 202,885 180,437 22,448 12%

Discover Network - Proprietary 36,267 33,576 33,342 29,859 34,029 2,238 7% 133,044 126,144 6,900 5%

Total $90,306 $85,204 $83,451 $76,968 $80,152 $10,154 13% $335,929 $306,581 $29,348 10%

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

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

DISCOVER FINANCIAL SERVICESBALANCE SHEET SUMMARY(unaudited, in millions)

Quarter Ended

Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Dec 31, 2017 vs. Dec 31,2016

BALANCE SHEET SUMMARY Assets Cash and Investment Securities $14,955 $16,155 $14,722 $17,981 $13,766 $1,189 9%

Total Loan Receivables 84,248 80,443 77,997 75,853 77,254 6,994 9%

Allowance for Loan Losses (2,621) (2,531) (2,384) (2,264) (2,167) (454) (21%)

Net Loan Receivables 81,627 77,912 75,613 73,589 75,087 6,540 9%

Premises and Equipment, net 825 800 774 750 734 91 12%

Goodwill and Intangible Assets, net 418 418 419 420 421 (3) (1%)

Other Assets 2,262 2,323 2,229 2,055 2,300 (38) (2%)

Total Assets $100,087 $97,608 $93,757 $94,795 $92,308 $7,779 8%

Liabilities & Stockholders' Equity

Direct to Consumer and Affinity Deposits $39,367 $38,703 $37,709 $37,094 $36,002 $3,365 9%

Brokered Deposits and Other Deposits 19,397 17,432 15,155 16,428 15,990 3,407 21%

Deposits 58,764 56,135 52,864 53,522 51,992 6,772 13%

Borrowings 26,326 26,737 26,438 26,823 25,443 883 3%

Accrued Expenses and Other Liabilities 4,105 3,549 3,196 3,185 3,550 555 16%

Total Liabilities 89,195 86,421 82,498 83,530 80,985 8,210 10%

Total Equity 10,892 11,187 11,259 11,265 11,323 (431) (4%)

Total Liabilities and Stockholders' Equity $100,087 $97,608 $93,757 $94,795 $92,308 $7,779 8%

LIQUIDITY

Liquidity Portfolio $13,560 $13,906 $13,865 $16,213 $12,635 925 7%

Undrawn Credit Facilities 1 35,153 33,696 31,877 30,823 30,194 4,959 16%

Total Liquidity $48,713 $47,602 $45,742 $47,036 $42,829 $5,884 14%

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


BALANCE SHEET STATISTICS


Quarter Ended


BALANCE SHEET STATISTICS

Total Common Equity $10,329 $10,627 $10,699 $10,705 $10,763 ($434) (4%)

Total Common Equity/Total Assets 10.3% 10.9% 11.4% 11.3% 11.7%

Total Common Equity/Net Loans 12.7% 13.6% 14.2% 14.5% 14.3% Tangible Assets $99,669 $97,190 $93,338 $94,375 $91,887 $7,782 8%

Tangible Common Equity 1 $9,911 $10,209 $10,280 $10,285 $10,342 ($431) (4%)

Tangible Common Equity/Tangible Assets 1 9.9% 10.5% 11.0% 10.9% 11.3%

Tangible Common Equity/Net Loans 1 12.1% 13.1% 13.6% 14.0% 13.8%

Tangible Common Equity per share 1 $27.69 $27.89 $27.40 $26.90 $26.60 $1.09 4% REGULATORY CAPITAL RATIOS Basel III Transition

Total Risk Based Capital Ratio 13.8% 14.7% 15.2% 15.7% 15.5%

Tier 1 Risk Based Capital Ratio 12.3% 13.2% 13.7% 14.1% 13.9%

Tier 1 Leverage Ratio 10.8% 11.4% 11.8% 11.8% 12.3%

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

Common Equity Tier 1 Capital Ratio 2 11.6% 12.5% 13.0% 13.4% 13.2% RATIO OF EARNINGS TO FIXED CHARGES

