EX-99.1 2 d499668dex991.htm DISCOVER FINANCIAL SERVICES FINANCIAL COMMUNITY BRIEFING PRESENTATION Discover Financial Services Financial Community Briefing Presentation
March 12, 2013
2013 Financial Community Briefing
©2013 DISCOVER FINANCIAL SERVICES
Exhibit 99.1

2
Notice
The following slides are part of a presentation by Discover Financial Services (the "Company") and are intended to be
viewed as part of that presentation. No representation is made that the information in these slides is complete.
Company financial data presented herein is based on a calendar year. As previously reported, the Company changed its
fiscal year end from November 30 to December 31 of each year, effective beginning with the 2013 fiscal year. For more
information, see the Company's Current Report on Form 8-K dated March 5, 2013, which includes the Company's
financial results on a calendar-year basis for each quarter in 2012 and 2011, as well as the twelve months ended
December 31, 2012, 2011 and 2010.
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
at www.discoverfinancial.com.
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 November 30, 2012, which is
on file with the SEC. 
We own or have rights to use the trademarks, trade names and service marks that we use in conjunction with the
operation of our business, including, but not limited to: Discover®, PULSE®, Cashback Bonus®, Discover Cashback
Checking    ,
Discover
it    ,
Discover®
Network
and
Diners
Club
International®.
All
other
trademarks,
trade
names
and
service marks included in this presentation are the property of their respective owners.
SM
TM

3
Agenda
Discover’s strategy
David Nelms
CHAIRMAN & CHIEF EXECUTIVE OFFICER
Achievements and strategic priorities
Roger Hochschild
PRESIDENT & CHIEF OPERATING OFFICER
Leveraging risk management capabilities
Jim Panzarino
EVP & CHIEF CREDIT RISK OFFICER
Driving strong returns and taking share
Harit Talwar
EVP, PRESIDENT -
U.S. CARDS
Expanding direct banking products
Carlos Minetti
EVP, PRESIDENT -
CONSUMER BANKING & OPERATIONS
Realizing network potential
Diane Offereins
EVP, PRESIDENT -
PAYMENT SERVICES
Financial performance and effective
capital deployment
Mark Graf
EVP & CHIEF FINANCIAL OFFICER
Closing remarks and Q&A
David Nelms
CHAIRMAN & CHIEF EXECUTIVE OFFICER

2013 Financial Community Briefing
David Nelms
Chairman & Chief Executive Officer

5
Positioned for success as the leading direct bank and
payments partner
•
Driving superior returns
•
Gaining card market share through a new flagship product, cash rewards and
customer experience
•
Leveraging risk management capabilities across asset classes
•
Growing student and personal loans while introducing new direct banking
products
•
Partnering in payments to drive volume and profits
•
Creating shareholder value through effective capital management

6
Discover’s Strategic Objective:
Be the leading direct bank and payments partner
Brand
Customer
Service
Risk
Management
Unique Assets
and
Capabilities
Rewards
Flexible
Payment
Networks
Loyal
Customer
Base

7
Preferred Banking Channel
Source
American Bankers Association Survey 2012
2
Yr
Avg.
Efficiency
Ratio
(1)
Source
SNL,
Regulatory
Reports
1/1/11
–
12/31/12
Efficient and effective strategy
Branch
Preference
Large
Bank
Avg.
(2)
Note(s)
1.
Non-interest expense divided by total revenue (net interest income and noninterest income)
2.
Bank holding companies participating in the 2013 Comprehensive Capital Analysis and
Review (CCAR) and Capital Plan Review (CapPR), excludes Discover
2008:  34%
2012:  18%
Internet
39%
Phone /
Mobile
15%
Mail
8%
ATM
12%
Branch
18%
NA
8%
87%
73%
70%
66%
55%
38%
BofA
Amex
Citi
JPMorgan
CapOne
Discover

8
Flexible payments partner
Merchants
Acquirers
Issuers
Mobile Wallets
Networks

9
2 Yr. Avg. ROE
Source
SNL,
regulatory
reports
1/1/11
-
12/31/12
Model drives superior performance in banking industry
Note(s)
1.
Bank holding companies participating in the 2013 Comprehensive Capital Analysis and Review (CCAR) and Capital Plan Review (CapPR), excludes Discover
(1)
Discover Model
•
Leverage card-built position and
capabilities in direct marketing, risk
management and service
•
Exploit higher growth and higher
return direct business mix
•
Alternative payments strategy and
flexibility provide opportunities
Target
15%+
28%
7%
DFS
Large Banks

2013 Financial Community Briefing
Roger Hochschild
President & Chief Operating Officer

11
Delivered outstanding performance in calendar year 2012
•
Delivered record profits
–
$2.4 billion net income with strong ROE of 26%
•
Drove record network sales volume
–
$307 billion volume with growth of 9% YOY
•
Delivered industry leading card loan growth
–
5% growth YOY in ending receivables
•
Achieved all-time low total net charge-off rate of 2.24%
–
149bps decrease in net charge-off rate YOY
•
Continued success in student lending
–
Approximately $1 billion in originations
•
Launched the Discover Home Loans product
–
Originated more than $2 billion in mortgages in first six months
•
Focused on capital, liquidity and funding
–
Returned $1.4 billion to shareholders

