Discover Financial Services - FORM 8-K - EX-99.2 - EXHIBIT 99.2

Attached files

file	filename
EX-99.3 - EXHIBIT 99.3 - Discover Financial Services	a4q19earningspresentatio.htm
EX-99.1 - EXHIBIT 99.1 - Discover Financial Services	dfs-earningsreleasex4q.htm
8-K - 8-K - Discover Financial Services	a4q198k.htm



DISCOVER FINANCIAL SERVICES																											Exhibit 99.2
EARNINGS SUMMARY
(unaudited, in millions, except per share statistics)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018					Dec 31, 2019			Dec 31, 2018			2019 vs. 2018
EARNINGS SUMMARY
Interest Income		$3,039			$3,040			$2,977			$2,937			$2,907			$132		5	%		$11,993			$10,893			$1,100		10	%
Interest Expense	615			638			645			632			605			10			2	%	2,530			2,139			391			18	%
Net Interest Income	2,424			2,402			2,332			2,305			2,302			122			5	%	9,463			8,754			709			8	%
Discount/Interchange Revenue	800			775			759			677			752			48			6	%	3,011			2,875			136			5	%
Rewards Cost	519			520			460			446			475			44			9	%	1,945			1,801			144			8	%
Discount and Interchange Revenue, net	281			255			299			231			277			4			1	%	1,066			1,074			(8		)	(1	%)
Protection Products Revenue	48			48			49			49			50			(2		)	(4	%)	194			204			(10		)	(5	%)
Loan Fee Income	123			120			102			104			108			15			14	%	449			402			47			12	%
Transaction Processing Revenue	51			52			48			46			46			5			11	%	197			178			19			11	%
Other Income	17			23			22			28			24			(7		)	(29	%)	90			97			(7		)	(7	%)
Total Non-Interest Income	520			498			520			458			505			15			3	%	1,996			1,955			41			2	%

Revenue Net of Interest Expense	2,944			2,900			2,852			2,763			2,807			137			5	%	11,459			10,709			750			7	%

Provision for Loan Losses	836			799			787			809			800			36			5	%	3,231			3,035			196			6	%

Employee Compensation and Benefits	447			439			427			425			414			33			8	%	1,738			1,627			111			7	%
Marketing and Business Development	234			230			224			195			230			4			2	%	883			857			26			3	%
Information Processing & Communications	113			96			101			99			93			20			22	%	409			350			59			17	%
Professional Fees	214			189			183			167			190			24			13	%	753			672			81			12	%
Premises and Equipment	27			26			26			28			26			1			4	%	107			102			5			5	%
Other Expense	149			127			117			110			157			(8		)	(5	%)	503			469			34			7	%
Total Operating Expense	1,184			1,107			1,078			1,024			1,110			74			7	%	4,393			4,077			316			8	%

Income Before Income Taxes	924			994			987			930			897			27			3	%	3,835			3,597			238			7	%
Tax Expense	216			224			234			204			210			6			3	%	878			855			23			3	%
Net Income		$708			$770			$753			$726			$687			$21		3	%		$2,957			$2,742			$215		8	%

Net Income Allocated to Common Stockholders		$704			$749			$747			$705			$681			$23		3	%		$2,908			$2,689			$219		8	%

Effective Tax Rate	23.4		%	22.5		%	23.8		%	21.9		%	23.5		%						22.9		%	23.8		%

Net Interest Margin	10.29		%	10.43		%	10.47		%	10.46		%	10.35		%	(6		)	bps		10.41		%	10.27		%	14			bps
Operating Efficiency	40.2		%	38.2		%	37.8		%	37.1		%	39.6		%	60			bps		38.3		%	38.1		%	20			bps
ROE	24		%	26		%	26		%	26		%	25		%						26		%	25		%
Capital Returned to Common Stockholders		$521			$540			$571			$601			$578			($57	)	(10	%)		$2,233			$2,498			($265	)	(11	%)
Payout Ratio	74		%	72		%	76		%	85		%	85		%						77		%	93		%

