EX-99.2 3 dfs2018630ex992.htm EXHIBIT 99.2 Exhibit


DISCOVER FINANCIAL SERVICES
 
 
 
 
Exhibit 99.2
 
 
EARNINGS SUMMARY
 
 
 
 
 
 
 
 
(unaudited, in millions, except per share statistics)
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
 
Six Months Ended
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
2018 vs. 2017
 
EARNINGS SUMMARY
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Income

$2,636

 

$2,569

 

$2,556

 

$2,476

 

$2,338

 

$298

 
13
%
 

$5,205

 

$4,616

 

$589

13
%
 
Interest Expense
507

 
469

 
436

 
426

 
400

 
107

 
27
%
 
976

 
786

 
190

24
%
 
Net Interest Income
2,129

 
2,100

 
2,120

 
2,050

 
1,938

 
191

 
10
%
 
4,229

 
3,830

 
399

10
%
 
Discount/Interchange Revenue
724

 
646

 
717

 
675

 
666

 
58

 
9
%
 
1,370

 
1,262

 
108

9
%
 
Rewards Cost
461

 
392

 
434

 
417

 
388

 
73

 
19
%
 
853

 
751

 
102

14
%
 
Discount and Interchange Revenue, net
263

 
254

 
283

 
258

 
278

 
(15
)
 
(5
%)
 
517

 
511

 
6

1
%
 
Protection Products Revenue
50

 
53

 
54

 
55

 
56

 
(6
)
 
(11
%)
 
103

 
114

 
(11
)
(10
%)
 
Loan Fee Income
95

 
96

 
96

 
95

 
83

 
12

 
14
%
 
191

 
172

 
19

11
%
 
Transaction Processing Revenue
42

 
43

 
43

 
43

 
42

 
—

 
—
%
 
85

 
81

 
4

5
%
 
Other Income
24

 
29

 
18

 
24

 
22

 
2

 
9
%
 
53

 
50

 
3

6
%
 
Total Other Income
474

 
475

 
494

 
475

 
481

 
(7
)
 
(1
%)
 
949

 
928

 
21

2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue Net of Interest Expense
2,603

 
2,575

 
2,614

 
2,525

 
2,419

 
184

 
8
%
 
5,178

 
4,758

 
420

9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Provision for Loan Losses
742

 
751

 
679

 
674

 
640

 
102

 
16
%
 
1,493

 
1,226

 
267

22
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Employee Compensation and Benefits
400

 
405

 
411

 
371

 
367

 
33

 
9
%
 
805

 
730

 
75

10
%
 
Marketing and Business Development
224

 
185

 
213

 
203

 
192

 
32

 
17
%
 
409

 
360

 
49

14
%
 
Information Processing & Communications
86

 
82

 
80

 
78

 
77

 
9

 
12
%
 
168

 
157

 
11

7
%
 
Professional Fees
161

 
155

 
189

 
163

 
156

 
5

 
3
%
 
316

 
303

 
13

4
%
 
Premises and Equipment
24

 
26

 
26

 
25

 
23

 
1

 
4
%
 
50

 
48

 
2

4
%
 
Other Expense
89

 
115

 
117

 
108

 
97

 
(8
)
 
(8
%)
 
204

 
199

 
5

3
%
 
Total Other Expense
984

 
968

 
1,036

 
948

 
912

 
72

 
8
%
 
1,952

 
1,797

 
155

9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Income Before Income Taxes
877

 
856

 
899

 
903

 
867

 
10

 
1
%
 
1,733

 
1,735

 
(2
)
—
%
 
Tax Expense
208

 
190

 
512

 
301

 
321

 
(113
)
 
(35
%)
 
398

 
625

 
(227
)
(36
%)
 
Net Income

$669

 

$666

 

$387

 

$602

 

$546

 

$123

 
23
%
 

$1,335

 

$1,110

 

$225

20
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Income Allocated to Common Stockholders

$663

 

$646

 

$359

 

$589

 

$532

 

$131

 
25
%
 

$1,309

 

$1,083

 

$226

21
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Effective Tax Rate
23.7
%
 
22.2
%
 
57.0
%
 
33.3
%
 
37.1
%
 
 
 
 
 
23.0
%
 
36.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
10.21
%
 
10.23
%
 
10.28
%
 
10.28
%
 
10.11
%
 
10

 
bps
 
10.22
%
 
10.09
%
 
13

bps
 
Operating Efficiency
37.8
%
 
37.6
%
 
39.7
%
 
37.5
%
 
37.7
%
 
10

 
bps
 
37.7
%
 
37.8
%
 
(10
)
bps
 
ROE
25
%
 
25
%
 
14
%
 
22
%
 
19
%
 
 
 
 
 
25
%
 
20
%
 
 
 
 
Capital Returned to Common Stockholders

$656

 

$684

 

$657

 

$667

 

$547

 

$109

 
20
%
 

$1,340

 

$1,167

 

$173

15
%
 
Payout Ratio
99
%
 
106
%
 
183
%
 
113
%
 
103
%
 


 