12
2.1%
2.6%
3.5%
3.9%
4.4%
4.9%
AXP
DFS
COF
JPM
C
BAC
DFS
5%
AXP
4%
COF
0%
JPM
-3%
C
-6%
BAC
-7%
Outperforming peers in card loan growth and credit
Note(s)
2012
Net
Charge-Off
Rate
(1)
2012
Loan
Growth
(YOY)
(1,2)
Source
Public company data, calendar year
1.
Reflects card receivables growth and net charge-off rate for American Express (U.S. Card), Bank of America (U.S. Card), Capital One (U.S. Card ), Citi (Citi-branded Cards
N.A.) and JPMorgan Chase (Card Services excluding Commercial Card)
2.
Capital One 2012 loan growth excludes HSBC acquisition and is based on management commentary

13
•
Grow Discover card loans share while maintaining leading credit performance
•
Expand direct consumer banking
•
Grow global network volume and acceptance
•
Optimize funding, cost structure and capital position
•
Enhance operating model
2013 Priorities

14
•
Launch
new
flagship
product
in
card
-
Discover
it
•
Expand mortgage platform with home equity
•
Enhance operations and implement new core banking platform
•
Implement PayPal, and other non-traditional partners
•
Expand PULSE network to all debit transactions
•
Diversify funding sources through direct checking
2013 Strategic Initiatives

2013 Financial Community Briefing
Jim Panzarino
EVP, Chief Credit Risk Officer

16
Delivering strong credit performance across products
•
Continued investments in data, analytics and operations
•
Disciplined growth through innovative credit assessment and management
•
Leveraging card risk management capabilities to support growth in other
lending products

17
Underwriting
Portfolio
Management
Data and
Analytics
Organizational structure enables consistent performance
•
Data and analytics deepen
customer insights
•
Operational integration embeds
risk intelligence in customer
engagements
•
Structure allows for faster
execution ensuring industry
leading performance
Risk
Management
Strategy
New
Accounts
Cardmember
Assistance
Authorization
Operations

18
Sustained superior credit performance
•
Disciplined new bookings
•
Profitability based line assignments
•
Proactive and targeted portfolio
management
•
Innovative use of credit and
behavioral data in decision making
•
Stronger customer influence through
in-house collection activities
Card Net Charge-off Rate
Source
Public company data, calendar year
Note(s)
1.
Includes American Express (U.S. Card), Bank of America (U.S. Card), Capital One
(U.S. Card ), Citi (Citi-branded Cards N.A.) and JPMorgan Chase (Card Services
excluding Commercial Card)
(1)
0%
2%
4%
6%
8%
10%
12%
Discover
Peer Group
4Q08
4Q09
4Q10
4Q11
4Q12

19
$1.8
$0.9
2010
2012
$46.8
$51.1
2010
2012
49%
Growing card receivables while managing risk
Receivables ($Bn)
30+ Delinquencies ($Bn)
Source
Discover, calendar year end data
9%

20
76%
83%
2010
2012
Continued improvement in cards risk profile
Receivables (FICO > 660)
Source
Discover, calendar year end data weighted by balance
Loans
with
Tenure
>
5
Yrs
(1)
Note(s)
1.
Based
on
loan
balances
from
accounts
opened
more
than
five
years
ago
71%
75%
2010
2012

Student loan industry
Source
Federal Loans
Total Balances ($Tn)
Federal Loans
90+ Delinquency Rate
Student loan growth driven by Federal loans, which show a 27% increase in delinquencies
21
“An Evaluation of Dynamics in The Student Loan Market”, 2013 TransUnion report 

22
2.8%
1.1%
Sallie Mae
Discover
Discover Student Loans:
Industry leading underwriting approach
Underwriting approach
2012 Net Charge-off Rates
Source
Public company data, calendar year
Note(s)
1.
Defined as net losses to average receivables for the private education loan portfolio
2.
Defined
as
net
losses
to
average
managed
contractual
receivables
which
is
a
non-
GAAP measure for DFS; see appendix for reconciliation
•
High cosigner rate
•
High origination FICO
•
Focus on 4 year and graduate not-
for-profit schools
•
School certification for all
borrowers and direct disbursement
of funds to schools
(1)
(2)

23
1.0%
0.5%
2010
2012
$1.9
$3.3
2010
2012
Discover Personal Loans:
Growing receivables while managing risk
Receivables ($Bn)
60+ Delinquency Rate
72%
52%
Source
Discover, calendar year end data

24
Today we shared…
Our credit performance across all products continues to be
better than the peer group
We maintain a high credit quality portfolio across all
product types
We increased our receivables by $9 billion across products in
two years
Our organizational structure and investments in data
and analytics should continue to produce industry
leading performance
Sustained
Performance
Investment in
Capabilities
Portfolio
Growth
Portfolio
Quality

25
0%
1%
2%
3%
4%
5%
6%
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
Feb-13
Where is credit headed?
Source
Discover, monthly data
Card 30+ Delinquency Rate

2013 Financial Community Briefing
Harit Talwar
EVP, President -
U. S. Card

27
Robust growth, attractive returns and strengthening
competitive advantage
•
Strong momentum in card business in 2012:
–
5.2% YOY growth in loans and
81bps
increase in market share
(1)
–
10% YOY increase in new accounts
–
150bps
YOY
increase
in
wallet
share
with
existing
customers
(2)
•
Strategic focus on leveraging our competitive advantages through:
–
Launch
of
new
flagship
product
-
Discover
it
–
Enhancing rewards leadership including leveraging proprietary network
–
Superior customer experience across online, mobile, and phone interactions
Note(s)
1.
Includes weighted average card loans growth for American Express (U.S. Card), Bank of America (U.S. Card), Capital One (U.S. Card excluding installment loans & HSBC),
Citi (Citi-branded Cards N.A.), and JPMorgan Chase (Card Services)
2.
Internal and bureau data as of December 2012

28
81bps
78bps
29bps
-25bps
-54bps
-110bps
DFS
AXP
COF
JPM
C
BAC
Gaining market share in card loans
2012
Card
Loan
Market
Share
Growth
(YOY)
(1)
Note(s)
Source
Public company data, calendar year
Market share change based upon total loans for American Express (U.S. Card), Bank of America (U.S. Card), Capital One (U.S. Card excluding installment loans & HSBC), Citi
(Citi-branded Cards N.A.), and JPMorgan Chase (Card Services)
1.