Ratio of Earnings to Fixed Charges 3, 4 3.2 3.2 3.2 3.3 3.6 1 Tangible Common Equity ("TCE") is a non-GAAP measure. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCEto a GAAP financial measure see Reconciliation of GAAP to non-GAAP data schedule 2 Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) is calculated using Basel III Fully Phased-in Common Equity Tier 1 Capital, a non-GAAP measure. The Company believes that the Common EquityTier 1 Capital Ratio based on Fully Phased-in Basel III rules is an important complement to the existing capital ratios and for comparability to other financial institutions. For the corresponding reconciliation ofCommon Equity Tier 1 Capital and Risk Weighted Assets calculated under Fully Phased-in Basel III rules to Common Equity Tier 1 Capital and Risk Weighted Assets calculated under Basel III transition rules see theReconciliation of GAAP to non-GAAP data schedule 3 Fixed charges are the sum of interest expense, amortized premiums, discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense 4 The Ratio of Earnings to Fixed Charges is a year-to-date statistic. The periods reported reflect the twelve months ended December 31, 2017, the nine months ended September 30, 2017, the six months ended June 30,2017, the three months ended March 31, 2017, and the twelve months ended December 31, 2016 Note: See Glossary of Financial Terms for definitions of financial terms.

DISCOVER FINANCIAL SERVICESAVERAGE BALANCE SHEET(unaudited, in millions)

Quarter Ended


AVERAGE BALANCES

Assets

Cash and Investment Securities $15,290 $14,547 $14,616 $15,424 $13,567 $1,723 13%

Restricted Cash 276 848 559 819 473 (197) (42%)

Credit Card Loans 64,791 62,647 60,700 60,122 59,121 5,670 10%

Private Student Loans 9,158 8,986 9,020 9,197 8,954 204 2%

Personal Loans 7,455 7,208 6,820 6,582 6,425 1,030 16%

Other Loans 398 348 314 284 275 123 45%

Total Loans 81,802 79,189 76,854 76,185 74,775 7,027 9%

Total Interest Earning Assets 97,368 94,584 92,029 92,428 88,815 8,553 10%

Allowance for Loan Losses (2,530) (2,379) (2,262) (2,166) (2,021) (509) (25%)

Other Assets 4,252 4,192 4,147 4,166 4,162 90 2%

Total Assets $99,090 $96,397 $93,914 $94,428 $90,956 $8,134 9%

Liabilities and Stockholders' Equity

Direct to Consumer and Affinity Deposits $38,807 $37,900 $36,956 $36,316 $35,396 $3,411 10%

Brokered Deposits and Other Deposits 18,244 16,192 15,600 16,242 14,355 3,889 27%

Total Interest-bearing Deposits 57,051 54,092 52,556 52,558 49,751 7,300 15%

Short-term Borrowings 2 1 2 1 1 1 100%

Securitized Borrowings 16,676 17,206 16,141 16,960 16,817 (141) (1%)

Other Long-term Borrowings 9,768 9,721 9,979 9,600 9,042 726 8%

Total Interest-bearing Liabilities 83,497 81,020 78,678 79,119 75,611 7,886 10%

Other Liabilities & Stockholders' Equity 15,593 15,377 15,236 15,309 15,345 248 2%

Total Liabilities and Stockholders' Equity $99,090 $96,397 $93,914 $94,428 $90,956 $8,134 9%

AVERAGE RATES

Assets

Cash and Investment Securities 1.34% 1.31% 1.12% 0.90% 0.72% 62 bpsRestricted Cash 1.34% 1.15% 0.89% 0.70% 0.37% 97 bpsCredit Card Loans 12.79% 12.83% 12.66% 12.65% 12.62% 17 bpsPrivate Student Loans 7.69% 7.56% 7.45% 7.29% 7.06% 63 bpsPersonal Loans 12.27% 12.33% 12.22% 12.18% 12.09% 18 bpsOther Loans 5.66% 5.56% 5.59% 5.39% 4.88% 78 bps

Total Loans 12.14% 12.15% 11.98% 11.94% 11.88% 26 bpsTotal Interest Earning Assets 10.41% 10.39% 10.19% 9.99% 10.12% 29 bps

Liabilities and Stockholders' Equity

Direct to Consumer and Affinity Deposits 1.44% 1.37% 1.29% 1.25% 1.26% 18 bpsBrokered Deposits and Other Deposits 2.12% 2.12% 2.07% 1.98% 1.93% 19 bps

