DFS Furniture

2018

A N N U A L   R E P O R T

It Pays to Discover ®

A Leading Direct Bank and Payments Partner

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including credit cards, personal loans, student loans, deposit products and home equity loans. 

The Discover brand is known for rewards, service and value. Across all direct banking products, 

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Discover Card
•  $73 billion in loans 
•  Leading cash rewards program 

Student Loans
•  $9 billion in student loans 
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Personal Loans
•  $7 billion in loans 
•  Debt consolidation and major purchases 

Home Equity Loans
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closed-end second mortgages 

Deposits
•  $45 billion in direct-to-consumer deposits 
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savings accounts and checking accounts

Discover Global Network, the global payments brand of Discover Financial Services, strives 

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world. Our Network Partners business provides payment transaction processing and settlement 

services on the Discover Network. PULSE is one of the nation’s leading ATM/debit networks, 

and Diners Club International is a global payments network with acceptance in more than 190 

countries and territories.

Discover Network
•  $163 billion volume
•  15 network alliances

Pulse Debit Network
•  $180 billion volume
•   2.1 million ATMs in 134 

countries

Diners Club International
•  $34 billion volume
•  120+ licensees

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(cid:55)(cid:75)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:696)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:26)(cid:8)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:17)(cid:3)

(cid:58)(cid:72)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:20)(cid:22)(cid:8)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)

(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:69)(cid:85)(cid:82)(cid:88)(cid:74)(cid:75)(cid:87)(cid:3)(cid:82)(cid:81)(cid:3)(cid:20)(cid:20)(cid:8)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:68)(cid:70)(cid:70)(cid:82)(cid:88)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)

(cid:20)(cid:21)(cid:8)(cid:3)(cid:79)(cid:76)(cid:73)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:17)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:76)(cid:86)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)

(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:16)(cid:82)(cid:696)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:79)(cid:92)(cid:16)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:81)(cid:82)(cid:85)(cid:80)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)

(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:17)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:608)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:16)(cid:82)(cid:696)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)

(cid:22)(cid:17)(cid:19)(cid:25)(cid:8)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:697)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3)

(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)

(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:7)(cid:26)(cid:17)(cid:26)(cid:28)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:21)(cid:24)(cid:8)(cid:17)(cid:3)

(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:27)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:75)(cid:3)

(cid:70)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:85)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:697)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)

Roger C. Hochschild  
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:699)(cid:70)(cid:72)(cid:85)(cid:3)

(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)

(cid:36)(cid:3)(cid:47)(cid:82)(cid:82)(cid:78)(cid:3)(cid:68)(cid:87)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:51)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(continued)

(cid:44)(cid:3)(cid:68)(cid:80)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)

(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)

(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:69)(cid:72)(cid:92)(cid:82)(cid:81)(cid:71)(cid:17)(cid:3)

(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:38)(cid:68)(cid:85)(cid:71)

(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:3)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:76)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:3)(cid:73)(cid:68)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)

(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:85)(cid:3)(cid:88)(cid:86)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:72)(cid:85)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:76)(cid:87)(cid:3)(cid:70)(cid:82)(cid:80)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:17)(cid:3)

(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)

(cid:68)(cid:3)(cid:73)(cid:88)(cid:79)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:76)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:82)(cid:83)(cid:88)(cid:79)(cid:68)(cid:85)(cid:3)(cid:24)(cid:8)(cid:3)Cashback Bonus(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)(cid:86)(cid:82)(cid:3)

(cid:70)(cid:68)(cid:85)(cid:71)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:76)(cid:93)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:53)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)

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Samika Mendoza, Team Leader,  
Customer Care Center, Phoenix

When Samika Mendoza came to Discover in 2015 after several years in the service 

industry, it was an eye-opener. “I was blown away by the focus on the customer and being 

trained on how to give great service.” 

Samika manages a team of customer service agents. “The question I always ask my team: 

‘Are you doing the right thing for the customer?’” That includes sharing all the information 

they need to make informed decisions.

“At Discover, we pay attention to every detail and show customers that we care. For 

example, a government employee called during the shutdown because he was stressed 

about paying his bill. When one of the agents on my team thanked him for his service, he 

broke down in tears because he felt appreciated. Then they talked about how Discover 

could help. The message was: ‘We have your back.’”  

It’s no wonder Discover was ranked highest for credit card customer satisfaction in the U.S. 

by J.D. Power for the fourth time in 2018. 

(cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:37)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)

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(cid:87)(cid:82)(cid:3)(cid:75)(cid:72)(cid:79)(cid:83)(cid:3)(cid:83)(cid:72)(cid:82)(cid:83)(cid:79)(cid:72)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:697)(cid:81)(cid:68)(cid:81)(cid:70)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:68)(cid:3)(cid:69)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:85)(cid:3)(cid:697)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)(cid:3)

•   Deposits:(cid:3)(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:72)(cid:79)(cid:72)(cid:69)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:80)(cid:76)(cid:79)(cid:72)(cid:86)(cid:87)(cid:82)(cid:81)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:88)(cid:85)(cid:83)(cid:68)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)(cid:7)(cid:23)(cid:19)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)

(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:71)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:3)(cid:87)(cid:72)(cid:81)(cid:73)(cid:82)(cid:79)(cid:71)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:71)(cid:72)(cid:70)(cid:68)(cid:71)(cid:72)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)

(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:697)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)

(cid:69)(cid:85)(cid:82)(cid:68)(cid:71)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:70)(cid:75)(cid:72)(cid:70)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:83)(cid:68)(cid:92)(cid:86)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:16)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:20)(cid:8)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:69)(cid:68)(cid:70)(cid:78)(cid:3)(cid:82)(cid:81)(cid:3)

(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:22)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:76)(cid:81)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:80)(cid:82)(cid:81)(cid:87)(cid:75)(cid:17)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:69)(cid:68)(cid:70)(cid:78)(cid:3)

(cid:39)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:72)(cid:92)(cid:72)(cid:16)(cid:70)(cid:68)(cid:87)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:89)(cid:72)(cid:85)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:85)(cid:71)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:15)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:80)(cid:82)(cid:69)(cid:76)(cid:79)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:25)(cid:19)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:81)(cid:82)(cid:16)(cid:73)(cid:72)(cid:72)(cid:3)(cid:36)(cid:55)(cid:48)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:81)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3)

•   Student Loans:(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:83)(cid:85)(cid:76)(cid:89)(cid:68)(cid:87)(cid:72)(cid:3)(cid:86)(cid:87)(cid:88)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:3)

(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:73)(cid:72)(cid:90)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:87)(cid:88)(cid:71)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:68)(cid:85)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:72)(cid:68)(cid:85)(cid:79)(cid:76)(cid:72)(cid:85)(cid:3)