 
102
%
 
108
%
 
(600
)
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ending Common Shares Outstanding
344

 
351

 
358

 
366

 
375

 
(31
)
 
(8
%)
 
344

 
375

 
(31
)
(8
%)
 
Weighted Average Common Shares Outstanding
348

 
355

 
362

 
371

 
379

 
(31
)
 
(8
%)
 
351

 
382

 
(31
)
(8
%)
 
Weighted Average Common Shares Outstanding (fully diluted)
348

 
355

 
362

 
371

 
379

 
(31
)
 
(8
%)
 
351

 
382

 
(31
)
(8
%)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PER SHARE STATISTICS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
Basic EPS

$1.91

 

$1.82

 

$0.99

 

$1.59

 

$1.41

 

$0.50

 
35
%
 

$3.73

 

$2.83

 

$0.90

32
%
 
Diluted EPS

$1.91

 

$1.82

 

$0.99

 

$1.59

 

$1.40

 

$0.51

 
36
%
 

$3.72

 

$2.83

 

$0.89

31
%
 
Common Stock Price (period end)

$70.41

 

$71.93

 

$76.92

 

$64.48

 

$62.19

 

$8.22

 
13
%
 

$70.41

 

$62.19

 

$8.22

13
%
 
Book Value per share

$31.66

 

$30.93

 

$30.43

 

$30.56

 

$30.01

 

$1.65

 
5
%
 

$31.66

 

$30.01

 

$1.65

5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  Note: See Glossary of Financial Terms for definitions of financial terms
 
 
 
 
 
 
 
 





DISCOVER FINANCIAL SERVICES
 
 
 
 
 
 
 
EARNINGS SUMMARY
 
 
 
 
 
 
 
(unaudited, in millions)
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
 
Six Months Ended
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
2018 vs. 2017
SEGMENT- INCOME BEFORE INCOME TAXES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Direct Banking

$837

 

$811

 

$870

 

$867

 

$831

 

$6

 
1
%
 

$1,648

 

$1,655

 

($7
)
—
%
Payment Services
40

 
45

 
29

 
36

 
36

 
4

 
11
%
 
85

 
80

 
5

6
%
Total

$877

 

$856

 

$899

 

$903

 

$867

 

$10

 
1
%
 

$1,733

 

$1,735

 

($2
)
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TRANSACTIONS PROCESSED ON NETWORKS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
Discover Network
614

 
550

 
607

 
579

 
551

 
63

 
11
%
 
1,164

 
1,054

 
110

10
%
PULSE Network
1,055

 
989

 
1,029

 
996

 
961

 
94

 
10
%
 
2,044

 
1,831

 
213

12
%
Total
1,669

 
1,539

 
1,636

 
1,575

 
1,512

 
157

 
10
%
 
3,208

 
2,885

 
323

11
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
NETWORK VOLUME
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
PULSE Network

$44,308

 

$43,158

 

$42,386

 

$39,828

 

$38,848

 

$5,460

 
14
%
 

$87,466

 

$74,914

 

$12,552

17
%
Network Partners 
4,602

 
4,553

 
3,280

 
3,811

 
3,461

 
1,141

 
33
%
 
9,155

 
7,122

 
2,033

29
%
Diners Club International 1
8,417

 
8,390

 
8,373

 
7,989

 
7,800

 
617

 
8
%
 
16,807

 
15,182

 
1,625

11
%
Total Payment Services
57,327

 
56,101

 
54,039

 
51,628

 
50,109

 
7,218

 
14
%
 
113,428

 
97,218

 
16,210

17
%
Discover Network - Proprietary  
36,339

 
32,382

 
36,267

 
33,576

 
33,342

 
2,997

 
9
%
 
68,721

 
63,201

 
5,520

9
%
Total

$93,666

 

$88,483

 

$90,306

 

$85,204

 

$83,451

 

$10,215

 
12
%
 

$182,149

 

$160,419

 

$21,730

14
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 SERVICES
 
BALANCE SHEET SUMMARY
 
(unaudited, in millions)
 
 
Quarter Ended
 
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
BALANCE SHEET SUMMARY
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and Investment Securities

$17,441

 

$18,641

 

$14,955

 

$16,155

 

$14,722

 

$2,719

 
18
%
 
Total Loan Receivables
84,789

 
82,744

 
84,248

 
80,443

 
77,997

 
6,792

 
9
%
 
Allowance for Loan Losses
(2,828
)
 
(2,736
)
 
(2,621
)
 
(2,531
)
 
(2,384
)
 
(444
)
 
(19
%)
 
Net Loan Receivables
81,961

 
80,008

 
81,627

 
77,912

 
75,613

 
6,348

 
8
%
 
Premises and Equipment, net
874

 
848

 
825

 
800

 
774

 
100

 
13
%
 
Goodwill and Intangible Assets, net
417

 
417

 
418

 
418

 
419

 
(2
)
 
—
%
 
Other Assets
2,058

 
2,053

 
2,262

 
2,323

 
2,229

 
(171
)
 
(8
%)
 
Total Assets

$102,751

 

$101,967

 

$100,087

 

$97,608

 