29
Note(s)
1.
Credit card ending loans mix by APR (%); pre-CARD Act is an average of 2006-2008 inclusive
Prudent management of loan mix
23%
16%
18%
52%
67%
67%
25%
17%
15%
Pre-CARD Act
CY2011
CY2012
Promotional
Standard
Cash and Other
Card Loan Mix (%)
(1)

30
More profitable than peer group
Note(s)
1.
Pre-tax income adjusted for loan loss reserve changes divided by average card receivables, which is a non-GAAP measure; see appendix for Discover GAAP reconciliation
2.
Includes American Express (U.S. Card), Bank of America (U.S. Card), Capital One (U.S. Card excluding estimated HSBC one-time adjustments), Citi (Citi-branded Cards N.A.
based on segment tax rate), and JPMorgan Chase (Card Services)
5.9%
5.6%
4.8%
4.0%
3.2%
2.4%
DFS
AXP
COF
BAC
JPM
C
Source
Public company data, calendar year
2012 Pre-Tax Card ROA
(1,2)
(excl. change in loan loss reserves)

31
•
New flagship product
•
National rollout in response to
strong pilot performance
•
Transforms traditional card
industry model
Discover it –
accelerating customer acquisition

32
Distinctive combination of product features
Note(s)
–
comparison
chart,
visit
–
5% cash back caps at $1,500
Comparison based on information obtained on issuers' websites or from customer service representatives as of November 2012.  For full version of
www.discover.com

33
Unique design and customer experience
•
New online application process
•
Distinctive card design and communications
•
Expedited delivery
•
Access to live account manager
•
Superior service experience
Surprise and delight
Card delivery
Card design

34
Emphasizing value proposition beyond price
Note(s)
–
Creatives highlight key features only for illustrative purposes

35
Integrated go-to-market strategy

36
Wallet
Share
of
Loans
(1)
•
Increase in wallet share with
existing customers significant
driver of loan growth
•
Competitive advantage in rewards
and customer experience driving
this growth
Increasing wallet share with existing customers
Note(s)
1.
Wallet Share is the amount of customer loans with Discover vs. other cards in wallet as of December of each year; share based upon credit bureau data and internal modeling
2010
2011
2012
300bps+

37
45%
25%
21%
15%
12%
10%
DFS
JPM
AXP
BAC
COF
C
•
Cash rewards on all purchases
with no caps, plus special earn
and redeem choices
•
Robust platform for partner
programs
•
Superior customer experience
•
Continuous innovation
The largest cash rewards program
Cash Rewards
Household Penetration
Source
TNS 2012 Consumer Card Strategies Research Program

•
Successfully evolved Cashback
Bonus as a currency at point-of-
purchase
•
Double digit increase in
Discover Card registrations and
sales at Amazon
•
Multiple programs including
exclusive card partner for Kindle
Fire launch
New program with Amazon resonating strongly with customers
38

Leveraging emerging technologies and partnerships
Discover rewards in
popular wallets            
(e.g., Apple Passbook)
Multiple offers in
Discover Extras
Discover shopping mall on mobile
200+ partners
Redeeming rewards at POS
50+ partners
Note(s)
Registered trademarks are the property of respective owners

40
•
Leverage 300%+ increase in
mobile adoption
(1)
•
Continuous transformation of
customer experience
•
Enhanced eCommerce platforms
to increase customer acquisition
and card usage
Online / mobile critical to growth
Empowering Customers
Note(s)
1.
December
2010
to
December
2012
internal
data,
unique
cardmembers
logging
in
to
mobile
site

41
842
837
800
786
775
772
AXP
DFS
JPM
COF
C
BAC
•
Approximately 20% increase in
customer interactions
•
Approximately 50% reduction in
cost per customer interaction
(1)
•
80% of customer contacts are
online
Empowering customers and reducing costs
Note(s)
1.
Interactions / contacts with Discover cardmembers as measured year-over-year; cost per customer interaction as measured from 2007 to 2012
2.
The Customer Interaction Index is a composite of five weighted factors, including: Website Interaction, Customer Service Representative Interaction, Assisted Online Interaction,
Automated Phone System Interaction, and Mobile Phone Interaction
JD Power
Customer
Interaction
Index
(2)
Source
J.D.
Power
and
Associates
2013
Credit
Card
Satisfaction
Study
SM

•
67% of new accounts online
•
Accounts active online
contribute 80%+ of sales / loans
eCommerce platforms driving card acquisition and usage
Note(s)
New accounts represent online activated accounts
42