(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:86)(cid:76)(cid:82)(cid:81)(cid:16)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:82)(cid:696)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)(cid:81)(cid:82)(cid:3)(cid:73)(cid:72)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:53)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)

(cid:42)(cid:82)(cid:82)(cid:71)(cid:3)(cid:42)(cid:85)(cid:68)(cid:71)(cid:72)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:73)(cid:92)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:17)(cid:3)(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)

(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:50)(cid:81)(cid:79)(cid:92)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:79)(cid:79)(cid:82)(cid:90)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:16)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:72)(cid:16)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:81)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:68)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)

(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:37)(cid:88)(cid:85)(cid:72)(cid:68)(cid:88)(cid:3)(cid:85)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:39)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3)

(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:22)(cid:8)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)

 
 
Stephen Goates, Department Manager - Deposits, 
Lake Park, Utah

Stephen Goates was a college student in need of a part-time job when he 

started at Discover’s Customer Care Center in Lake Park, Utah, in 2002. 

(cid:55)(cid:82)(cid:71)(cid:68)(cid:92)(cid:15)(cid:3)(cid:75)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:92)(cid:86)(cid:3)(cid:68)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:85)(cid:82)(cid:79)(cid:72)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:3)(cid:87)(cid:72)(cid:68)(cid:80)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:692)(cid:72)(cid:85)(cid:86)(cid:3)(cid:71)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)

service for new and existing deposits products.

“As we listened to our customers, we realized that many prefer digital 

banking and regularly use a debit card. So we asked ourselves, ‘How can 

we provide them with a really great deposit product that helps them avoid 

debt and save for the future?’”

The team came up with Discover Cashback Debit, a new checking product 

that rewards customers with 1% cash back on their debit purchases. 

To promote saving, customers can have their rewards automatically 

transferred into an online savings account. 

“We hoped it would bring in new customers and lead to a relationship that 

would continue to grow.” Indeed it has—about 50% of the applicants are 

new to Discover. 

•   Personal Loans:(cid:3)(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:88)(cid:83)(cid:74)(cid:85)(cid:68)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)

(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:85)(cid:68)(cid:88)(cid:71)(cid:3)(cid:80)(cid:82)(cid:81)(cid:76)(cid:87)(cid:82)(cid:85)(cid:76)(cid:81)(cid:74)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:73)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:82)(cid:696)(cid:72)(cid:85)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:16)(cid:68)(cid:71)(cid:71)(cid:72)(cid:71)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:79)(cid:76)(cid:78)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:54)(cid:70)(cid:82)(cid:85)(cid:72)(cid:70)(cid:68)(cid:85)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:72)(cid:696)(cid:82)(cid:85)(cid:87)(cid:86)(cid:3)(cid:69)(cid:72)(cid:87)(cid:87)(cid:72)(cid:85)(cid:3)

(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:83)(cid:85)(cid:82)(cid:697)(cid:87)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:17)(cid:3)

•   Home Equity Loans:(cid:3)(cid:50)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:697)(cid:89)(cid:72)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)

(cid:72)(cid:699)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:76)(cid:72)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:81)(cid:3)(cid:86)(cid:76)(cid:80)(cid:83)(cid:79)(cid:76)(cid:70)(cid:76)(cid:87)(cid:92)(cid:15)(cid:3)(cid:76)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:72)(cid:68)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)(cid:47)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)

(cid:90)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:71)(cid:82)(cid:88)(cid:69)(cid:79)(cid:72)(cid:71)(cid:3)(cid:73)(cid:88)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:79)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:70)(cid:72)(cid:86)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:86)(cid:3)(cid:69)(cid:92)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)

(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:22)(cid:19)(cid:8)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:88)(cid:87)(cid:83)(cid:68)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:81)(cid:82)(cid:90)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:697)(cid:89)(cid:72)(cid:3)(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:86)(cid:87)(cid:3)

(cid:82)(cid:85)(cid:76)(cid:74)(cid:76)(cid:81)(cid:68)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:71)(cid:16)(cid:72)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:70)(cid:82)(cid:81)(cid:71)(cid:3)(cid:80)(cid:82)(cid:85)(cid:87)(cid:74)(cid:68)(cid:74)(cid:72)(cid:86)(cid:17)

(cid:51)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

(cid:44)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:78)(cid:72)(cid:92)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:75)(cid:72)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)

(cid:87)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:89)(cid:76)(cid:68)(cid:3)(cid:68)(cid:81)(cid:92)(cid:3)(cid:70)(cid:75)(cid:68)(cid:81)(cid:81)(cid:72)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:82)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:88)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:72)(cid:16)(cid:82)(cid:73)(cid:16)(cid:87)(cid:75)(cid:72)(cid:16)(cid:68)(cid:85)(cid:87)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:92)(cid:17)(cid:3)(cid:55)(cid:75)(cid:68)(cid:87)(cid:3)

(cid:75)(cid:68)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:79)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:38)(cid:79)(cid:88)(cid:69)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:51)(cid:56)(cid:47)(cid:54)(cid:40)(cid:3)(cid:39)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)

 
 
•   Network Partners: (cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:74)(cid:82)(cid:68)(cid:79)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:70)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)

(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:72)(cid:91)(cid:76)(cid:86)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:70)(cid:84)(cid:88)(cid:76)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:75)(cid:76)(cid:83)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:45)(cid:38)(cid:37)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:41)(cid:76)(cid:85)(cid:86)(cid:87)(cid:3)(cid:39)(cid:68)(cid:87)(cid:68)(cid:3)

(cid:76)(cid:81)(cid:3)(cid:43)(cid:82)(cid:81)(cid:74)(cid:3)(cid:46)(cid:82)(cid:81)(cid:74)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:72)(cid:71)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:74)(cid:76)(cid:70)(cid:3)(cid:68)(cid:79)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:51)(cid:85)(cid:82)(cid:86)(cid:68)(cid:15)(cid:3) 

(cid:68)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:82)(cid:80)(cid:72)(cid:86)(cid:87)(cid:76)(cid:70)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:76)(cid:81)(cid:3)(cid:48)(cid:72)(cid:91)(cid:76)(cid:70)(cid:82)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:49)(cid:38)(cid:38)(cid:38)(cid:3)(cid:42)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:38)(cid:68)(cid:85)(cid:71)(cid:86)(cid:3) 

(cid:76)(cid:81)(cid:3)(cid:55)(cid:68)(cid:76)(cid:90)(cid:68)(cid:81)(cid:17)(cid:3)(cid:55)(cid:82)(cid:71)(cid:68)(cid:92)(cid:15)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:73)(cid:82)(cid:82)(cid:87)(cid:83)(cid:85)(cid:76)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:86)(cid:3)(cid:81)(cid:72)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3) 