Ending Common Shares Outstanding	310			315			319			325			331			(21		)	(6	%)	310			331			(21		)	(6	%)
Weighted Average Common Shares Outstanding	312			317			322			328			335			(23		)	(7	%)	320			344			(24		)	(7	%)
Weighted Average Common Shares Outstanding (fully diluted)	313			317			323			328			335			(22		)	(7	%)	320			345			(25		)	(7	%)

PER SHARE STATISTICS
Basic EPS		$2.25			$2.36			$2.32			$2.15			$2.04			$0.21		10	%		$9.09			$7.81			$1.28		16	%
Diluted EPS		$2.25			$2.36			$2.32			$2.15			$2.03			$0.22		11	%		$9.08			$7.79			$1.29		17	%
Common Dividends Declared Per Share		$0.44			$0.44			$0.40			$0.40			$0.40			$0.04		10	%		$1.68			$1.50			$0.18		12	%
Common Stock Price (period end)		$84.82			$81.09			$77.59			$71.16			$58.98			$25.84		44	%		$84.82			$58.98			$25.84		44	%
Book Value per share		$38.24			$37.20			$35.97			$34.60			$33.58			$4.66		14	%		$38.24			$33.58			$4.66		14	%

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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET SUMMARY
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018
BALANCE SHEET SUMMARY
Assets
Cash and Investment Securities		$17,559			$17,761			$19,934			$21,456			$18,515			($956	)	(5	%)
Total Loan Receivables	95,894			92,493			90,229			88,743			90,512			5,382			6	%
Allowance for Loan Losses	(3,383		)	(3,299		)	(3,202		)	(3,134		)	(3,041		)	(342		)	(11	%)
Net Loan Receivables	92,511			89,194			87,027			85,609			87,471			5,040			6	%
Premises and Equipment, net	1,057			1,028			1,008			980			936			121			13	%
Goodwill and Intangible Assets, net	410			414			415			415			416			(6		)	(1	%)
Other Assets	2,459			2,389			2,323			2,260			2,215			244			11	%
Total Assets		$113,996			$110,786			$110,707			$110,720			$109,553			$4,443		4	%

Liabilities & Stockholders' Equity
Direct to Consumer and Affinity Deposits		$54,409			$52,298			$49,686			$47,730			$44,669			$9,740		22	%
Brokered Deposits and Other Deposits	18,337			18,723			20,048			21,186			23,090			(4,753		)	(21	%)
Deposits	72,746			71,021			69,734			68,916			67,759			4,987			7	%
Securitized Borrowings	14,284			12,820			14,214			15,351			16,917			(2,633		)	(16	%)
Other Borrowings	11,417			11,634			10,949			10,925			10,311			1,106			11	%
Borrowings	25,701			24,454			25,163			26,276			27,228			(1,527		)	(6	%)
Accrued Expenses and Other Liabilities	3,690			3,594			4,317			4,269			3,436			254			7	%
Total Liabilities	102,137			99,069			99,214			99,461			98,423			3,714			4	%
Total Equity	11,859			11,717			11,493			11,259			11,130			729			7	%
Total Liabilities and Stockholders' Equity		$113,996			$110,786			$110,707			$110,720			$109,553			$4,443		4	%

LIQUIDITY
Liquidity Portfolio		$16,608			$16,732			$17,283			$20,050			$15,923		685			4	%
Undrawn Credit Facilities ¹	39,720			39,355			38,466			37,870			36,986			2,734			7	%
Total Liquidity		$56,328			$56,087			$55,749			$57,920			$52,909			$3,419		6	%


1 Excludes investments pledged to the Federal Reserve, which is included within the liquidity portfolio

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



DISCOVER FINANCIAL SERVICES
BALANCE SHEET STATISTICS
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018
BALANCE SHEET STATISTICS
Total Common Equity		$11,296			$11,154			$10,930			$10,696			$10,567			$729	7	%
Total Common Equity/Total Assets	9.9		%	10.1		%	9.9		%	9.7		%	9.6		%
Total Common Equity/Net Loans	12.2		%	12.5		%	12.6		%	12.5		%	12.1		%