Total Interest-bearing Deposits 1.65% 1.59% 1.52% 1.48% 1.45% 20 bpsShort-term Borrowings 1.31% 1.33% 1.06% 0.67% 0.60% 71 bpsSecuritized Borrowings 2.19% 2.37% 2.31% 2.17% 2.09% 10 bpsOther Long-term Borrowings 4.30% 4.30% 4.36% 4.38% 4.26% 4 bps

Total Interest-bearing Liabilities 2.07% 2.08% 2.04% 1.98% 1.93% 14 bps Net Interest Margin 10.28% 10.28% 10.11% 10.07% 10.07% 21 bpsNet Yield on Interest-earning Assets 8.64% 8.60% 8.44% 8.30% 8.47% 17 bps Note: See Glossary of Financial Terms for definitions of financial terms


LOAN STATISTICS




TOTAL LOAN RECEIVABLES

Ending Loans 1, 2 $84,248 $80,443 $77,997 $75,853 $77,254 $6,994 9% $84,248 $77,254 $6,994 9%

Average Loans 1, 2 $81,802 $79,189 $76,854 $76,185 $74,775 $7,027 9% $78,525 $72,280 $6,245 9% Interest Yield 12.14% 12.15% 11.98% 11.94% 11.88% 26 bps 12.06% 11.78% 28 bps

Gross Principal Charge-off Rate 3.45% 3.26% 3.36% 3.25% 2.91% 54 bps 3.33% 2.81% 52 bps

Gross Principal Charge-off Rate excluding PCI Loans 3 3.54% 3.35% 3.47% 3.37% 3.02% 52 bps 3.43% 2.93% 50 bps

Net Principal Charge-off Rate 2.85% 2.63% 2.71% 2.60% 2.31% 54 bps 2.70% 2.16% 54 bps

Net Principal Charge-off Rate excluding PCI Loans 3 2.92% 2.71% 2.79% 2.69% 2.39% 53 bps 2.78% 2.24% 54 bps

Delinquency Rate (over 30 days) excluding PCI Loans 3 2.20% 2.05% 1.93% 1.97% 1.97% 23 bps 2.20% 1.97% 23 bps


Gross Principal Charge-off Dollars $711 $651 $645 $611 $548 $163 30% $2,618 $2,034 $584 29%

Net Principal Charge-off Dollars $583 $527 $520 $489 $435 $148 34% $2,119 $1,561 $558 36%

Net Interest and Fee Charge-off Dollars $119 $107 $110 $106 $94 $25 27% $442 $344 $98 28%

Loans Delinquent Over 30 Days 3 $1,806 $1,605 $1,457 $1,445 $1,469 $337 23% $1,806 $1,469 $337 23%

Loans Delinquent Over 90 Days 3 $815 $709 $667 $675 $652 $163 25% $815 $652 $163 25% Allowance for Loan Loss (period end) $2,621 $2,531 $2,384 $2,264 $2,167 $454 21% $2,621 $2,167 $454 21%

Reserve Change Build/ (Release) 4 $96 $147 $120 $97 $143 ($47) $460 $298 $162

Reserve Rate 3.11% 3.15% 3.06% 2.98% 2.80% 31 bps 3.11% 2.80% 31 bps

Reserve Rate Excluding PCI Loans 3 3.15% 3.20% 3.11% 3.04% 2.86% 29 bps 3.15% 2.86% 29 bps CREDIT CARD LOANS

Ending Loans $67,291 $63,475 $61,797 $59,757 $61,522 $5,769 9% $67,291 $61,522 $5,769 9%

Average Loans $64,791 $62,647 $60,700 $60,122 $59,121 $5,670 10% $62,079 $57,238 $4,841 8% Interest Yield 12.79% 12.83% 12.66% 12.65% 12.62% 17 bps 12.74% 12.50% 24 bps

Gross Principal Charge-off Rate 3.73% 3.53% 3.71% 3.61% 3.19% 54 bps 3.65% 3.12% 53 bps


Delinquency Rate (over 30 days) 2.28% 2.14% 2.00% 2.06% 2.04% 24 bps 2.28% 2.04% 24 bps


Gross Principal Charge-off Dollars $612 $555 $561 $535 $474 $138 29% $2,263 $1,786 $477 27%