(cid:23)(cid:24)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:80)(cid:72)(cid:85)(cid:70)(cid:75)(cid:68)(cid:81)(cid:87)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)

•   Diners Club International:(cid:3)(cid:47)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:72)(cid:91)(cid:83)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:39)(cid:76)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:38)(cid:79)(cid:88)(cid:69)(cid:3)

(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:90)(cid:82)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:86)(cid:605)(cid:40)(cid:79)(cid:82)(cid:3)(cid:76)(cid:81)(cid:3)(cid:37)(cid:85)(cid:68)(cid:93)(cid:76)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:51)(cid:38)(cid:37)(cid:68)(cid:81)(cid:78)(cid:3)(cid:76)(cid:81)(cid:3)(cid:38)(cid:68)(cid:80)(cid:69)(cid:82)(cid:71)(cid:76)(cid:68)(cid:17)(cid:3)(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)

(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:21)(cid:19)(cid:3)(cid:79)(cid:76)(cid:70)(cid:72)(cid:81)(cid:86)(cid:72)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:26)(cid:8)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)

(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)

•   PULSE: (cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:608)(cid:86)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:83)(cid:82)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:15)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:81)(cid:74) 

(cid:20)(cid:24)(cid:24)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:82)(cid:85)(cid:3)(cid:85)(cid:72)(cid:81)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:86)(cid:86)(cid:88)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:71)(cid:82)(cid:79)(cid:79)(cid:68)(cid:85)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:69)(cid:92)(cid:3) 

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Alejandro Orestano, Senior Relationship  
Manager, Payment Services, Riverwoods, IL 

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footprint in Mexico had room to grow. As part of the Discover Global Network team, 

he works to develop new network partnerships.

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out what the client needs, and then by sharing Discover’s unique solutions and 

perspectives on the industry, we help them expand their business.”    

In 2018, Alejandro helped seal the deal on a strategic alliance agreement with  

Prosa, a leading domestic payments network in Mexico, which is an important  

tourist destination.  

“Once the program is implemented, Discover will be accepted at more than 400,000 

additional point-of-sale locations and 24,000 ATMs across Mexico, improving the 

experience when our cardmembers travel.”

It’s a win-win for both sides.

 
 
 
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Ying Zhe, Director - Application Development,  
Business Technology, Riverwoods, IL

In digital banking, technology is essential to ensuring customers have fast and easy access to 

products and services. That’s why Ying Zhe and her team are building a modern acquisitions 

platform to enhance Discover’s credit card application experience across all channels. Using the 

latest design techniques and automation capabilities, they are creating a system that adapts 

and evolves based on customers’ needs.

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important that we create a best-in-class system that provides a great experience.”

Working side-by-side with product owners, her technology team is leveraging the new platform 

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which will allow Discover to provide cards to more people.

 “I truly believe right now is the best time to be in technology. I am excited to be part of an 

organization that takes advantage of technology innovations to create great products and 

experiences for our customers.” 

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(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:697)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:68)(cid:86)(cid:3)(cid:71)(cid:68)(cid:87)(cid:68)(cid:3)(cid:68)(cid:81)(cid:68)(cid:79)(cid:92)(cid:87)(cid:76)(cid:70)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:80)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:72)(cid:3)(cid:79)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:15)(cid:3)(cid:71)(cid:76)(cid:74)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:83)(cid:68)(cid:92)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:88)(cid:83)(cid:74)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:72)(cid:70)(cid:75)(cid:81)(cid:82)(cid:79)(cid:82)(cid:74)(cid:76)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)

(cid:69)(cid:72)(cid:3)(cid:68)(cid:3)(cid:83)(cid:85)(cid:88)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:79)(cid:72)(cid:81)(cid:71)(cid:72)(cid:85)(cid:15)(cid:3)(cid:80)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:82)(cid:79)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:86)(cid:17)(cid:3)

(cid:44)(cid:3)(cid:68)(cid:80)(cid:3)(cid:70)(cid:82)(cid:81)(cid:697)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:72)(cid:71)(cid:3)(cid:69)(cid:72)(cid:70)(cid:68)(cid:88)(cid:86)(cid:72)(cid:29)(cid:3)

•   We have the right model(cid:605)(cid:71)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:3)(cid:69)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:20)(cid:19)(cid:19)(cid:8)(cid:3)(cid:56)(cid:17)(cid:54)(cid:17)(cid:16)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:3)

(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:69)(cid:76)(cid:87)(cid:3)(cid:81)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:86)(cid:17)

•   We have the right credit, lending and savings products and features(cid:605)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)

(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:71)(cid:71)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:73)(cid:72)(cid:68)(cid:87)(cid:88)(cid:85)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:697)(cid:79)(cid:79)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:72)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:82)(cid:71)(cid:68)(cid:92)(cid:608)(cid:86)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:17)

•   And, most importantly, we have the right people(cid:605)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)

(cid:87)(cid:82)(cid:3)(cid:83)(cid:85)(cid:82)(cid:89)(cid:76)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:16)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:4)

(cid:44)(cid:3)(cid:90)(cid:68)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:78)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:71)(cid:72)(cid:71)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)

(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:25)(cid:15)(cid:19)(cid:19)(cid:19)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:75)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:85)(cid:76)(cid:69)(cid:88)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:81)(cid:74)(cid:82)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)

(cid:83)(cid:88)(cid:87)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:88)(cid:86)(cid:87)(cid:82)(cid:80)(cid:72)(cid:85)(cid:86)(cid:3)(cid:697)(cid:85)(cid:86)(cid:87)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:71)(cid:68)(cid:92)(cid:17)(cid:3)

Roger Hochschild  

(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:699)(cid:70)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87) 

(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:21)(cid:20)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:3)

 
 
 
(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)(cid:89)(cid:86)(cid:17)(cid:3)(cid:21)(cid:19)(cid:20)(cid:27)(cid:3)(cid:54)(cid:88)(cid:80)(cid:80)(cid:68)(cid:85)(cid:92)(cid:3)(cid:53)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)

(cid:47)(cid:82)(cid:68)(cid:81)(cid:86)(cid:3)(cid:3)(cid:62)(cid:37)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

$90.5

8.2

9.4

$84.2

7.7

9.2

72.9

67.3

(cid:38)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)(cid:3)(cid:3)
(cid:62)(cid:37)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

(cid:55)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)
(cid:57)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:3)(cid:62)(cid:37)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

(cid:40)(cid:699)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:53)(cid:68)(cid:87)(cid:76)(cid:82)