Tangible Assets		$113,586			$110,372			$110,292			$110,305			$109,137			$4,449	4	%
Tangible Common Equity ¹		$10,886			$10,740			$10,515			$10,281			$10,151			$735	7	%
Tangible Common Equity/Tangible Assets ¹	9.6		%	9.7		%	9.5		%	9.3		%	9.3		%
Tangible Common Equity/Net Loans ¹	11.8		%	12.0		%	12.1		%	12.0		%	11.6		%
Tangible Common Equity per share¹		$35.10			$34.10			$32.91			$31.60			$30.63			$4.47	15	%

REGULATORY CAPITAL RATIOS	Basel III Transition
Total Risk Based Capital Ratio	13.5		%	13.7		%	13.7		%	13.9		%	13.5		%
Tier 1 Risk Based Capital Ratio	11.8		%	12.0		%	12.0		%	12.1		%	11.7		%
Tier 1 Leverage Ratio	10.3		%	10.3		%	10.2		%	10.0		%	10.1		%
Common Equity Tier 1 Capital Ratio	11.2		%	11.4		%	11.4		%	11.5		%	11.1		%

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 SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018
AVERAGE BALANCES
Assets
Cash and Investment Securities		$17,579			$17,215			$18,906			$18,417			$17,660			($81	)	—	%
Restricted Cash	58			737			888			804			609			(551		)	(90	%)
Credit Card Loans	74,814			73,248			71,492			71,363			70,563			4,251			6	%
Private Student Loans	9,660			9,459			9,464			9,654			9,344			316			3	%
Personal Loans	7,675			7,522			7,419			7,468			7,540			135			2	%
Other Loans	1,288			1,116			983			868			760			528			69	%
Total Loans	93,437			91,345			89,358			89,353			88,207			5,230			6	%
Total Interest Earning Assets	111,074			109,297			109,152			108,574			106,476			4,598			4	%
Allowance for Loan Losses	(3,294		)	(3,198		)	(3,133		)	(3,040		)	(2,924		)	(370		)	(13	%)
Other Assets	4,835			4,674			4,539			4,455			4,520			315			7	%
Total Assets		$112,615			$110,773			$110,558			$109,989			$108,072			$4,543		4	%

Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits		$52,992			$50,497			$48,211			$45,841			$43,514			$9,478		22	%
Brokered Deposits and Other Deposits	17,865			19,132			20,213			21,799			21,574			(3,709		)	(17	%)
Total Interest-bearing Deposits	70,857			69,629			68,424			67,640			65,088			5,769			9	%
Short-term Borrowings	—			1			—			1			2			(2		)	(100	%)
Securitized Borrowings	13,562			13,719			15,179			15,865			16,427			(2,865		)	(17	%)
Other Long-term Borrowings	11,542			11,047			10,932			10,711			10,756			786			7	%
Total Interest-bearing Liabilities	95,961			94,396			94,535			94,217			92,273			3,688			4	%
Other Liabilities & Stockholders' Equity	16,654			16,377			16,023			15,772			15,799			855			5	%
Total Liabilities and Stockholders' Equity		$112,615			$110,773			$110,558			$109,989			$108,072			$4,543		4	%

AVERAGE YIELD
Assets
Cash and Investment Securities	2.05		%	2.26		%	2.46		%	2.51		%	2.35		%	(30		)	bps
Restricted Cash	1.39		%	2.11		%	2.32		%	2.35		%	2.28		%	(89		)	bps
Credit Card Loans	13.08		%	13.35		%	13.44		%	13.42		%	13.20		%	(12		)	bps
Private Student Loans	8.43		%	8.54		%	8.59		%	8.63		%	8.31		%	12			bps
Personal Loans	13.23		%	13.17		%	13.02		%	12.86		%	12.76		%	47			bps
Other Loans	6.27		%	6.72		%	6.83		%	6.85		%	6.57		%	(30		)	bps
Total Loans	12.52		%	12.76		%	12.82		%	12.79		%	12.59		%	(7		)	bps
Total Interest Earning Assets	10.86		%	11.03		%	10.94		%	10.97		%	10.83		%	3			bps