43
Robust growth, attractive returns and strengthening
competitive advantage
•
Strong momentum in card business in 2012:
–
5.2%
YOY
growth
in
loans
and
81bps
increase
in
market
share
(1)
–
10% YOY increase in new accounts
–
150bps
YOY
increase
in
wallet
share
with
existing
customers
(2)
•
Strategic focus on leveraging our competitive advantages through:
–
Launch
of
new
flagship
product
-
Discover
it
–
Enhancing rewards leadership including leveraging proprietary network
–
Superior customer experience across online, mobile, and phone interactions
•
Annual loan growth target of 2-5%
•
Large, loyal customer base creating further growth opportunities
Note(s)
1.
Includes
weighted
average
card
loans
growth
for
American
Express
(U.S.
Card),
Bank
of
America
(U.S.
Card),
Capital
One
(U.S.
Card
excluding
installment
loans
&
HSBC),
Citi
(Citi-branded Cards N.A.), and JPMorgan Chase (Card Services)
2.    Internal and bureau data as of December 2012

2013 Financial Community Briefing
Carlos Minetti
EVP,
President
–
Consumer
Banking
&
Operations

45
Expansion to a diversified direct bank model driven by
long-term strategic objectives
•
Develop additional sources of sustainable growth
•
Provide asset class and earnings diversification
•
Grow core funding source and lower overall cost of funds
•
Pursue
opportunities
that
align
with
“direct-to-consumer”
distribution
model
•
Leverage proven Discover strengths / competitive advantage

46
Leveraging strengths and capitalizing on changing market
conditions to launch new businesses
•
Financial crisis created market
disruption and forced many firms
to pull back
•
Changing consumer attitudes
towards debt
•
Evolving regulatory climate
•
Growing acceptance of online
banking
•
Emergence of mobile technology
•
Discover brand
•
Loyal customer base
•
Customer service and online
experience
•
Risk management and analytics
•
Product development and direct
marketing
Marketplace
Strengths

L
M
H
Consumer Banking Landscape
Pursued disciplined execution around categories with
sizeable opportunity and best fit to direct model
Credit Card
Point of Sale Installment
Private Label
Credit Card
Specialty Loans
Auto Lending
1
Mortgage
(Indirect)
Source
Moody’s, SNL, TransUnion, Discover analysis
Personal Loans
Student Loans
Certificates of Deposit
1
Mortgage
(Direct)
Savings
Home
Equity
(1)
Checking
Note(s)
1.
Home equity product launch to be determined
47
Strategic Fit
st
st

48
Made remarkable progress and new businesses increasingly
contributing to the bottom line
•
$12Bn in receivables
(1)
•
18% of receivables
•
10% of Direct Banking NI
•
$28Bn of direct deposits
•
47% of funding
•
600K customers
Note(s)
1.
Includes contractual student loan receivables, a non-GAAP measure; see appendix for reconciliation

49
Discover Student Loans

50
$0.4
$0.6
$1.0
$2.1
$3.1
$3.7
$5.7
$5.0
2008
2009
2010
2011
2012
Organic
Purchased Portfolios
$4.7
$7.8
$8.1
Generated substantial organic loan growth and integrated
acquired portfolios
Note(s)
1.
Contractual receivables is a non-GAAP measure; amounts represent year-end
balances, see appendix for reconciliation
2.
Includes CitiAssist originated loans for 2011 and 2012
Student
Loan
Receivables
($Bn)
(1)
2012 Accomplishments
(2)
Launched health professions, law and
MBA loans
Implemented fixed rate loan
Expanded
placement
on
schools’
lists
Migrated acquired customers to the
Discover brand
Increased operational scale and in-
sourced servicing for 400K CitiAssist
accounts
Launched new collections platform
Implemented new risk model and
enhanced underwriting process
Expanded product breadth and market
presence
Enhanced operating efficiency

51
Increase volume of Discover-branded originations and
manage losses as more loans enter repayment
Accelerate Discover-branded growth
•
Expand product offerings, including Bar,
Residency and Consolidation loans
•
Implement enhanced marketing strategy
•
Capture increased share of repeat
borrowing
Maintain strong portfolio economics
•
Optimize marketing channel mix to
reduce acquisition costs
•
Increase pre-repayment education for
borrowers and cosigners
•
Offer more repayment options to assist
customers
•
Enhance self-service functionality
2013 Priorities

52
Discover Personal Loans

53
Delivered robust receivables growth from high
quality consumers
$1.1
$1.4
$1.9
$2.7
$3.3
2008
2009
2010
2011
2012
Improved customer acquisition
•
Introduced new risk models for broad 
•
Developed new direct mail targeting 
•
Improved application conversion rates
Enhanced customer contact strategy
•
Launched public website
•
Streamlined online application process
•
Introduced electronic delivery of 
Source
Discover, calendar year
Personal Loan Receivables ($Bn)
2012 Accomplishments
market
models
documents

54
Ongoing refinement of business model to sustain growth
trends and profitability
Improve targeting of prospects
•
Expand qualified universe
•
Enhance underwriter training and tools
•
Deploy next generation of risk models
Enhance effectiveness of
communications
•
Customize marketing messaging
•
Expand usage of phone and e-mail 
Increase customer lifetime value
•
Launch strategy for customers with 
•
Introduce multi-dimensional pricing
•
Cross-sell other Discover products
2013 Priorities
channels
recurring needs