$93,757

 

$8,994

 
10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities & Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Direct to Consumer and Affinity Deposits

$42,256

 

$41,321

 

$39,367

 

$38,703

 

$37,709

 

$4,547

 
12
%
 
Brokered Deposits and Other Deposits
19,427

 
19,809

 
19,397

 
17,432

 
15,155

 
4,272

 
28
%
 
Deposits
61,683

 
61,130

 
58,764

 
56,135

 
52,864

 
8,819

 
17
%
 
Borrowings
26,252

 
26,244

 
26,326

 
26,737

 
26,438

 
(186
)
 
(1
%)
 
Accrued Expenses and Other Liabilities
3,927

 
3,722

 
4,105

 
3,549

 
3,196

 
731

 
23
%
 
Total Liabilities
91,862

 
91,096

 
89,195

 
86,421

 
82,498

 
9,364

 
11
%
 
Total Equity
10,889

 
10,871

 
10,892

 
11,187

 
11,259

 
(370
)
 
(3
%)
 
Total Liabilities and Stockholders' Equity

$102,751

 

$101,967

 

$100,087

 

$97,608

 

$93,757

 

$8,994

 
10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
LIQUIDITY
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Liquidity Portfolio

$15,703

 

$17,550

 

$13,560

 

$13,906

 

$13,865

 
1,838

 
13
%
 
Undrawn Credit Facilities 1
36,422

 
35,099

 
35,153

 
33,696

 
31,877

 
4,545

 
14
%
 
Total Liquidity

$52,125

 

$52,649

 

$48,713

 

$47,602

 

$45,742

 

$6,383

 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 




DISCOVER FINANCIAL SERVICES
 
BALANCE SHEET STATISTICS
 
(unaudited, in millions)
 
 
Quarter Ended
 
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
BALANCE SHEET STATISTICS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
Total Common Equity

$10,326

 

$10,308

 

$10,329

 

$10,627

 

$10,699

 

($373
)
 
(3
%)
 
Total Common Equity/Total Assets
10.1
%
 
10.1
%
 
10.3
%
 
10.9
%
 
11.4
%
 
 
 
 
 
Total Common Equity/Net Loans
12.6
%
 
12.9
%
 
12.7
%
 
13.6
%
 
14.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Tangible Assets

$102,334

 

$101,550

 

$99,669

 

$97,190

 

$93,338

 

$8,996

 
10
%
 
Tangible Common Equity 1

$9,909

 

$9,891

 

$9,911

 

$10,209

 

$10,280

 

($371
)
 
(4
%)
 
Tangible Common Equity/Tangible Assets 1
9.7
%
 
9.7
%
 
9.9
%
 
10.5
%
 
11.0
%
 
 
 
 
 
Tangible Common Equity/Net Loans 1
12.1
%
 
12.4
%
 
12.1
%
 
13.1
%
 
13.6
%
 
 
 
 
 
Tangible Common Equity per share  1

$28.82

 

$28.15

 

$27.69

 

$27.89

 

$27.40

 

$1.42

 
5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
REGULATORY CAPITAL RATIOS
Basel III Transition
 
 

 
 

 
Total Risk Based Capital Ratio
13.6
%
 
14.0
%
 
13.8
%
 
14.7
%
 
15.2
%
 
 

 
 

 
Tier 1 Risk Based Capital Ratio
12.3
%
 
12.5
%
 
12.3
%
 
13.2
%
 
13.7
%
 
 

 
 

 
Tier 1 Leverage Ratio
10.5
%
 
10.6
%
 
10.8
%
 
11.4
%
 
11.8
%
 
 

 
 

 
Common Equity Tier 1 Capital Ratio 2
11.6
%
 
11.9
%
 
11.6
%
 
12.5
%
 
13.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
RATIO OF EARNINGS TO FIXED CHARGES
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Ratio of Earnings to Fixed Charges 3, 4
2.8

 
2.8

 
3.2

 
3.2

 
3.2

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2  At June 30, 2018, there was no difference between the Company's CET1 capital ratio calculated under Basel III transition rules and the Company's CET1 capital ratio calculated under Basel III fully phased-in rules
 
 
 
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 six months ended June 30, 2018, the three months ended March 31, 2018, the twelve months ended December 31, 2017, the nine months ended September 30, 2017, and the six months ended June 30, 2017
 
 
 
  Note: See Glossary of Financial Terms for definitions of financial terms
 





DISCOVER FINANCIAL SERVICES
AVERAGE BALANCE SHEET
(unaudited, in millions)
 
Quarter Ended
 
 

 
 

 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
AVERAGE BALANCES
 

 
 

 
 

 
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

Cash and Investment Securities

$16,395

 

$15,058

 

$15,290

 

$14,547

 

$14,616

 

$1,779

 
12
%
Restricted Cash
466

 
821

 
276

 
848

 
559

 
(93
)
 