AVERAGE RATES
Liabilities and Stockholders' Equity
Direct to Consumer and Affinity Deposits	2.03		%	2.16		%	2.20		%	2.15		%	2.00		%	3			bps
Brokered Deposits and Other Deposits	2.72		%	2.73		%	2.71		%	2.67		%	2.58		%	14			bps
Total Interest-bearing Deposits	2.20		%	2.32		%	2.35		%	2.32		%	2.20		%	0			bps
Short-term Borrowings	1.72		%	2.18		%	2.59		%	2.59		%	2.42		%	(70		)	bps
Securitized Borrowings	2.62		%	2.95		%	3.01		%	3.05		%	2.87		%	(25		)	bps
Other Long-term Borrowings	4.53		%	4.64		%	4.75		%	4.81		%	4.65		%	(12		)	bps
Total Interest-bearing Liabilities	2.54		%	2.68		%	2.73		%	2.72		%	2.60		%	(6		)	bps

Net Interest Margin	10.29		%	10.43		%	10.47		%	10.46		%	10.35		%	(6		)	bps
Net Yield on Interest-earning Assets	8.66		%	8.72		%	8.57		%	8.61		%	8.57		%	9			bps

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018					Dec 31, 2019			Dec 31, 2018			2019 vs. 2018
TOTAL LOAN RECEIVABLES
Ending Loans ^{1, 2}		$95,894			$92,493			$90,229			$88,743			$90,512			$5,382		6	%		$95,894			$90,512			$5,382		6	%
Average Loans ^{1, 2}		$93,437			$91,345			$89,358			$89,353			$88,207			$5,230		6	%		$90,886			$85,256			$5,630		7	%

Interest Yield	12.52		%	12.76		%	12.82		%	12.79		%	12.59		%	(7		)	bps		12.72		%	12.39		%	33			bps
Gross Principal Charge-off Rate	4.00		%	3.87		%	4.03		%	4.02		%	3.77		%	23			bps		3.98		%	3.73		%	25			bps
Gross Principal Charge-off Rate excluding PCI Loans³	4.05		%	3.93		%	4.10		%	4.10		%	3.85		%	20			bps		4.04		%	3.81		%	23			bps
Net Principal Charge-off Rate	3.19		%	3.05		%	3.22		%	3.25		%	3.08		%	11			bps		3.17		%	3.06		%	11			bps
Net Principal Charge-off Rate excluding PCI Loans ³	3.23		%	3.09		%	3.27		%	3.31		%	3.14		%	9			bps		3.23		%	3.13		%	10			bps
Delinquency Rate (30 or more days) excluding PCI Loans ³	2.40		%	2.32		%	2.18		%	2.28		%	2.31		%	9			bps		2.40		%	2.31		%	9			bps
Delinquency Rate (90 or more days) excluding PCI Loans ³	1.15		%	1.06		%	1.04		%	1.10		%	1.08		%	7			bps		1.15		%	1.08		%	7			bps
Gross Principal Charge-off Dollars		$941			$891			$898			$887			$839			$102		12	%		$3,617			$3,182			$435		14	%
Net Principal Charge-off Dollars		$751			$702			$718			$715			$686			$65		9	%		$2,886			$2,612			$274		10	%
Net Interest and Fee Charge-off Dollars		$166			$156			$158			$158			$142			$24		17	%		$638			$551			$87		16	%
Loans Delinquent 30 or more days ³		$2,276			$2,114			$1,939			$1,988			$2,049			$227		11	%		$2,276			$2,049			$227		11	%
Loans Delinquent 90 or more days ³		$1,089			$968			$922			$959			$961			$128		13	%		$1,089			$961			$128		13	%

Allowance for Loan Loss (period end)		$3,383			$3,299			$3,202			$3,134			$3,041			$342		11	%		$3,383			$3,041			$342		11	%
Reserve Change Build/ (Release) ⁴		$85			$97			$69			$94			$114			($29	)				$345			$423			($78	)
Reserve Rate	3.53		%	3.57		%	3.55		%	3.53		%	3.36		%	17			bps		3.53		%	3.36		%	17			bps
Reserve Rate Excluding PCI Loans ³	3.55		%	3.59		%	3.58		%	3.57		%	3.39		%	16			bps		3.55		%	3.39		%	16			bps