$44.7

14.7

$39.4

12.8

30.0

26.6

$376

34

180

$336

32

157

147

162

38.2% 38.1%

2017 2018

(cid:51)(cid:72)(cid:85)(cid:86)(cid:82)(cid:81)(cid:68)(cid:79)(cid:18)(cid:50)(cid:87)(cid:75)(cid:72)(cid:85)
(cid:54)(cid:87)(cid:88)(cid:71)(cid:72)(cid:81)(cid:87)
(cid:38)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:38)(cid:68)(cid:85)(cid:71)

2017 2018

(cid:38)(cid:72)(cid:85)(cid:87)(cid:76)(cid:697)(cid:70)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:72)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:86)
(cid:48)(cid:82)(cid:81)(cid:72)(cid:92)(cid:3)(cid:48)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:18)(cid:54)(cid:68)(cid:89)(cid:76)(cid:81)(cid:74)(cid:86)(cid:18)
(cid:38)(cid:75)(cid:72)(cid:70)(cid:78)(cid:76)(cid:81)(cid:74)

2017 2018

(cid:39)(cid:76)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:38)(cid:79)(cid:88)(cid:69)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)
(cid:51)(cid:56)(cid:47)(cid:54)(cid:40)
(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)

2017 2018

(cid:55)(cid:75)(cid:72)(cid:3)(cid:72)(cid:699)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:3)(cid:76)(cid:86)(cid:3)(cid:81)(cid:82)(cid:81)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)
(cid:72)(cid:91)(cid:83)(cid:72)(cid:81)(cid:86)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:3)(cid:11)(cid:81)(cid:72)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:81)(cid:82)(cid:81)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:72)(cid:86)(cid:87)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:12)(cid:17)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:51)(cid:85)(cid:76)(cid:81)(cid:70)(cid:76)(cid:83)(cid:68)(cid:79)(cid:3)
(cid:38)(cid:75)(cid:68)(cid:85)(cid:74)(cid:72)(cid:16)(cid:50)(cid:696)(cid:3)(cid:53)(cid:68)(cid:87)(cid:72)

(cid:49)(cid:72)(cid:87)(cid:3)(cid:44)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:3)
(cid:62)(cid:48)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

(cid:49)(cid:88)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:50)(cid:88)(cid:87)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:3)(cid:3)(cid:62)(cid:48)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

3.06%

2.70%

$2,742

$2,099

358

331

(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:51)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)
(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)

$1.50

$1.30

2017 2018

2017 2018

2017 2018

2017 2018

(cid:39)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:3)(cid:51)(cid:72)(cid:85)(cid:3)
(cid:54)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:38)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)

(cid:53)(cid:72)(cid:87)(cid:88)(cid:85)(cid:81)(cid:3)(cid:82)(cid:81)(cid:3)(cid:40)(cid:84)(cid:88)(cid:76)(cid:87)(cid:92)

(cid:54)(cid:87)(cid:82)(cid:70)(cid:78)(cid:3)(cid:51)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:41)(cid:76)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3) 
(cid:60)(cid:72)(cid:68)(cid:85)(cid:16)(cid:40)(cid:81)(cid:71)

(cid:36)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:3) 
(cid:47)(cid:82)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:62)(cid:48)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:86)(cid:64)

$7.79

25%

$76.92

$5.42

19%

$58.98

44.8

42.5

2017 2018

2017 2018

2017 2018

2017 2018

(cid:11)(cid:20)(cid:12)

(cid:11)(cid:21)(cid:12)

(cid:11)(cid:22)(cid:12)

(cid:11)(cid:23)(cid:12)

(cid:11)(cid:24)(cid:12)

(cid:11)(cid:25)(cid:12)

(cid:11)(cid:26)(cid:12)

(cid:11)(cid:27)(cid:12)

(cid:11)(cid:28)(cid:12)

(cid:11)(cid:20)(cid:19)(cid:12)

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(cid:43)(cid:76)(cid:79)(cid:79)(cid:3)(cid:38)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)(cid:47)(cid:47)(cid:38)

Independent Chairman;  
Chair–Nominating and 
Governance Committee

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(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:38)(cid:40)(cid:50)(cid:15)(cid:3)(cid:51)(cid:68)(cid:85)(cid:68)(cid:74)(cid:82)(cid:81)(cid:3)
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(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:85)(cid:68)(cid:74)(cid:82)(cid:81)(cid:3)(cid:37)(cid:76)(cid:82)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:70)(cid:72)(cid:86)(cid:15)(cid:3)(cid:47)(cid:47)(cid:38)(cid:3)

(cid:48)(cid:68)(cid:85)(cid:92)(cid:3)(cid:46)(cid:17)(cid:3)(cid:37)(cid:88)(cid:86)(cid:75)(cid:3)(cid:11)(cid:22)(cid:12)
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(cid:41)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)
(cid:51)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:15)(cid:3)(cid:46)(cid:51)(cid:48)(cid:42)(cid:3)(cid:47)(cid:47)(cid:51)

(cid:38)(cid:92)(cid:81)(cid:87)(cid:75)(cid:76)(cid:68)(cid:3)(cid:36)(cid:17)(cid:3)(cid:42)(cid:79)(cid:68)(cid:86)(cid:86)(cid:80)(cid:68)(cid:81)(cid:3)(cid:11)(cid:26)(cid:12)
(cid:41)(cid:82)(cid:85)(cid:80)(cid:72)(cid:85)(cid:3)(cid:56)(cid:81)(cid:71)(cid:72)(cid:85)(cid:3)(cid:54)(cid:72)(cid:70)(cid:85)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)
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Chair–Audit Committee 

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(cid:38)(cid:75)(cid:76)(cid:70)(cid:68)(cid:74)(cid:82)(cid:3)

Chair–Risk Oversight 
Committee 

(cid:42)(cid:85)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:3)(cid:38)(cid:17)(cid:3)(cid:38)(cid:68)(cid:86)(cid:72)(cid:3)(cid:11)(cid:23)(cid:12)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:699)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)
(cid:36)(cid:82)(cid:81)(cid:3)(cid:83)(cid:79)(cid:70)(cid:3) 

Chair–Compensation
and Leadership
Development Committee 

(cid:45)(cid:82)(cid:86)(cid:72)(cid:83)(cid:75)(cid:3)(cid:41)(cid:17)(cid:3)(cid:40)(cid:68)(cid:93)(cid:82)(cid:85)(cid:3)(cid:11)(cid:25)(cid:12)
Chief Executive 
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(cid:42)(cid:85)(cid:82)(cid:88)(cid:83)(cid:3)

 
 
 
 
(cid:11)(cid:20)(cid:20)(cid:12)