(17
%)
Credit Card Loans
66,594

 
65,983

 
64,791

 
62,647

 
60,700

 
5,894

 
10
%
Private Student Loans
9,219

 
9,432

 
9,158

 
8,986

 
9,020

 
199

 
2
%
Personal Loans
7,304

 
7,387

 
7,455

 
7,208

 
6,820

 
484

 
7
%
Other Loans
531

 
452

 
398

 
348

 
314

 
217

 
69
%
Total Loans
83,648

 
83,254

 
81,802

 
79,189

 
76,854

 
6,794

 
9
%
Total Interest Earning Assets
100,509

 
99,133

 
97,368

 
94,584

 
92,029

 
8,480

 
9
%
Allowance for Loan Losses
(2,731
)
 
(2,615
)
 
(2,530
)
 
(2,379
)
 
(2,262
)
 
(469
)
 
(21
%)
Other Assets
4,170

 
4,221

 
4,252

 
4,192

 
4,147

 
23

 
1
%
Total Assets

$101,948

 

$100,739

 

$99,090

 

$96,397

 

$93,914

 

$8,034

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

Direct to Consumer and Affinity Deposits

$41,459

 

$39,825

 

$38,807

 

$37,900

 

$36,956

 

$4,503

 
12
%
Brokered Deposits and Other Deposits
19,166

 
19,638

 
18,244

 
16,192

 
15,600

 
3,566

 
23
%
Total Interest-bearing Deposits
60,625

 
59,463

 
57,051

 
54,092

 
52,556

 
8,069

 
15
%
Short-term Borrowings
1

 
1

 
2

 
1

 
2

 
(1
)
 
(50
%)
Securitized Borrowings
16,121

 
16,180

 
16,676

 
17,206

 
16,141

 
(20
)
 
—
%
Other Long-term Borrowings
9,866

 
9,945

 
9,768

 
9,721

 
9,979

 
(113
)
 
(1
%)
Total Interest-bearing Liabilities
86,613

 
85,589

 
83,497

 
81,020

 
78,678

 
7,935

 
10
%
Other Liabilities & Stockholders' Equity
15,335

 
15,150

 
15,593

 
15,377

 
15,236

 
99

 
1
%
Total Liabilities and Stockholders' Equity

$101,948

 

$100,739

 

$99,090

 

$96,397

 

$93,914

 

$8,034

 
9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
AVERAGE RATES
 

 
 

 
 

 
 

 
 

 
 

 
 

Assets
 

 
 

 
 

 
 

 
 

 
 

 
 

Cash and Investment Securities
1.82
%
 
1.57
%
 
1.34
%
 
1.31
%
 
1.12
%
 
70

 
bps
Restricted Cash
1.85
%
 
1.68
%
 
1.34
%
 
1.15
%
 
0.89
%
 
96

 
bps
Credit Card Loans
12.88
%
 
12.85
%
 
12.79
%
 
12.83
%
 
12.66
%
 
22

 
bps
Private Student Loans
8.05
%
 
7.89
%
 
7.69
%
 
7.56
%
 
7.45
%
 
60

 
bps
Personal Loans
12.55
%
 
12.43
%
 
12.27
%
 
12.33
%
 
12.22
%
 
33

 
bps
Other Loans
6.02
%
 
5.98
%
 
5.66
%
 
5.56
%
 
5.59
%
 
43

 
bps
Total Loans
12.28
%
 
12.21
%
 
12.14
%
 
12.15
%
 
11.98
%
 
30

 
bps
Total Interest Earning Assets
10.52
%
 
10.51
%
 
10.41
%
 
10.39
%
 
10.19
%
 
33

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Liabilities and Stockholders' Equity
 

 
 

 
 

 
 

 
 

 
 

 
 

Direct to Consumer and Affinity Deposits
1.71
%
 
1.59
%
 
1.44
%
 
1.37
%
 
1.29
%
 
42

 
bps
Brokered Deposits and Other Deposits
2.33
%
 
2.19
%
 
2.12
%
 
2.12
%
 
2.07
%
 
26

 
bps
Total Interest-bearing Deposits
1.90
%
 
1.79
%
 
1.65
%
 
1.59
%
 
1.52
%
 
38

 
bps
Short-term Borrowings
1.89
%
 
1.75
%
 
1.31
%
 
1.33
%
 
1.06
%
 
83

 
bps
Securitized Borrowings
2.67
%
 
2.43
%
 
2.19
%
 
2.37
%
 
2.31
%
 
36

 
bps
Other Long-term Borrowings
4.57
%
 
4.49
%
 
4.30
%
 
4.30
%
 
4.36
%
 
21

 
bps
Total Interest-bearing Liabilities
2.35
%
 
2.22
%
 
2.07
%
 
2.08
%
 
2.04
%
 
31

 
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
10.21
%
 
10.23
%
 
10.28
%
 
10.28
%
 
10.11
%
 
10

 
bps
Net Yield on Interest-earning Assets
8.50
%
 
8.59
%
 
8.64
%
 
8.60
%
 
8.44
%
 
6

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




DISCOVER FINANCIAL SERVICES
 
 
 
 
 
 
 
 
 
 
 
 
LOAN STATISTICS
 
 
 
 
 
 
 
 
 
 
 
 
(unaudited, in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 

 
 