CREDIT CARD LOANS
Ending Loans		$77,181			$73,968			$72,393			$70,789			$72,876			$4,305		6	%		$77,181			$72,876			$4,305		6	%
Average Loans		$74,814			$73,248			$71,492			$71,363			$70,563			$4,251		6	%		$72,740			$67,953			$4,787		7	%

Interest Yield	13.08		%	13.35		%	13.44		%	13.42		%	13.20		%	(12		)	bps		13.32		%	13.00		%	32			bps
Gross Principal Charge-off Rate	4.34		%	4.25		%	4.43		%	4.40		%	4.01		%	33			bps		4.35		%	4.02		%	33			bps
Net Principal Charge-off Rate	3.41		%	3.32		%	3.49		%	3.50		%	3.23		%	18			bps		3.43		%	3.26		%	17			bps
Delinquency Rate (30 or more days)	2.62		%	2.50		%	2.34		%	2.45		%	2.43		%	19			bps		2.62		%	2.43		%	19			bps
Delinquency Rate (90 or more days)	1.32		%	1.21		%	1.18		%	1.26		%	1.22		%	10			bps		1.32		%	1.22		%	10			bps
Gross Principal Charge-off Dollars		$818			$784			$789			$774			$713			$105		15	%		$3,165			$2,734			$431		16	%
Net Principal Charge-off Dollars		$644			$611			$623			$616			$575			$69		12	%		$2,494			$2,213			$281		13	%
Loans Delinquent 30 or more days		$2,019			$1,847			$1,692			$1,731			$1,772			$247		14	%		$2,019			$1,772			$247		14	%
Loans Delinquent 90 or more days		$1,020			$897			$857			$891			$887			$133		15	%		$1,020			$887			$133		15	%

Allowance for Loan Loss (period end)		$2,883			$2,799			$2,691			$2,622			$2,528			$355		14	%		$2,883			$2,528			$355		14	%
Reserve Change Build/ (Release)		$84			$108			$69			$94			$104			($20	)				$355			$381			($26	)
Reserve Rate	3.74		%	3.78		%	3.72		%	3.70		%	3.47		%	27			bps		3.74		%	3.47		%	27			bps

Total Discover Card Volume		$42,794			$41,168			$39,935			$36,386			$40,655			$2,139		5	%		$160,283			$152,826			$7,457		5	%
Discover Card Sales Volume		$39,188			$37,432			$36,664			$32,899			$37,208			$1,980		5	%		$146,183			$139,031			$7,152		5	%
Rewards Rate	1.32		%	1.38		%	1.25		%	1.35		%	1.28		%	4			bps		1.33		%	1.29		%	4			bps

1 Total Loans includes Home Equity and other loans

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

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

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

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



DISCOVER FINANCIAL SERVICES
LOAN STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018					Dec 31, 2019			Dec 31, 2018			2019 vs. 2018
PRIVATE STUDENT LOANS
Ending Loans (excluding PCI)		$8,402			$8,395			$7,943			$8,071			$7,728			$674		9	%		$8,402			$7,728			$674		9	%
Ending PCI Loans ¹	1,251			1,341			1,432			1,531			1,637			(386		)	(24	%)	1,251			1,637			(386		)	(24	%)
Ending Loans		$9,653			$9,736			$9,375			$9,602			$9,365			$288		3	%		$9,653			$9,365			$288		3	%

Interest Yield	8.43		%	8.54		%	8.59		%	8.63		%	8.31		%	12			bps		8.55		%	8.11		%	44			bps
Net Principal Charge-off Rate	1.02		%	0.59		%	0.61		%	0.66		%	0.86		%	16			bps		0.72		%	0.91		%	(19		)	bps
Net Principal Charge-off Rate excluding PCI Loans²	1.18		%	0.69		%	0.73		%	0.79		%	1.05		%	13			bps		0.85		%	1.14		%	(29		)	bps
Delinquency Rate (30 or more days) excluding PCI Loans ²	1.72		%	1.78		%	1.67		%	1.76		%	2.00		%	(28		)	bps		1.72		%	2.00		%	(28		)	bps