Net Principal Charge-off Dollars $496 $439 $445 $422 $369 $127 34% $1,802 $1,343 $459 34%

Loans Delinquent Over 30 Days $1,532 $1,359 $1,237 $1,233 $1,252 $280 22% $1,532 $1,252 $280 22%

Loans Delinquent Over 90 Days $751 $646 $603 $616 $597 $154 26% $751 $597 $154 26% Allowance for Loan Loss (period end) $2,147 $2,091 $1,980 $1,892 $1,790 $357 20% $2,147 $1,790 $357 20%

Reserve Change Build/ (Release) $56 $111 $88 $102 $129 ($73) $357 $236 $121

Reserve Rate 3.19% 3.29% 3.21% 3.17% 2.91% 28 bps 3.19% 2.91% 28 bps Total Discover Card Volume $38,574 $35,581 $35,297 $32,406 $35,440 $3,134 9% $141,858 $132,324 $9,534 7%

Discover Card Sales Volume $35,339 $32,161 $32,172 $29,134 $32,486 $2,853 9% $128,806 $121,423 $7,383 6%

Rewards Rate 1.23% 1.30% 1.20% 1.25% 1.26% (3) bps 1.24% 1.19% 5 bps

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


LOAN STATISTICS




PRIVATE STUDENT LOANS

Ending Loans $9,160 $9,200 $8,916 $9,138 $8,977 $183 2% $9,160 $8,977 $183 2%

Ending PCI Loans 1 $2,084 $2,202 $2,322 $2,449 $2,584 ($500) (19%) $2,084 $2,584 ($500) (19%)

Interest Yield 7.69% 7.56% 7.45% 7.29% 7.06% 63 bps 7.50% 7.09% 41 bps


Net Principal Charge-off Rate excluding PCI Loans 2 1.34% 1.52% 1.15% 0.83% 1.42% (8) bps 1.21% 1.10% 11 bps



Reserve Rate excluding PCI Loans 2 1.89% 1.89% 1.91% 1.80% 1.91% (2) bps 1.89% 1.91% (2) bps

PERSONAL LOANS

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

Interest Yield 12.27% 12.33% 12.22% 12.18% 12.09% 18 bps 12.25% 12.19% 6 bps




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 overthe estimated lives of the loans as long as cash flows are reasonably estimable, even if the loans are contractually past due. PCI loans are private student loans and are included in total loan receivables

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



SEGMENT RESULTS



Dec 31,

2017 Sep 30,2017 Jun 30,

2017 Mar 31,2017 Dec 31,

2016 Dec 31, 2017 vs. Dec 31,2016 Dec 31, 2017 Dec 31, 2016 2017 vs. 2016

DIRECT BANKING

Interest Income $2,556 $2,476 $2,338 $2,278 $2,258 $298 13% $9,648 $8,616 $1,032 12%

Interest Expense 436 426 400 386 366 70 19% 1,648 1,398 250 18%

Net Interest Income 2,120 2,050 1,938 1,892 1,892 228 12% 8,000 7,218 782 11%

Other Income 423 401 408 375 401 22 5% 1,607 1,611 (4) —%

Revenue Net of Interest Expense 2,543 2,451 2,346 2,267 2,293 250 11% 9,607 8,829 778 9%

Provision for Loan Losses 678 675 639 594 579 99 17% 2,586 1,858 728 39%

Total Other Expense 995 909 876 849 846 149 18% 3,629 3,422 207 6%

Income Before Income Taxes $870 $867 $831 $824 $868 $2 —% $3,392 $3,549 ($157) (4%)

Net Interest Margin 10.28% 10.28% 10.11% 10.07% 10.07% 21 bps 10.19% 9.99% 20 bps

Pretax Return on Loan Receivables 4.22% 4.35% 4.34% 4.39% 4.62% (40) bps 4.32% 4.91% (59) bps Allowance for Loan Loss (period end) $2,613 $2,525 $2,377 $2,258 $2,151 $462 21% $2,613 $2,151 $462 21%