 
Six Months Ended
 
 
 
 
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
2018 vs. 2017
 
 
 
 
 
TOTAL LOAN RECEIVABLES
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Ending Loans 1, 2

$84,789

 

$82,744

 

$84,248

 

$80,443

 

$77,997

 

$6,792

 
9
%
 

$84,789

 

$77,997

 

$6,792

9
%
 
 
 
 
 
Average Loans 1, 2

$83,648

 

$83,254

 

$81,802

 

$79,189

 

$76,854

 

$6,794

 
9
%
 

$83,452

 

$76,521

 

$6,931

9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
12.28
%
 
12.21
%
 
12.14
%
 
12.15
%
 
11.98
%
 
30

 
bps
 
12.24
%
 
11.96
%
 
28

bps
 
 
 
 
 
Gross Principal Charge-off Rate
3.78
%
 
3.74
%
 
3.45
%
 
3.26
%
 
3.36
%
 
42

 
bps
 
3.76
%
 
3.31
%
 
45

bps
 
 
 
 
 
Gross Principal Charge-off Rate excluding PCI Loans 3
3.87
%
 
3.84
%
 
3.54
%
 
3.35
%
 
3.47
%
 
40

 
bps
 
3.85
%
 
3.42
%
 
43

bps
 
 
 
 
 
Net Principal Charge-off Rate
3.11
%
 
3.09
%
 
2.85
%
 
2.63
%
 
2.71
%
 
40

 
bps
 
3.10
%
 
2.65
%
 
45

bps
 
 
 
 
 
Net Principal Charge-off Rate excluding PCI Loans 3
3.18
%
 
3.17
%
 
2.92
%
 
2.71
%
 
2.79
%
 
39

 
bps
 
3.18
%
 
2.74
%
 
44

bps
 
 
 
 
 
Delinquency Rate (30 or more days) excluding PCI Loans 3
2.08
%
 
2.23
%
 
2.20
%
 
2.05
%
 
1.93
%
 
15

 
bps
 
2.08
%
 
1.93
%
 
15

bps
 
 
 
 
 
Delinquency Rate (90 or more days) excluding PCI Loans 3
0.99
%
 
1.06
%
 
0.99
%
 
0.91
%
 
0.88
%
 
11

 
bps
 
0.99
%
 
0.88
%
 
11

bps
 
 
 
 
 
Gross Principal Charge-off Dollars

$789

 

$769

 

$711

 

$651

 

$645

 

$144

 
22
%
 

$1,558

 

$1,256

 

$302

24
%
 
 
 
 
 
Net Principal Charge-off Dollars

$649

 

$635

 

$583

 

$527

 

$520

 

$129

 
25
%
 

$1,284

 

$1,009

 

$275

27
%
 
 
 
 
 
Net Interest and Fee Charge-off Dollars

$138

 

$136

 

$119

 

$107

 

$110

 

$28

 
25
%
 

$274

 

$216

 

$58

27
%
 
 
 
 
 
Loans Delinquent 30 or more days 3

$1,725

 

$1,800

 

$1,806

 

$1,605

 

$1,457

 

$268

 
18
%
 

$1,725

 

$1,457

 

$268

18
%
 
 
 
 
 
Loans Delinquent 90 or more days 3

$821

 

$855

 

$815

 

$709

 

$667

 

$154

 
23
%
 

$821

 

$667

 

$154

23
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Loss (period end)

$2,828

 

$2,736

 

$2,621

 

$2,531

 

$2,384

 

$444

 
19
%
 

$2,828

 

$2,384

 

$444

19
%
 
 
 
 
 
Reserve Change Build/ (Release) 4

$93

 

$116

 

$96

 

$147

 

$120

 

($27
)
 


 

$209

 

$217

 

($8
)


 
 
 
 
 
Reserve Rate
3.34
%
 
3.31
%
 
3.11
%
 
3.15
%
 
3.06
%
 
28

 
bps
 
3.34
%
 
3.06
%
 
28

bps
 
 
 
 
 
Reserve Rate Excluding PCI Loans 3
3.38
%
 
3.35
%
 
3.15
%
 
3.20
%
 
3.11
%
 
27

 
bps
 
3.38
%
 
3.11
%
 
27

bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
CREDIT CARD LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Ending Loans

$67,812

 

$65,577

 

$67,291

 

$63,475

 

$61,797

 

$6,015

 
10
%
 

$67,812

 

$61,797

 

$6,015

10
%
 
 
 
 
 
Average Loans

$66,594

 

$65,983

 

$64,791

 

$62,647

 

$60,700

 

$5,894

 
10
%
 

$66,290

 

$60,413

 

$5,877

10
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
12.88
%
 
12.85
%
 
12.79
%
 
12.83
%
 
12.66
%
 
22

 
bps
 
12.87
%
 
12.66
%
 
21

bps
 
 
 
 
 
Gross Principal Charge-off Rate
4.12
%
 
4.08
%
 
3.73
%
 
3.53
%
 
3.71
%
 
41

 
bps
 
4.10
%
 
3.66
%
 
44

bps
 
 
 