(cid:11)(cid:20)(cid:21)(cid:12)

(cid:11)(cid:20)(cid:22)(cid:12)

(cid:11)(cid:20)(cid:23)(cid:12)

(cid:11)(cid:20)(cid:24)(cid:12)

(cid:11)(cid:20)(cid:25)(cid:12)

(cid:11)(cid:20)(cid:26)(cid:12)

(cid:11)(cid:20)(cid:27)(cid:12)

(cid:11)(cid:20)(cid:28)(cid:12)

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(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:57)(cid:76)(cid:70)(cid:72)(cid:3)(cid:51)(cid:85)(cid:72)(cid:86)(cid:76)(cid:71)(cid:72)(cid:81)(cid:87)(cid:15)(cid:3)
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(cid:37)(cid:68)(cid:81)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)

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(cid:48)(cid:68)(cid:81)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)

Annual Shareholders’ Meeting

Transfer Agent

Primary Investor Contact

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(cid:51)(cid:75)(cid:82)(cid:81)(cid:72)(cid:29)(cid:3)(cid:20)• (cid:27)(cid:25)(cid:25) •(cid:21)(cid:24)(cid:27) • (cid:25)(cid:24)(cid:28)(cid:19)
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(cid:51)(cid:75)(cid:82)(cid:81)(cid:72)(cid:29)(cid:3)(cid:20)•(cid:21)(cid:21)(cid:23) • (cid:23)(cid:19)(cid:24) • (cid:23)(cid:24)(cid:24)(cid:24)
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(cid:81)(cid:82)(cid:87)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:29)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85) ®(cid:15)(cid:3)(cid:51)(cid:56)(cid:47)(cid:54)(cid:40)(cid:15)®(cid:3)(cid:38)(cid:68)(cid:86)(cid:75)(cid:69)(cid:68)(cid:70)(cid:78)(cid:3)(cid:37)(cid:82)(cid:81)(cid:88)(cid:86)®(cid:15)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)®(cid:3)(cid:48)(cid:82)(cid:85)(cid:72)®(cid:3)(cid:38)(cid:68)(cid:85)(cid:71)(cid:15)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:76)(cid:87)®(cid:15)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)®(cid:3)(cid:49)(cid:72)(cid:87)(cid:90)(cid:82)(cid:85)(cid:78)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:76)(cid:81)(cid:72)(cid:85)(cid:86)(cid:3)(cid:38)(cid:79)(cid:88)(cid:69)(cid:3)(cid:44)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)®(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:80)(cid:68)(cid:85)(cid:78)(cid:86)(cid:15)(cid:3) 
(cid:87)(cid:85)(cid:68)(cid:71)(cid:72)(cid:3)(cid:81)(cid:68)(cid:80)(cid:72)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:36)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:53)(cid:72)(cid:83)(cid:82)(cid:85)(cid:87)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:90)(cid:81)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:41)(cid:44)(cid:38)(cid:50)®(cid:3)(cid:54)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)(cid:80)(cid:68)(cid:87)(cid:72)(cid:85)(cid:76)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:44)(cid:86)(cid:68)(cid:68)(cid:70)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:85)(cid:76)(cid:72)(cid:87)(cid:68)(cid:85)(cid:92)(cid:3)
(cid:76)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:107)(cid:41)(cid:68)(cid:76)(cid:85)(cid:3)(cid:44)(cid:86)(cid:68)(cid:68)(cid:70)(cid:3)(cid:38)(cid:82)(cid:85)(cid:83)(cid:82)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:36)(cid:79)(cid:79)(cid:3)(cid:85)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:72)(cid:71)(cid:17)

(cid:107)(cid:21)(cid:19)(cid:20)(cid:28)(cid:3)(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:54)(cid:72)(cid:85)(cid:89)(cid:76)(cid:70)(cid:72)(cid:86)

(cid:39)(cid:76)(cid:86)(cid:70)(cid:82)(cid:89)(cid:72)(cid:85)(cid:17)(cid:70)(cid:82)(cid:80)(cid:18)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K
(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the year ended December 31, 2018

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                    to 

Commission File Number 001-33378

DISCOVER FINANCIAL SERVICES

(Exact name of registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation or organization)

36-2517428
(I.R.S. Employer Identification No.)

2500 Lake Cook Road, Riverwoods, Illinois 60015

(224) 405-0900

(Address of principal executive offices, including zip code)

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Name of each exchange on which registered

Common Stock, par value $0.01 per share

New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes  

    No 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes 

     No 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to 
such filing requirements for the past 90 days.    Yes  

    No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of 
Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such 
files).     Yes  

    No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, 
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of 
this Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 
company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Non-accelerated filer  

Accelerated filer  

Smaller reporting company 

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  

    No  

The aggregate market value of the common equity held by non-affiliates of the registrant on the last business day of the registrant’s most recently 
completed second fiscal quarter was approximately $24,123,706,276.

As of February 15, 2019, there were 328,386,672 shares of the registrant’s Common Stock, par value $0.01 per share, outstanding.

DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive proxy statement for its annual stockholders’ meeting to be held on May 16, 2019 are incorporated by reference 
in Part III of this Form 10-K.

 
 
     
DISCOVER FINANCIAL SERVICES
Annual Report on Form 10-K for the year ended December 31, 2018

TT
TABLE OF CONTENTS

Part I
Item 1.

Business ................................................................................................................................

1

Item 1A.

Risk Factors ...........................................................................................................................

Item 1B.

Unresolved Staff Comments ....................................................................................................

Item 2.

Item 3.

Item 4.

Part II

Item 5.

Item 6.

Item 7.

Properties .............................................................................................................................

Legal Proceedings .................................................................................................................

Mine Safety Disclosures .........................................................................................................

Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of 

gg

Equity Securities

.................................................................................................................

Selected Financial Data ..........................................................................................................

Management's Discussion and Analysis of Financial Condition and Results of Operations ...........

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk ......................................................

24

41

41

41

41

42

43

46

72

74

Item 8.

Item 9.

Financial Statements and Supplementary Data .........................................................................

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ..........

145

Item 9A.

Controls and Procedures ........................................................................................................

145

Item 9B.

Other Information ..................................................................................................................

145

Part III

Item 10.

Directors, Executive Officers and Corporate Governance ..........................................................

Item 11.

Executive Compensation ........................................................................................................

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 

y

Matters

..............................................................................................................................

Item 13.

Certain Relationships and Related Transactions, and Director Independence ...............................

Item 14.

Principal Accounting Fees and Services ...................................................................................

146

146

146

147

147

Part IV

Item 15.

Item 16.

Exhibits, Financial Statement Schedules ...................................................................................

148

Form 10-K Summary .............................................................................................................