Reserve Rate	1.53		%	1.51		%	1.79		%	1.75		%	1.80		%	(27		)	bps		1.53		%	1.80		%	(27		)	bps
Reserve Rate excluding PCI Loans ²	1.50		%	1.47		%	1.80		%	1.78		%	1.85		%	(35		)	bps		1.50		%	1.85		%	(35		)	bps

PERSONAL LOANS
Ending Loans		$7,687			$7,596			$7,414			$7,428			$7,454			$233		3	%		$7,687			$7,454			$233		3	%

Interest Yield	13.23		%	13.17		%	13.02		%	12.86		%	12.76		%	47			bps		13.07		%	12.60		%	47			bps
Net Principal Charge-off Rate	4.26		%	3.99		%	4.33		%	4.53		%	4.49		%	(23		)	bps		4.28		%	4.15		%	13			bps
Delinquency Rate (30 or more days)	1.37		%	1.49		%	1.49		%	1.51		%	1.60		%	(23		)	bps		1.37		%	1.60		%	(23		)	bps

Reserve Rate	4.53		%	4.59		%	4.56		%	4.55		%	4.53		%	0			bps		4.53		%	4.53		%	0			bps


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

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

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



DISCOVER FINANCIAL SERVICES
SEGMENT RESULTS AND VOLUME STATISTICS
(unaudited, in millions)
	Quarter Ended																				Twelve Months Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018			Dec 31, 2019 vs. Dec 31, 2018					Dec 31, 2019			Dec 31, 2018			2019 vs. 2018
DIRECT BANKING
Interest Income		$3,039			$3,040			$2,976			$2,937			$2,906			$133		5	%		$11,992			$10,892			$1,100		10	%
Interest Expense	615			638			645			632			605			10			2	%	2,530			2,139			391			18	%
Net Interest Income	2,424			2,402			2,331			2,305			2,301			123			5	%	9,462			8,753			709			8	%
Non-Interest Income	431			409			436			372			432			(1		)	0	%	1,648			1,645			3			—	%
Revenue Net of Interest Expense	2,855			2,811			2,767			2,677			2,733			122			4	%	11,110			10,398			712			7	%
Provision for Loan Losses	838			799			787			809			800			38			5	%	3,233			3,035			198			7	%
Total Operating Expense	1,134			1,069			1,039			989			1,059			75			7	%	4,231			3,918			313			8	%
Income Before Income Taxes		$883			$943			$941			$879			$874			$9		1	%		$3,646			$3,445			$201		6	%

Net Interest Margin	10.29		%	10.43		%	10.47		%	10.46		%	10.35		%	(6		)	bps		10.41		%	10.27		%	14			bps
Pretax Return on Loan Receivables	3.75		%	4.09		%	4.23		%	3.99		%	3.93		%	(18		)	bps		4.01		%	4.04		%	(3		)	bps

Allowance for Loan Loss (period end)		$3,383			$3,298			$3,200			$3,133			$3,039			$344		11	%		$3,383			$3,039			$344		11	%
Reserve Change Build/ (Release) ¹		$87			$98			$69			$94			$120			($33	)				$348			$429			($81	)

PAYMENT SERVICES
Interest Income		$—			$—			$1			$—			$1			($1	)	(100%)			$1			$1			$—		—	%
Interest Expense	—			—			—			—			—			—			NM		—			—			—			NM
Net Interest Income	—			—			1			—			1			(1		)	(100%)		1			1			—			—	%
Non-Interest Income	89			89			84			86			73			16			22	%	348			310			38			12	%
Revenue Net of Interest Expense	89			89			85			86			74			15			20	%	349			311			38			12	%
Provision for Loan Losses	(2		)	—			—			—			—			(2		)	NM		(2		)	—			(2		)	NM
Total Operating Expense	50			38			39			35			51			(1		)	(2	%)	162			159			3			2	%
Income Before Income Taxes		$41			$51			$46			$51			$23			$18		78	%		$189			$152			$37		24	%