55
Discover Home Loans

56
Successfully completed acquisition
and established strong
market presence
Executed seamless transition
•
Operating in 48 states and DC
•
Integrated risk management
Built marketing capabilities
•
Multi-channel brand awareness 
•
Online and direct marketing infrastructure
Developed customer-centric experience
•
Dedicated mortgage banker
•
Simple application process with online 
•
Service guarantee and reward programs
Source
Discover, calendar year
Funded Loan Volume ($MM)
2012 Accomplishments
DFS Branded
Lead Aggregator
$309
$614
$762
$642
3Q12
4Q12
$1,071
$1,256
campaigns
status tracking

57
Enhance operating model to capture additional customers
and achieve cost efficiencies
Broaden market presence
•
Launch VA & Jumbo products
•
Enhance distribution capability to target 
•
Establish partnerships to source leads
Expand marketing capabilities
•
Improve customer targeting and 
•
Enhance online tools and content
•
Implement broad market strategy
Drive operational efficiencies
•
Gain funding and operational efficiencies
•
Make strategic infrastructure investments
•
Improve secondary market execution
2013 Priorities
purchase market
conversion

58
Discover Home Equity Loans

59
$126
$61
$53
$54
$61
2008
2009
2010
2011
2012E
HE Installment Loan
HE Line of Credit
Housing market recovery provides Home Equity opportunity
Large market experiencing recovery
•
Early signs of recovery observed in 2012
•
Equity in homes being replenished as
home values increase
Credit risk is manageable
•
Initial underwriting grounded on
unsecured lending expertise
•
Loss rates on new originations have
returned to pre-crisis levels of 1%
Discover customers targeted for initial
launch
•
Approximately 80% of Discover
customers are home owners
•
Sizeable percentage could benefit from
home equity offering
Source
Moody’s Economy.com
Home Equity
Industry Originations ($Bn)
Opportunities

60
Personal Loans Strengths
Home Loans Strengths
Home Equity leverages the strengths of both Home Loans
and Personal Loans
•
Prospect targeting and direct
marketing
•
Credit modeling and analytics
•
Judgmental underwriting
•
Real estate loan sales
•
Loan processing and
documentation
•
Online customer experience
•
Secured, closed-end, fixed-rate product
•
Consolidate loans to lower interest rates and pay down debt
•
Loan balances between $25K and $100K
•
Direct marketing supported by online presence
Home Equity Positioning

61
Direct-to-Consumer Deposits

62
Note(s)
Strengthened economic attributes of the portfolio and
broadened value proposition
Improved portfolio economics
•
De-emphasized rate positioning
•
Focused acquisitions on cross-sell and 
•
Improved CD renewal and portfolio 
Enhanced customer experience
•
Upgraded mobile and tablet capabilities
•
Launched mobile bill payment and 
•
Added “click to chat”
to 24X7 customer 
Direct-to-Consumer
Deposits ($Bn)
2012 Accomplishments
Source
Discover, calendar year
$7
$13
$21
$27
$28
2008
2009
2010
2011
2012
affinity
retention rates
service
remote deposit capture
(1)
1.
AAA Affinity deposits are included as consumer deposits, but are classified as brokered deposits in FDIC call reports

63
•
Achieves cost of funds benefit in a
rising rate environment
•
Deepens customer relationships
given transactional nature of product
•
Delivers richer product features and
better value given lower direct
banking cost structure
•
Leverages Discover and PULSE
networks
Establish core banking presence and lower cost of funds
with launch of checking product
Strategic Rationale

64
•
Almost 50% of consumers who switch
banks do so because of new or
higher fees
(1)
•
Majority of households maintain more
than
one
checking
account
(2)
•
More than 60% of those aged 18-34
prefer to bank via the internet or via
mobile phone
(1)
•
Cash rewards program seen as
compelling for Discover customers
(3)
Note(s)
1.
Mintel Retail Banking Report, Oct 2012. Internet users aged 18+ who have a bank account and switched banks in the last three years
2.
Discover transaction account online survey (Feb 2011)
3.
Discover sponsored research
4.
Consumer must have Discover credit card to earn Cashback Bonus
Discover Cashback Checking fulfills unmet consumer needs
No monthly service fees
No minimum balance
Earn Cashback Bonus on
Debit
Card
Online
Bill Pay
Checks
Customer Insights
Value Proposition
everyday transactions:
(4)

65
Lower cost structure enables Discover to offer feature-rich
Cashback Checking
Note(s)
Chase
Bank of America
Wells Fargo
Total Checking
eBanking
Value Checking
No Monthly Fee
(No Balance/Activity Requirements)
Access to Over 60,000
No Fee ATMs
Rewards on Purchases, Checks and
Online Bill Pay transactions
Free Online Bill Pay
Free Money Transfers
(Inbound / Outbound)
Free Check Reorders
Free Official Bank Check
Free Replacement Debit Card
Expedited Delivery for your
Replacement Debit Card
Branches
Banks may waive fees if other conditions are met
Competitors’ fees and features are quoted for accounts opened in Illinois as of 2/18/13.  Fees obtained from company account agreements,
fee schedules, online chat and calls to customer service centers.
Access to over 60,000 ATMs for Discover Cashback Checking customers based on planned network coverage
Cashback
Checking

66
Smart phone imaging capability enables remote
check deposits
Enter Deposit
Amount
Capture Image
Confirm and
Authorize

67
No-fee access to cash through extensive ATM network

68
Direct Cashback Checking will add a significant new
product into our overall direct banking offering

69
Continue to execute against strategic roadmap to deliver
superior shareholder value

2013 Financial Community Briefing
Diane Offereins
EVP, President –
Payment Services

71
Achieving our vision through investments in acceptance
and network capabilities
•
Strategic payment network alternative for emerging partners and technologies
•
Broadening payment network capabilities
•
Driving volume with issuer partners
•
Continuing to expand domestic and international merchant acceptance