155

Except as otherwise indicated or unless the context otherwise requires, “Discover Financial Services,” “Discover,” “DFS,” “we,” “us,” “our,”

and “the Company” refer to Discover Financial Services and its subsidiaries. See Item 8 — Financial Statements and Supplementary Data — Glossary 
of Acronyms for terms and abbreviations used throughout the annual report.

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®r , PULSE®, Cashback Bonus®, Discover Cashback Checking®, Discover it®tt , Freeze it®tt  College Covered®, and
Diners Club International®. All other trademarks, trade names and service marks included in this annual report on Form 10-K are the property of their 
respective owners.

Part I.

Part I | Item 1. 

Business

Introduction

Discover Financial Services (the “Company”) is a direct banking and payment services company. We were 
incorporated in Delaware in 1960. We are a bank holding company under the Bank Holding Company Act of 1956 as
well as a financial holding company under the Gramm-Leach-Bliley Act and therefore are subject to oversight, 
regulation and examination by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). We 
provide direct banking products and services and payment services through our subsidiaries. We offer our customers 
credit card loans, private student loans, personal loans, home equity loans and deposit products. We had $90.5 billion
in loan receivables and $44.7 billion in deposits issued through direct-to-consumer channels and affinity relationships
at December 31, 2018. We also operate the Discover Network, the PULSE network (“PULSE”) and Diners Club 
International (“Diners Club”). The Discover Network processes transactions for Discover-branded credit and debit cards 
and provides payment transaction processing and settlement services. PULSE operates an electronic funds transfer 
network, providing financial institutions issuing debit cards on the PULSE network with access to ATMs domestically and 
internationally, as well as point-of-sale (“POS”) terminals at retail locations throughout the U.S. for debit card 
transactions. Diners Club is a global payments network of licensees, which are generally financial institutions, that issue 
Diners Club branded charge cards and/or provide card acceptance services.

Available Information

We make available, free of charge through the investor relations page of our internet site www.discover

, our 
annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Forms 3, 
4 and 5 filed by or on behalf of our directors and executive officers, and any amendments to those documents filed with 
or furnished to the Securities and Exchange Commission (the “SEC”) pursuant to the Securities Exchange Act of 1934. 
These filings are available as soon as reasonably practicable after they are filed with or furnished to the SEC.

.comrr

ww

In addition, the following information is available on the investor relations page of our internet site: (i) our 

Corporate Governance Policies; (ii) our Code of Ethics and Business Conduct; and (iii) the charters of the Audit,
Compensation and Leadership Development, Nominating and Governance, and Risk Oversight Committees of our 
Board of Directors. These documents are also available in print without charge to any person who requests them by 
writing or telephoning our principal executive offices: Discover Financial Services, Office of the Corporate Secretary, 
2500 Lake Cook Road, Riverwoods, Illinois 60015, U.S.A., telephone number (224) 405-0900. 

Operating Model

We manage our business activities in two segments: Direct Banking and Payment Services. Our Direct Banking

segment includes consumer banking and lending products, specifically Discover-branded credit cards issued to 
individuals on the Discover Network and other consumer banking products and services, including student loans,
personal loans, home equity loans and deposit products. Our Payment Services segment includes PULSE, Diners Club 
and our Network Partners business, which provides payment transaction processing and settlement services on the 
Discover Network.

We are principally engaged in providing products and services to customers in the United States, although the 

royalty and licensee revenue we receive from Diners Club licensees is mainly derived from sources outside of the United 
States. For quantitative information concerning our geographic distribution, see Note 4: Loan Receivables to our 
consolidated financial statements.

Below are descriptions of the principal products and services of each of our reportable segments. For additional 

financial information relating to our business and our operating segments, see Note 22: Segment Disclosures to our 
consolidated financial statements. 

-1-

Direct Banking 

Set forth below are descriptions of the credit cards, student loans, personal loans, home equity loans and deposit 

products issued by Discover Bank.

Credit Cards 

We currently offer and issue credit cards to consumers. Our credit card customers are permitted to “revolve” their 

balances and repay their obligations over a period of time and at an interest rate set forth in their cardmember 
agreements, which may be either fixed or variable. The interest that we earn on revolving credit card balances makes up 
approximately 81% of our total interest income. We also charge customers other fees as specified in the cardmember 
agreements. These fees may include fees for late payments, returned checks, balance transfer transactions and cash 
advance transactions.

Our credit card customers’ transactions in the U.S. are processed over the Discover Network. Where we have a 

direct relationship with a merchant, which is the case with respect to our large merchants representing a majority of 
Discover card sales volume, we receive discount and fee revenue from merchants. Discount and fee revenue is based on 
pricing that is set forth in contractual agreements with each such merchant and is based on a number of factors including 
industry practices, special marketing arrangements, competitive pricing levels and merchant size. Where we do not have 
a direct relationship with a merchant, we receive acquirer interchange and assessment fees from the merchant acquirer 
that settles transactions with the merchant. The amount of this fee is based on a standardized schedule and can vary 
based on the type of merchant. 

All of our cards offer rewards programs, the costs of which are generally recorded as a reduction of discount and 

interchange revenue. See “— Marketing — Rewards/Cashback Bonus” for further discussion of our programs offered.

The following chart* shows the Discover card transaction cycle as processed on the Discover Network: 

For information on how we market our credit card loans, see “— Credit Risk Management — Account Acquisition 

(New Customers)” and “— Marketing.”

Student Loans 

Our private student loans are primarily available to students attending eligible non-profit undergraduate and 
graduate schools. We also offer certain post-graduate loans, including consolidation, bar study and residency loans. All 
of our private student loans are unsecured and have terms and conditions that vary by product. We encourage students 
to borrow responsibly and maximize grants, scholarships and other free financial aid before taking student loans. 

Our student loans feature fixed or variable interest rates with zero origination fees, and customers can elect to 

make extra payments to pay their loans off earlier than contractually scheduled without penalty. The loans can feature 
potential rewards, such as for good grades, and we also offer optional in-school payment products where students make 

-2-

monthly payments while in school. The standard repayment period is 15 to 20 years, depending on the type of student 
loan. Student loans may include a deferment period, during which customers are not required to make payments while 
enrolled in school at least half time as determined by the school. This period begins on the date the loan is first disbursed 
and ends six to nine months (depending on loan type) after the customer ceases to be enrolled in school at least half 
time. As part of the loan approval process, all of our student loans, except for bar study, residency and private 
consolidation loans, are certified by and disbursed through the school to ensure students do not borrow more than the 
cost of attendance less other financial aid.