 
 
Net Principal Charge-off Rate
3.34
%
 
3.32
%
 
3.03
%
 
2.80
%
 
2.94
%
 
40

 
bps
 
3.33
%
 
2.89
%
 
44

bps
 
 
 
 
 
Delinquency Rate (30 or more days)
2.16
%
 
2.33
%
 
2.28
%
 
2.14
%
 
2.00
%
 
16

 
bps
 
2.16
%
 
2.00
%
 
16

bps
 
 
 
 
 
Delinquency Rate (90 or more days)
1.09
%
 
1.18
%
 
1.12
%
 
1.02
%
 
0.98
%
 
11

 
bps
 
1.09
%
 
0.98
%
 
11

bps
 
 
 
 
 
Gross Principal Charge-off Dollars

$684

 

$663

 

$612

 

$555

 

$561

 

$123

 
22
%
 

$1,347

 

$1,096

 

$251

23
%
 
 
 
 
 
Net Principal Charge-off Dollars

$555

 

$540

 

$496

 

$439

 

$445

 

$110

 
25
%
 

$1,095

 

$867

 

$228

26
%
 
 
 
 
 
Loans Delinquent 30 or more days

$1,466

 

$1,529

 

$1,532

 

$1,359

 

$1,237

 

$229

 
19
%
 

$1,466

 

$1,237

 

$229

19
%
 
 
 
 
 
Loans Delinquent 90 or more days

$743

 

$777

 

$751

 

$646

 

$603

 

$140

 
23
%
 

$743

 

$603

 

$140

23
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Loss (period end)

$2,334

 

$2,252

 

$2,147

 

$2,091

 

$1,980

 

$354

 
18
%
 

$2,334

 

$1,980

 

$354

18
%
 
 
 
 
 
Reserve Change Build/ (Release)

$82

 

$105

 

$56

 

$111

 

$88

 

($6
)
 


 

$187

 

$190

 

($3
)


 
 
 
 
 
Reserve Rate
3.44
%
 
3.43
%
 
3.19
%
 
3.29
%
 
3.21
%
 
23

 
bps
 
3.44
%
 
3.21
%
 
23

bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total Discover Card Volume

$38,430

 

$34,327

 

$38,574

 

$35,581

 

$35,297

 

$3,133

 
9
%
 

$72,757

 

$67,703

 

$5,054

7
%
 
 
 
 
 
Discover Card Sales Volume

$35,077

 

$30,850

 

$35,339

 

$32,161

 

$32,172

 

$2,905

 
9
%
 

$65,927

 

$61,306

 

$4,621

8
%
 
 
 
 
 
Rewards Rate
1.31
%
 
1.27
%
 
1.23
%
 
1.30
%
 
1.20
%
 
11

 
bps
 
1.29
%
 
1.22
%
 
7

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
 
 

 
 

 
Six Months Ended
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
2018 vs. 2017
PRIVATE STUDENT LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
Ending Loans (excluding PCI)

$7,260

 

$7,416

 

$7,076

 

$6,998

 

$6,594

 

$666

 
10
%
 

$7,260

 

$6,594

 

$666

10
%
Ending PCI Loans 1
1,842

 
1,956

 
2,084

 
2,202

 
2,322

 
(480
)
 
(21
%)
 
1,842

 
2,322

 
(480
)
(21
%)
Ending Loans

$9,102

 

$9,372

 

$9,160

 

$9,200

 

$8,916

 

$186

 
2
%
 

$9,102

 

$8,916

 

$186

2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
8.05
%
 
7.89
%
 
7.69
%
 
7.56
%
 
7.45
%
 
60

 
bps
 
7.97
%
 
7.37
%
 
60

bps
Net Principal Charge-off Rate
0.92
%
 
0.92
%
 
1.03
%
 
1.14
%
 
0.85
%
 
7

 
bps
 
0.92
%
 
0.72
%
 
20

bps
Net Principal Charge-off Rate excluding PCI Loans 2
1.16
%
 
1.17
%
 
1.34
%
 
1.52
%
 
1.15
%
 
1

 
bps
 
1.17
%
 
0.99
%
 
18

bps
Delinquency Rate (30 or more days) excluding PCI Loans 2
2.10
%
 
2.25
%
 
2.35
%
 
2.14
%
 
2.12
%
 
(2
)
 
bps
 
2.10
%
 
2.12
%
 
(2
)
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve Rate
1.87
%
 
1.82
%
 
1.77
%
 
1.77
%
 
1.78
%
 
9

 
bps
 
1.87
%
 
1.78
%
 
9

bps
Reserve Rate excluding PCI Loans 2
1.97
%
 
1.93
%
 
1.89
%
 
1.89
%
 
1.91
%
 
6

 
bps
 
1.97
%
 
1.91
%
 
6

bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PERSONAL LOANS
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
Ending Loans

$7,304

 

$7,307

 

$7,374

 

$7,397

 

$6,955

 

$349

 
5
%
 

$7,304

 

$6,955

 