TRANSACTIONS PROCESSED ON NETWORKS
Discover Network	731			710			671			605			663			68			10	%	2,717			2,469			248			10	%
PULSE Network	1,253			1,220			1,183			1,132			1,169			84			7	%	4,788			4,364			424			10	%
Total	1,984			1,930			1,854			1,737			1,832			152			8	%	7,505			6,833			672			10	%

NETWORK VOLUME
PULSE Network		$50,037			$47,535			$47,389			$47,106			$47,082			$2,955		6	%		$192,067			$179,792			$12,275		7	%
Network Partners	7,099			6,656			5,950			5,663			4,680			2,419			52	%	25,368			18,948			6,420			34	%
Diners Club International ²	8,831			8,386			8,472			8,278			8,700			131			2	%	33,967			33,877			90			—	%
Total Payment Services	65,967			62,577			61,811			61,047			60,462			5,505			9	%	251,402			232,617			18,785			8	%
Discover Network - Proprietary	40,579			38,722			37,891			34,051			38,502			2,077			5	%	151,243			143,865			7,378			5	%
Total		$106,546			$101,299			$99,702			$95,098			$98,964			$7,582		8	%		$402,645			$376,482			$26,163		7	%

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

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



DISCOVER FINANCIAL SERVICES - GLOSSARY OF FINANCIAL TERMS

Balance Sheet & Regulatory Capital Terms
Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments

Regulatory Capital Ratios at September 30, 2019 are preliminary
•	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
•	Common Equity Tier 1 Capital Ratio represents common equity tier 1 capital divided by risk weighted assets

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 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

Tangible Common Equity/Net Loans, a non-GAAP measure, represents TCE divided by total loans less the allowance for loan loss (period end)

Tangible Common Equity per Share, a non-GAAP measure, represents TCE divided by ending common shares outstanding

Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents TCE divided by total assets less goodwill and intangibles

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)

Credit Related Terms
Delinquency Rate (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective product loans, as appropriate)

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

Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate)

Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate)

Reserve Rate represents the allowance for loan losses divided by total loans (total or respective product loans, as appropriate)

Earnings and Shareholder Return Terms
Book Value per share represents total equity divided by ending common shares outstanding

Capital Returned to Common Stockholders represents common stock dividends declared and treasury share repurchases, excluding common stock issued under employee benefit plans and stock based compensation

Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding

Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period (total or respective product loans, as appropriate)

Net Income Allocated to Common Stockholders represents net income less preferred stock dividends and income allocated to participating securities

Net Interest Margin represents net interest income (annualized) divided by average total loans for the period

Net Yield on Interest Earning Assets represents net interest income (annualized) divided by average total interest earning assets for the period

Operating Efficiency represents total other expense divided by revenue net of interest expense

Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period

Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders

Return on Equity represents net income (annualized) divided by average total equity for the reporting period

Rewards Rate represents Credit Card rewards cost divided by Discover Card sales volume

Volume Terms
Discover Card Sales Volume represents Discover card activity related to sales net of returns

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

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



DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
	Quarter Ended
	Dec 31, 2019			Sep 30, 2019			Jun 30, 2019			Mar 31, 2019			Dec 31, 2018
GAAP Total Common Equity		$11,296			$11,154			$10,930			$10,696			$10,567
Less: Goodwill	(255		)	(255		)	(255		)	(255		)	(255		)
Less: Intangibles	(155		)	(159		)	(160		)	(160		)	(161		)
Tangible Common Equity ¹		$10,886			$10,740			$10,515			$10,281			$10,151

GAAP Book Value Per Share		$38.24			$37.20			$35.97			$34.60			$33.58
Less: Goodwill	(0.83		)	(0.80		)	(0.80		)	(0.78		)	(0.77		)
Less: Intangibles	(0.50		)	(0.51		)	(0.50		)	(0.49		)	(0.48		)
Less: Preferred Stock	(1.81		)	(1.79		)	(1.76		)	(1.73		)	(1.70		)
Tangible Common Equity Per Share		$35.10			$34.10			$32.91			$31.60			$30.63

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

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

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Discover Financial Services - FORM 8-K - EX-99.2 - EXHIBIT 99.2 - January 23, 2020

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