72
Payments –
delivering on our strategy
2007
2012
•
$186Bn volume
•
$37MM PBT
•
265,000+ ATMs
•
7MM+ acceptance locations
•
Settled in 1 currency
•
Operated in 34
countries/territories
•
$307Bn volume
•
$178MM PBT
•
900,000+ ATMs
•
21MM+ acceptance locations
•
Settle in 27 currencies
•
Operates in 185
countries/territories
Owned
Network
Alliances
Note(s)
Fiscal year ending figures for 2007 and calendar year data for 2012

73
95
91
96
104
109
6
6
7
8
9
107
109
121
141
161
15
26
27
29
28
$223
$232
$251
$282
$307
2008
2009
2010
2011
2012
$191
$244
$271
$303
$344
$87
$109
$143
$171
$178
2008
2009
2010
2011
2012
Revenue
Profit Before Tax
Strong increase in volume and revenue
Volume Growth ($Bn)
2008 –
2012 CAGR:
16% Revenue
20% PBT
2008 –
2012
CAGR: 8%
Network
Partners
Proprietary
Source
Discover, calendar year
Payment Services
Revenue
&
Profit
Before
Tax
($MM)

74
2008
2009
2010
2011
2012
Active
Merchant
Outlets
(1)
U.S. acceptance drives revenue growth
Areas of focus
•
High Impact Merchant Program
•
Direct Mail and Site Visits
•
Promotional Pricing
2008 –
2012
CAGR: 6%
2012 High Impact Merchant Marketing Wins
Note(s)
1.
Merchants active in last 30 days
–
Over 50K outlets activated,
$1.5Bn in volume since 2009
–
Over 1MM contacts in 2012
through direct mail and in-person
visits
–
2013 initiative further driving small
merchant engagement

75
$107
$109
$121
$141
$161
2008
2009
2010
2011
2012
PULSE Volume ($Bn)
PULSE:
Strong performance in a highly competitive environment
Debit Industry Mix
Source
2012 Debit Issuer Study, commissioned by PULSE
PIN
Signature
Source
Discover, calendar year
67%
33%

76
Cadence Bank
Expanding network to all debit transactions
Other Responses
•
Launch support of PINless POS
transactions under $50 in 2Q13
•
Pilot routing option to open signature
debit transactions to PULSE in 3Q13
•
Optimize product and pricing
strategies to diversify revenue and
support technology innovations
•
Discover signature debit agreement
with Cadence Bank  
•
Growing pipeline of Discover debit
opportunities

77
Investing in Diners franchise partnerships
New partnerships with the largest credit issuers in:
•
Diners Club International
issuing program launched
in September 2012
•
Diners Club International
issuing program
launched in July 2012
•
On track to become the
second franchise issuer
of Discover Card in 2013
India
Russia
China
•
Diners Club International
issuing program will
launch in 2013

78
Strong global acceptance growth in 2012
Note(s)
–
The map denotes countries or territories with transactional activity in the last year (bright orange)
–
Outlet growth percentages based on year-over-year internal reporting
–
Merchant locations based on Retail Banking Research
Asia Pacific
3%
North America
6%
EMEA
22%
Latin America
23%
•
Over 21MM merchant
locations globally
•
Over 900,000 ATMs in 116
countries
•
Over 1.2MM net new outlets
outside the U.S.

79
Network alliance update

80
Investing in network capabilities
EMV / Chip
Mobile / Emerging
•
Real-time “receipts”, alerts, and
offers delivered seamlessly from
moment of payment to cardmember
device
•
Advanced authentication and
security for mCommerce and
eCommerce payments
•
Linkage from mobile devices to
cloud-based mobile wallets
•
Rules and guidelines for mobile
wallet providers to allow network-to-
issuer data flow
•
Deploying Discover D-PAS
domestically & internationally across
our networks
•
Discover uniquely licenses its D-PAS
specification to networks lacking an
EMV specification of their own

81
Leveraging infrastructure for unique emerging
payments solutions
Leverage data
from robust
merchant
registration
Offer delivery and
enhanced customer
servicing
Custom virtual
networks
Expand billing and
settlement beyond
traditional purchase
transaction
Any-to-any
value exchange
Fee and revenue
share collection

82
PayPal partnering with Discover to reach the physical POS
What is the opportunity?
What does PayPal bring?
•
PayPal has 50MM+ active domestic account holders
•
PayPal’s net Total Payment Volume for 2012, the total
value of transactions, was $145Bn
•
Transactions are governed by PayPal operating regulations
and program rules
What does Discover bring?
•
Discover
serves
as
a
3  
Party
service
provider
to
PayPal
•
Contacted qualified merchants in the DFS retained portfolio
•
DFS acquiring partners have been contacted to secure
acceptance of PayPal at their merchants
•
Program on-track to launch Spring 2013
•
Leverages Discover’s 9MM+ domestic merchant footprint
•
Acquirer pricing set by PayPal
•
Acceptance of PayPal is seamless to participating merchants
rd

83
Unique network assets deliver another collaboration
•
Facebook launched the Facebook Gift card program on January 31, 2013
•
The Facebook Card will serve as a single access device to multiple
merchant gift monies, stored in separate “purse”
accounts
•
Program provides consumer choice