$349

5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Yield
12.55
%
 
12.43
%
 
12.27
%
 
12.33
%
 
12.22
%
 
33

 
bps
 
12.49
%
 
12.20
%
 
29

bps
Net Principal Charge-off Rate
3.97
%
 
4.03
%
 
3.62
%
 
3.19
%
 
3.18
%
 
79

 
bps
 
4.00
%
 
3.17
%
 
83

bps
Delinquency Rate (30 or more days)
1.42
%
 
1.37
%
 
1.40
%
 
1.27
%
 
1.14
%
 
28

 
bps
 
1.42
%
 
1.14
%
 
28

bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reserve Rate
4.29
%
 
4.12
%
 
4.08
%
 
3.63
%
 
3.38
%
 
91

 
bps
 
4.29
%
 
3.38
%
 
91

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
 
 
 
 
 
 
 
 
 
 
 
 
(unaudited, in millions)
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarter Ended
 
 
 
 
 
Six Months Ended
 
 
 
 
 
 
 
 
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
 
Jun 30, 2018 vs. Jun 30, 2017
 
Jun 30, 2018
 
Jun 30, 2017
 
2018 vs. 2017
 
 
 
 
 
DIRECT BANKING
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Income

$2,636

 

$2,569

 

$2,556

 

$2,476

 

$2,338

 

$298

 
13
%
 

$5,205

 

$4,616

 

$589

13
%
 
 
 
 
 
Interest Expense
507

 
469

 
436

 
426

 
400

 
107

 
27
%
 
976

 
786

 
190

24
%
 
 
 
 
 
Net Interest Income
2,129

 
2,100

 
2,120

 
2,050

 
1,938

 
191

 
10
%
 
4,229

 
3,830

 
399

10
%
 
 
 
 
 
Other Income
398

 
394

 
423

 
401

 
408

 
(10
)
 
(2
%)
 
792

 
783

 
9

1
%
 
 
 
 
 
Revenue Net of Interest Expense
2,527

 
2,494

 
2,543

 
2,451

 
2,346

 
181

 
8
%
 
5,021

 
4,613

 
408

9
%
 
 
 
 
 
Provision for Loan Losses
742

 
751

 
678

 
675

 
639

 
103

 
16
%
 
1,493

 
1,233

 
260

21
%
 
 
 
 
 
Total Other Expense
948

 
932

 
995

 
909

 
876

 
72

 
8
%
 
1,880

 
1,725

 
155

9
%
 
 
 
 
 
Income Before Income Taxes

$837

 

$811

 

$870

 

$867

 

$831

 

$6

 
1
%
 

$1,648

 

$1,655

 

($7
)
—
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Interest Margin
10.21
%
 
10.23
%
 
10.28
%
 
10.28
%
 
10.11
%
 
10

 
bps
 
10.22
%
 
10.09
%
 
13

bps
 
 
 
 
 
Pretax Return on Loan Receivables
4.01
%
 
3.95
%
 
4.22
%
 
4.35
%
 
4.34
%
 
(33
)
 
bps
 
3.98
%
 
4.36
%
 
(38
)
bps
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Allowance for Loan Loss (period end)

$2,821

 

$2,728

 

$2,613

 

$2,525

 

$2,377

 

$444

 
19
%
 

$2,821

 

$2,377

 

$444

19
%
 
 
 
 
 
Reserve Change Build/ (Release) 1

$93

 

$116

 

$94

 

$148

 

$119

 

($26
)
 
 
 

$209

 

$226

 

($17
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
PAYMENT SERVICES
 

 
 

 
 

 
 

 
 

 
 

 
 

 
 
 
 
 
 
 
 
 
 
 
 
Interest Income

$—

 

$—

 

$—

 

$—

 

$—

 

$—

 
NM

 

$—

 

$—

 

$—

NM

 
 
 
 
 
Interest Expense
—

 
—

 
—

 
—

 
—

 
—

 
NM

 
—

 
—

 
—

NM

 
 
 
 
 
Net Interest Income
—

 
—

 
—

 
—

 
—

 
—

 
NM

 
—

 
—

 
—

NM

 
 
 
 
 
Other Income
76

 
81

 
71

 
74

 
73

 
3

 
4
%
 
157

 
145

 
12

8
%
 
 
 
 
 
Revenue Net of Interest Expense
76

 
81

 
71

 
74

 
73

 
3

 
4
%
 
157

 
145

 
12

8
%
 
 
 
 
 
Provision for Loan Losses
—

 
—

 
1

 
(1
)
 
1

 
(1
)
 
(100
%)
 
—

 
(7
)
 
7

(100
%)
 
 
 
 
 
Total Other Expense
36

 
36

 
41

 
39

 
36

 
—

 
—
%
 
72

 
72

 
—

—
%
 
 
 
 
 
Income Before Income Taxes

$40

 

$45

 

$29

 

$36

 

$36

 

$4

 
11
%
 

$85

 

$80

 

$5

6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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 SERVICES
GLOSSARY 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 capital ratios 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 assets calculated under Basel III transition rules see the Reconciliation of GAAP to non-GAAP data schedule
 