We market our student loans through digital channels, direct mail, email, radio and television. We also work with 

schools to create awareness of our products with students and their families. Students can apply for our student loans 
online, by telephone or by mail, and we have dedicated staff within our call centers to service student loans. We invite 
applicants who qualify to apply with a creditworthy cosigner, which may improve the likelihood of loan approval and a 
lower interest rate.

Personal Loans 

Our personal loans are primarily intended to help customers consolidate existing debt, although they can be used 

for other reasons. These loans are unsecured with fixed interest rates, terms and payments, and have zero origination 
fees. The repayment period for personal loans is three to seven years and there is no prepayment penalty for repaying 
any portion of a personal loan balance prior to the scheduled maturity date. Customers may be subject to other charges, 
including late fees when a customer has not made a minimum payment by the contractual due date.

We generally market personal loans through direct mail, digital channels and email. Prospective applicants can 
obtain information regarding Discover Personal Loans online or by telephone and have the ability to apply online, by 
telephone or through the mail. 

Home Equity Loans

Our home equity loans are intended for multiple purposes, including mortgage refinance, debt consolidation, 
home improvement and other major expenses. These loans are closed-end, secured loans with fixed interest rates, terms 
and payments. These loans are secured by a first or second lien on a customer’s home and require monthly payment 
over a 10 to 30 year term. Customers may elect to make larger than minimum payments without being subject to a 
prepayment penalty, although certain third-party costs may be required to be reimbursed by the customer if the loan is 
repaid in full within three years. Customers may also be subject to additional charges, including late fees and returned 
payment charges.

We market home equity loans through a mix of direct mail, digital channels and email. Prospective applicants can 

obtain information and apply online or by telephone.

Deposits 

We obtain deposits from consumers directly or through affinity relationships (“direct-to-consumer deposits”). 
Additionally, we obtain deposits through third-party securities brokerage firms that offer our deposits to their customers 
(“brokered deposits”). Our direct-to-consumer deposit products include online savings accounts, certificates of deposit, 
money market accounts, Individual Retirement Arrangement certificates of deposit and checking accounts, while our 
brokered deposit products include certificates of deposit and sweep accounts. All of our deposits are insured by the 
Federal Deposit Insurance Corporation (the “FDIC”) to the maximum permitted by law. We do not pay interest on 
checking account balances and instead offer cashback rewards for certain debit card purchases. Certificates of deposit 
are offered on a range of tenors from three months through ten years with interest rates that are fixed for the full period. 
There are minimum balance requirements to open certificates of deposit and penalties for early withdrawals. Money 
market accounts are transactional accounts with minimum balance requirements. Money market accounts and savings 
accounts have limitations on withdrawal frequency, as required by law, and interest rates on these accounts are subject 
to change at any time. Fees apply to some transactions and availability of funds varies based on product and method of 
funding.

We market our direct-to-consumer deposit products through the use of radio, print materials, direct mail, affinity 
arrangements with third parties and digital channels. Customers can generally apply for deposit accounts online or by 
telephone. Checking account applications can only be initiated online. For more information regarding our deposit 
products, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and 
Capital Resources — Funding Sources — Deposits.”

-3-

Payment Services 

Set forth below are descriptions of PULSE, Diners Club and our Network Partners business, which provides, among 

other services, payment transaction processing and settlement services.

PULSE 

Our PULSE network is one of the nation’s leading debit/ATM networks. PULSE links cardholders served by 
approximately 4,100 financial institutions to ATMs and POS terminals located throughout the United States, including 
cardholders at financial institutions with which PULSE has direct relationships and through agreements PULSE has with 
other debit networks. PULSE also provides cash access at approximately 2.1 million ATMs in 134 countries.

PULSE’s primary source of revenue is transaction fees charged for switching and settling ATM and debit 

transactions initiated through the use of debit cards issued by participating financial institutions. In addition, PULSE offers 
a variety of optional products and services that produce income for the network, including signature debit transaction 
processing, debit card fraud detection and risk mitigation services, and connections to other regional and national 
electronic funds transfer networks.

When a financial institution joins the PULSE network, debit cards issued by that institution are eligible to be used at 

all of the ATMs and POS debit terminals that participate in the PULSE network, and the PULSE mark can be used on that 
institution’s debit cards and ATMs. In addition, financial institution participants may sponsor merchants, direct processors 
and independent sales organizations to participate in the PULSE POS and ATM debit service. A participating financial 
institution assumes liability for transactions initiated through the use of debit cards issued by that institution, as well as for 
ensuring compliance with PULSE’s operating rules and policies applicable to that institution’s debit cards, ATMs and, if 
applicable, sponsored merchants, direct processors and independent sales organizations.

When PULSE enters into a network-to-network agreement with another debit network, the other network’s 
participating financial institutions’ debit cards can be used at terminals in the PULSE network. PULSE does not have a 
direct relationship with these financial institutions and the other network bears the financial responsibility for transactions 
of those financial institutions’ cardholders and for ensuring compliance with PULSE’s operating rules.

Diners Club 

Our Diners Club business maintains an acceptance network in more than 190 countries and territories through its 

relationships with over 120 licensees, which are generally financial institutions. We do not directly issue Diners Club 
cards to consumers, but grant our licensees the right to issue Diners Club branded cards and/or provide card 
acceptance services. Our licensees pay us royalties for the right to use the Diners Club brand, which is our primary 
source of Diners Club revenues. We also earn revenue from providing various support services to our Diners Club 
licensees, including processing and settlement of cross-border transactions. We also provide a centralized service center 
and internet services to our licensees. 

When Diners Club cardholders use their cards outside the host country or territory of the issuing licensee, 

transactions are routed and settled over the Diners Club network through its centralized service center. In order to 
increase merchant acceptance in certain targeted countries and territories, we work with merchant acquirers to offer 
Diners Club and Discover acceptance to their merchants. These acquirers are granted licenses to market the Diners Club 
brands to existing and new merchants. As we continue to work toward achieving full card acceptance across our 
networks, Discover customers are using their cards at an increasing number of merchant and ATM locations that accept 
Diners Club cards around the world. Diners Club cardholders with cards issued by licensees outside of North America 
continue to use their cards on the Discover Network in North America and on the PULSE and Diners Club networks 
domestically and internationally, respectively. 

Network Partners Business 

We have agreements with a number of financial institutions, networks and commercial service providers for 
issuance of products or processing of payments on Discover networks. We refer to these financial institutions, networks 
and commercial service providers as “Network Partners.” We may earn merchant discount and acquirer assessments net 
of issuer fees paid, in addition to other fees, for processing transactions for Network Partners. We also leverage our 
payments infrastructure in other ways, such as business-to-business payment processing.