2013 Financial Community Briefing
Mark Graf
EVP & Chief Financial Officer

85
Financial drivers –
the year ahead
•
Targeting greater than industry average card loan growth
•
Investing in growth opportunities while maintaining core expense
discipline
•
Funding benefit from low rate environment continues to help offset
card yield compression
•
Continuing to diversify funding and maintaining robust liquidity
•
Capital supports growth, dividend actions and share repurchase

86
Key long-term targets
Note(s)
1.
Tier 1 common capital (non-GAAP measure) as a percent of risk-weighted assets under Basel I; see appendix for reconciliation
Growth
Rate
Card Receivables
2 - 5%
Other Consumer Lending
5 - 10%
Payments Volume
10%+
Tier 1 Common Ratio
(1)
~9.5%
ROE
15%+

87
Strong calendar year 2012 financial performance
•
Net interest income
increased due to loan growth
and margin expansion
•
Less benefit from reserve
releases offset by lower
charge-offs
•
Operating expense
increased due to legal
expenses, launch of home
loans and other
($MM, except per share data)CY2011CY2012B /$4,900$5,4212,2032,269
Net Interest Income$4,900$5,4212,2032,269
Other Operating Revenue2,2032,269
($MM, except per share data)
CY2011
CY2012
$
%
Net Interest Income
$4,900
$5,421
$521
11%
Other Operating Revenue
2,203
2,269
66
3%
Total Revenue
$7,103
$7,690
$587
8%
Net Charge-offs
$2,012
$1,309
$703
35%
Reserve Changes build/(release)
(1,033)
(457)
(576)
(56%)
Provision for Loan Loss
$979
$852
$127
13%
Operating Expenses
$2,562
$3,074
($512)
(20%)
Pretax Income
$3,562
$3,764
$202
6%
Net Income (Loss)
$2,260
$2,351
$91
4%
Diluted EPS
$4.13
$4.50
$0.37
9%
ROE
30%
26%
-400
bps
B / (W)

88
Average
Average
($MM)
Balance
Rate
Balance
Rate
Loan receivables
$53,971
11.69%
$58,336
11.38%
Other interest-earning assets
10,772
0.68%
12,523
0.77%
Total interest-earning assets
$64,743
9.86%
$70,859
9.50%
Interest bearing deposits
$36,563
2.67%
$41,308
2.01%
Borrowings
18,625
2.70%
19,145
2.52%
Total interest-bearing liabilities
$55,188
2.68%
$60,453
2.21%
NIM on receivables
9.08%
9.29%
NIM on interest-earning assets
7.57%
7.65%
CY2012
CY2011
Net interest margin remains above business model target
•
Lower funding costs more
than offset yield compression
•
Net Interest Margin Outlook:
–
Expected to remain
above normalized range
of 8.5-9.0% for 2013

89
$3.7
$2.0
$1.3
2010
2011
2012
Net Principal Charge-Off
Reserve Release
Expect near-term stabilization in credit
Note(s) 
1.
Periods prior to 2010 are as adjusted for FAS 166/167
Credit Card
30+
Delinquency
Rates
(%)
4Q12
Provision for Loan Losses ($Bn)
Source
Discover, calendar year
0%
1%
2%
3%
4%
5%
6%
1Q08
4Q09
3Q11
(1)

90
$2.6
$3.1
$3.1
2011
2012
2013E
Expenses driven by a purposeful increase in investments
for future growth
Total Expense ($Bn)
2013 Expense
Growth Categories
Note(s)
•
Full-year impact of home loans and
launch of home equity
•
Additional card marketing
•
Technology investments
•
Network partnerships
Efficiency
Ratio
(2)
36%
40%
--
$2.9
(1)
Targeting normalized efficiency ratio of 38%+/-
for the total company
Adjusted for $216 million of legal expenses incurred in 2012 and associated primarily with the CFPB and FDIC consent order
Defined as reported noninterest expense divided by total revenue (net interest income and noninterest income) 
1.
2.

91
$0.8
$2.0
$0.3
$0.0
$2.3
$1.0
$1.0
$0.0
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
$2.8
$3.6
$4.1
$2.8
$1.2
$1.9
$1.8
$1.3
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
High rate time deposits continue to roll off
Maturity
Schedule
through
2014
($Bn)
(1)
Note(s)
1.
Based on liabilities on the balance sheet as of 12/31/12; excludes expected new issuances and FDIC costs
2.
Floating rate ABS is based on market rate estimates as of 2/28/13
1.6%
2.1%
3.6%
2.2%
1.8 %
2.3%
2.3%
3.0%
Brokered
Direct
Avg. Rate
(2)
Avg. Rate
0.7%
2.6%
0.7%
NA
0.7%
0.8%
0.8%
NA

92
8.3
6.8
10.5
12/31/12
60%
30%
35%
23%
5%
47%
Spin (6/30/07)
12/31/12
Continuing to strengthen and diversify funding sources
while maintaining robust liquidity
Direct
Deposits
ABS and Other
Brokered Deposits
Funding Mix ($Bn)
Fed Discount
Window
ABCP Open Lines
Liquidity Reserve
Contingent Liquidity Sources ($Bn)
$60.2
$49.7
Note(s)
1.
Includes affinity deposits
$25.6
Post-12/31/12:
Issued $750MM
5-year Sr. Bank
Notes at 2.00%
Coupon
(1)