Delinquency Rate (30 or more days) represents loans delinquent thirty days or more divided by ending loans (total or respective loans, as appropriate)
 
Delinquency Rate (90 or more days) represents loans delinquent ninety days or more divided by ending loans (total or respective loans, as appropriate)
 
Discover Card Sales Volume represents Discover card activity related to net sales
 
Discover Card Volume represents Discover card activity related to net sales, balance transfers, cash advances and other activity
 
Discover Network Proprietary Volume represents gross proprietary sales volume on the Discover Network
 
Earnings Per Share represents net income allocated to common stockholders divided by the weighted average common shares outstanding
 
Effective Tax Rate represents tax expense divided by income before income taxes
 
Gross Principal Charge-off Rate represents gross principal charge-off dollars (annualized) divided by average loans for the reporting period
 
Interest Yield represents interest income on loan receivables (annualized) divided by average loans for the reporting period
 
Liquidity Portfolio represents cash and cash equivalents (excluding cash-in-process) and other investments
 
Net Income Allocated to Common Stockholders represents net income less (i) dividends and accretion of discount on shares of preferred stock and (ii) income allocated to participating securities
 
Net Interest Margin represents net interest income (annualized) divided by average total loans for the period
 
Net Principal Charge-off Rate represents net principal charge-off dollars (annualized) divided by average loans for the reporting period
 
Operating Efficiency represents total other expense divided by revenue net of interest expense
 
Payout Ratio represents capital returned to common stockholders divided by net income allocated to common stockholders
 
Pretax Return on Loan Receivables represents income before income taxes (annualized) divided by total average loans for the period
 
Proprietary Network Volume represents gross proprietary sales volume on the Discover Network
 
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 be maintained. Under Basel III, to meet the regulatory minimum a Bank Holding Company must maintain total risk-based, tier 1 risk-based, tier 1 leverage, and common equity tier 1 ratios of 8%, 6%, 4%, and 4.5% respectively. As of January 1, 2015 regulatory capital ratios are calculated under Basel III rules subject to transition provisions. Total Risk Based Capital Ratio represents total capital divided by risk-weighted assets. Tier 1 Capital Ratio represents tier 1 capital divided by risk-weighted assets. Tier 1 Leverage Ratio represents tier 1 capital divided by average total assets. The Tier 1 Common Capital Ratio has been replaced by the Common Equity Tier 1 Ratio under Basel III
 
Reserve Rate represents the allowance for loan losses divided by total loans
 
Return on Equity represents net income (annualized) divided by average total equity for the reporting period
 
Rewards Rate represents rewards cost divided by Discover Card sales volume
 
Tangible Assets represents total assets less goodwill and intangibles
 
Tangible Common Equity ("TCE"), a non-GAAP financial measure, represents total common equity less goodwill and intangibles. The Company believes TCE is a more meaningful measure to investors of the net asset value of the Company. For corresponding reconciliation of TCE to a GAAP financial measure, see Reconciliation of GAAP to Non-GAAP data schedule
 
Tangible Common Equity/Net Loans, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total loans less the allowance for loan loss (period end)
 
Tangible Common Equity per Share, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by ending common shares outstanding
 
Tangible Common Equity/Tangible Assets, a non-GAAP measure, represents total common equity less goodwill and intangibles divided by total assets less goodwill and intangibles
 
Total Volume represents the transaction dollar volume from the PULSE network, Network Partners, Diners Club and proprietary Discover Network
 
Undrawn Credit Facilities represents asset-backed conduit funding facilities and Federal Reserve discount window (excluding investments pledged to the Federal Reserve, which are included within the liquidity investment portfolio)




DISCOVER FINANCIAL SERVICES
RECONCILIATION OF GAAP TO NON-GAAP DATA
(unaudited, in millions)
 
Quarter Ended
 
Jun 30, 2018
 
Mar 31, 2018
 
Dec 31, 2017
 
Sep 30, 2017
 
Jun 30, 2017
GAAP Total Common Equity

$10,326

 

$10,308

 

$10,329

 

$10,627

 

$10,699

Less: Goodwill
(255
)
 
(255
)
 
(255
)
 
(255
)
 
(255
)
Less: Intangibles
(162
)
 
(162
)
 
(163
)
 
(163
)
 
(164
)
Tangible Common Equity 1

$9,909

 

$9,891

 

$9,911

 

$10,209

 

$10,280

 
 
 
 
 
 
 
 
 
 
GAAP Book Value Per Share

$31.66

 

$30.93

 

$30.43

 

$30.56

 

$30.01

Less: Goodwill
(0.73
)
 
(0.72
)
 
(0.72
)
 
(0.69
)
 
(0.68
)
Less: Intangibles
(0.47
)
 
(0.46
)
 
(0.45
)
 
(0.45
)
 
(0.44
)
   Less: Preferred Stock
(1.64
)
 
(1.60
)
 
(1.57
)
 
(1.53
)
 
(1.49
)
Tangible Common Equity Per Share

$28.82

 

$28.15

 

$27.69

 

$27.89

 

$27.40

 
 
 
 
 
 
 
 
 
 
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