Reserve Change Build/ (Release) 1 $94 $148 $119 $107 $144 ($50) $468 $300 $168

PAYMENT SERVICES

Interest Income $— $— $— $— $— $— NM $— $— $— NM

Interest Expense — — — — — — NM — — — NM

Net Interest Income — — — — — — NM — — — NM

Other Income 71 74 73 72 65 6 9% 290 270 20 7%

Revenue Net of Interest Expense 71 74 73 72 65 6 9% 290 270 20 7%

Provision for Loan Losses 1 (1) 1 (8) (1) 2 (200%) (7) 1 (8) NM

Total Other Expense 41 39 36 36 51 (10) (20%) 152 162 (10) (6%)

Income Before Income Taxes $29 $36 $36 $44 $15 $14 93% $145 $107 $38 36%

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

DISCOVER FINANCIAL 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

Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) represents fully phased-in common equity tier 1 capital divided by risk weighted assets under fully phased-in Basel III rules. The Common Equity Tier 1 Capital Ratio (Basel III fully phased-in) is calculated using Basel III fully phased-in common equity tier 1 capital, a non-GAAP measure. The Company believes that the common equity tier 1 capital ratio based on fully phased-in Basel III rules is an important complement to the existing capitalratios and for comparability to other financial institutions. For the corresponding reconciliation of common equity tier 1 capital and risk weighted assets calculated under fully phased-in Basel III rules to common equity tier 1 capital and risk weighted assetscalculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule

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

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

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

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

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

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

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

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

Ratio of Earnings to Fixed Charges is a year-to-date statistic and represents income before income tax expense and fixed charges divided by fixed charges for the reporting period. Fixed charges are the sum of interest expense, amortized premiums,discounts and capitalized expenses related to indebtedness and an estimate of interest within rental expense for the reporting period Regulatory Capital Ratios are regulatory measures used to evaluate capital adequacy. Under Basel III, for a Bank Holding Company to be considered "well-capitalized," total risk-based and tier 1 risk-based capital ratios of 10% and 6% respectively must bemaintained. 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 regulatorycapital 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 1Leverage 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. Forcorresponding 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

Dec 31, 2017 Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016

GAAP Total Common Equity $10,329 $10,627 $10,699 $10,705 $10,763

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

Less: Intangibles (163) (163) (164) (165) (166)

Tangible Common Equity 1 $9,911 $10,209 $10,280 $10,285 $10,342

Common Equity Tier 1 Capital (Basel III Transition) $10,114 $10,419 $10,492 $10,501 $10,592

Adjustments Related To Capital Components During Transition 2 (27) (25) (25) (26) (52)

Common Equity Tier 1 Capital (Basel III Fully Phased-in) $10,087 $10,394 $10,467 $10,475 $10,540

Common Equity Tier 1 Capital Ratio (Basel III Transition) 11.6% 12.5% 13.0% 13.4% 13.2%

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

GAAP Book Value Per Share $30.43 $30.56 $30.01 $29.46 $29.13

Less: Goodwill (0.72) (0.69) (0.68) (0.67) (0.67)

Less: Intangibles (0.45) (0.45) (0.44) (0.43) (0.42)

Less: Preferred Stock (1.57) (1.53) (1.49) (1.46) (1.44)

Tangible Common Equity Per Share $27.69 $27.89 $27.40 $26.90 $26.60

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

2 Adjustments related to capital components for fully phased-in Basel III include the phase-in of the intangible asset exclusion 3 Common Equity Tier 1 Capital Ratio (Basel III Fully Phased-in) is calculated using Common Equity Tier 1 Capital (Basel III Fully Phased-in), a non-GAAP measure, divided by RiskWeighted Assets (Basel III Fully Phased-in)


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

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

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

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

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

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

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

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

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

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

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

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

Note(s) 1. Adjusted Diluted EPS is a non-GAAP financial measure which should be viewed in addition to, and not as a substitute for, the Company’s reported results. Management believes this information helps investors understand the effect of activities that are not expected to continue and provides a useful metric to evaluate the Company's ongoing operating performance; see appendix for a reconciliation Appendix Reconciliation of GAAP to Non-GAAP Data (unaudited) 4Q17 Full Year 2017 Diluted EPS $0.99 $5.42 Adjusted for: Employee compensation one-time bonus 0.03 0.03 Original issuance cost related to series B preferred stock redemption 0.04 0.04 Tax related one-time items 0.49 0.49 Adjusted diluted EPS (1) $1.55 $5.98 14

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

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