93
13.6%
12.7%
11.9%
11.1%
11.0%
11.0%
DFS
C
AXP
BAC
JPM
COF
Excess capital can drive shareholder returns
Note(s)
1.
Tier 1 common capital (non-GAAP measure) as a percent of risk-weighted assets under
Basel I; see appendix for reconciliation
•
Despite excess capital, generating
returns above 15% ROE target
•
Returned ~$1.4Bn in capital to
shareholders in 2012 through share
repurchases and dividends
–
Repurchased 6% of shares
–
Increased dividend 40%
•
Will deploy excess capital through
–
Organic growth
–
Dividend actions
–
Share repurchases
–
Disciplined acquisitions
26%
4%
23%
2%
12%
9%
ROE
Source
SNL, regulatory filings.  Calendar year 2012 return on equity (ROE)
4Q12
Tier
1
Common
Ratio
(1)

94
Well positioned for 2013
•
Greater than industry average card loan growth
•
Net interest margin expected to be above target
•
Expenses driven by prudent investments for growth
•
Card delinquency trends are not indicating a change in credit
environment
•
Capital
position
/
generation
supports
growth,
dividend
actions,
share
repurchases and potential acquisitions

2013 Financial Community Briefing
David Nelms
Chairman & Chief Executive Officer

The leading direct bank and payments partner

2013 Financial Community Briefing

98
Appendix

99
Reconciliation of GAAP to Non-GAAP data
(unaudited, $ in billions, calendar year data)
12/31/10
12/31/11
12/31/12
GAAP Recorded Balance Purchased (Private) Credit Impaired Student Loans (ending loans)
$3.1
$5.2
$4.7
Adjustment for Purchase Accounting Discount
0.6
0.5
0.3
Contractual
Value
Purchased
(Private)
Credit
Impaired
Student
Loans
(ending
loans)
(1)
$3.7
$5.7
$5.0
GAAP Private Student Loans (ending loans)
1.0
2.1
3.1
Contractual
Value
Private
Student
Loans
(ending
loans)
(1)
$4.7
$7.8
$8.1
Twelve Months Ended
(unaudited, $ in billions, calendar year data)
12/31/12
GAAP Recorded Balance Purchased (Private) Credit Impaired Student Loans (average loans)
$5.0
Adjustment for Purchase Accounting Discount
0.4
Contractual
Value
Purchased
(Private)
Credit
Impaired
Student
Loans
(average
loans)
(1)
$5.4
GAAP Private Student Loans (average loans)
2.6
Contractual
Value
Private
Student
Loans
(average
loans)
(1)
$8.0
Twelve Months Ended
(unaudited, $ in millions, calendar year data)
12/31/12
GAAP Private Student Loan Net Principal Charge-offs
$19.8
Adjustment
for
Purchased
(Private)
Credit
Impaired
Student
Loans
Net
Principal
Charge-offs
70.8
Contractual
Private
Student
Loan
Net
Principal
Charge-offs
(2)
$90.6
Twelve Months Ended
(unaudited, $ in millions, calendar year data)
12/31/12
Card Pretax Income
$3,295
Non-Card Pretax Income
291
GAAP Direct Banking Pretax Income
$3,586
Card Pretax Income
$3,295
Card Reserve Changes
488
Card Pretax Income (Excluding Reserve Changes)
$2,807
GAAP Average Card Receivables
$47,539
Card
Pretax
Return
on
Assets
(Excluding
Reserve
Changes)
(3)
5.9%
Note(s):
1. The contractual value of the purchased private student loan portfolio is a non-GAAP measure and represents purchased private student loans excluding the purchase
accounting discount. The contractual value of the private student loan portfolio is meaningful to investors to understand total outstanding student loan balances without the
purchase accounting discount. 
2. Contractual private student loan net principal charge-offs is a non-GAAP measure and include net charge-offs on purchase credit impaired loans. Under GAAP any losses on
such loans are charged against the nonaccretable difference established in purchased credit impaired accounting and are not reported as charge-offs. Contractual net principal
charge-offs is meaningful to investors to see total portfolio losses. 
3. Card pre-tax return on assets excluding loss reserve changes is a non-GAAP measure and represents the pre-tax earnings of Discover's U.S. credit card business excluding
changes to the allowance for loan loss reserve.  Card pre-tax return on assets excluding loss reserve changes is a meaningful measure to investors because it provides a
competitive performance benchmark. 

100
Reconciliation of GAAP to Non-GAAP data (cont’d)
(unaudited, $ in millions, calendar year data)
12/31/2012
Tier 1 Common Equity Reconciliation
Total Shareholders' Equity
$9,313
Effect of certain items in Accumulated
  Other Comprehensive Income (Loss)
excluded from Tier 1 Common Equity
72
Less: Ineligible Goodwill and
Intangible Assets
(475)
Total Tier 1 Common Equity
(1)
$8,910
Risk Weighted Assets
$65,522
Tier 1 Common Ratio
(2)
13.6%
Note(s):
2. Tier 1 Common Capital Ratio represents tier 1 common equity, a non-GAAP measure, divided by risk-weighted assets.
1. Tier 1 common equity, a non-GAAP financial measure, represents common equity and the effect of certain items in accumulated other comprehensive income (loss) excluded from tier
1 common equity, less goodwill and intangibles. Other financial services companies may also use tier 1 common equity and definitions may vary, so we advise users of this information
to exercise caution in comparing tier 1 common equity of different companies. Tier 1 common equity is included to support the tier 1 common capital ratio which is meaningful to
investors to assess the quality and composition of the Company’s capital. Additionally, proposed international banking capital standards (Basel III) include measures that rely on the tier
1 common capital ratio.