-4-

The following chart*tt shows an example of a Network Partners transaction cycle: 

* * *

The discussion below provides additional detail concerning the supporting functions of our two segments. The 
credit card, student loan, personal loan, home equity loan and deposit products issued through our Direct Banking 
segment require significant investments in consumer portfolio risk management, marketing, customer service and related 
technology, whereas the operation of our Payment Services business requires that we invest in the technology to manage 
risk and service network partners, merchants and merchant acquirer relationships.

Credit Risk Management

Credit risk management is a critical component of our management and growth strategy. Credit risk refers to the 
risk of loss arising from borrower default when borrowers are unable or unwilling to meet their financial obligations to 
us. Our credit risk arising from consumer lending products is generally highly diversified across millions of accounts 
without significant individual exposures. We manage credit risk primarily based on customer segments and product 
types. See “— Risk Management” for more information regarding how we define and manage our credit and other 
risks. 

Account Acquisition (New Customers) 

We acquire new credit card customers through direct mail, internet, media advertising, merchant or partner 
relationships, or through unsolicited individual applications. We also acquire new student loan, personal loan and 
home equity loan customers through similar channels. In all cases we have a rigorous process for screening applicants.

To identify credit-worthy prospective customers, our credit risk management and marketing teams use proprietary 

analytical tools to match our product offerings with customer needs. We consider the prospective customer’s financial 
stability, as well as ability and willingness to pay. 

We assess the creditworthiness of each consumer loan applicant through evaluating an applicant’s credit 

information provided by credit bureaus and information from other sources. The assessment is performed using our 
credit scoring systems, both externally developed and proprietary. For our unsecured lending products, we also use
experienced credit underwriters to supplement our automated decision-making processes. For our home equity 
products, experienced credit underwriters must review and approve each application. 

Upon approval of a customer’s application for one of our lending products, we assign a specific annual
percentage rate using an analytically driven pricing framework that simultaneously provides competitive pricing for 
customers and seeks to maximize revenue on a risk-adjusted basis. For our credit card loans, we also assign a credit 
line based on risk level and expected return.

-5-

Portfolio Management (Existing Customers) 

The revolving nature of our credit card loans requires that we regularly assess the credit risk exposure of such

accounts. This assessment uses the individual’s Discover account performance information as well as information from 
credit bureaus. We utilize statistical evaluation models to support the measurement and management of credit risk. At 
the individual customer level, we use custom risk models together with generic industry models as an integral part of the 
credit decision-making process. Depending on the duration of the customer’s account, risk profile and other 
performance metrics, the account may be subject to a range of account management treatments, including transaction
authorization limits and increases or decreases on credit limits.

Customer Assistance 

We provide our customers with a variety of tools to proactively manage their accounts, including email, text 

message and push reminders and a website dedicated to customer education, as further discussed under the heading
“— Customer Service.” These tools are designed to limit a customer’s risk of becoming delinquent. When a customer’s 
account becomes delinquent or is at risk of becoming delinquent, we employ a variety of strategies to assist customers 
in returning to current status on their accounts. 

All monthly billing statements of accounts with past due amounts include a request for payment of such amounts.

Customer assistance personnel generally initiate contact with customers within 30 days after any portion of their 
balance becomes past due. The nature and the timing of the initial contact are determined by a review of the customer’s 
prior account activity and payment habits. 

We reevaluate our collection efforts, and consider the implementation of other techniques, as a customer 

becomes increasingly delinquent. We limit our exposure to delinquencies through controls within our process for 
authorizing transactions and credit limits and criteria-based account suspension and revocation. In situations involving
customers with financial difficulties, we may enter into arrangements to extend or otherwise change payment schedules,
lower interest rates and/or waive fees to aid customers in returning to current status on their obligations to us. For more 
information see Note 4: Loan Receivables to our consolidated financial statements.

Marketing

In addition to working with our credit risk management personnel on account acquisition and portfolio 
management, our marketing group provides other key functions, including product development, management of our 
Cashback Bonus and other rewards programs, protection product management, and brand and advertising
management. 

Product Development 

In order to attract and retain customers and merchants, we continue to develop new programs, features and 

benefits and market them through a variety of channels, including television, radio, mail, telephone and digital. 
Marketing efforts may promote no annual fee, Cashback Bonus, FICO Credit Score for free, Freeze it, Social Security 
Number Alerts, New Account Alerts, balance transfer offers and other rewards programs. Through the development of 
a large prospect database, use of credit bureau data and use of a customer contact strategy and management system, 
we continuously develop our modeling and customer engagement capabilities, which helps optimize product, pricing
and channel selection. 

Rewards / Cashback Bonus 

Our cardmembers use several card products, all with no annual fee, that allow them to earn their rewards based 

on how they want to use credit, which can be redeemed in any amount at any time, in general as set forth below. 

• Discover it card offers 5% Cashback Bonus in categories that change each quarter up to a quarterly maximum

(signing up is required) and 1% Cashback Bonus on all other purchases.

• Discover it Chrome card offers 2% Cashback Bonus at gas stations and restaurants on up to $1,000 in

combined purchases each quarter and 1% Cashback Bonus on all other purchases.

• Discover it Miles card offers 1.5 miles for every dollar spent o

s

n purchases.

• Discoii

ver it Secured card offers the same reward features as the Disco

d

ver it Chrome card. Customers provide a

security deposit as collateral for the credit card account. Starting at eight months after the account opening,

-6-

Discover reviews the account to determine if the security deposit can be refunded to the customer and they 
graduate to an unsecured line of credit.

• Discover More card offers 5% Cashback Bonus in categories that change each quarter up to a quarterly

maximum (signing up is required). Customers earn .25% Cashback Bonus on their first $3,000 on all other
annual purchases and on all warehouse purchases, and 1% Cashback Bonus on purchases over $3,000.

• Discover it Business card offers 1.5% Cashback Bo

s

nus on all purchases.

Protection Products 

We currently sell an identity theft protection product, and we service and maintain existing enrollments of the

payment and wallet protection products detailed below for our credit card customers.

•

•

Identity Theft Protection. The most comprehensive identity theft monitoring product includes an initial credit
report, credit bureau report monitoring at the three major credit bureaus, prompt alerts to key changes to credit
bureau files that help customers spot possible identity theft quickly, internet surveillance to monitor multiple
credit and debit card numbers and social security numbers on suspicious websites, identity theft insurance of
$1,000,000 to cover certain out-of-pocket expenses due to identity theft, and access to knowledgeable
professionals who can help resolve issues.

Payment Protection. This product allows customers to suspend their minimum payments due for up to two years,
depending on the qualifying event and product level, when certain qualifying life events occur. While on
benefit, customers have no minimum monthly payment, and are not charged interest, late fees or the fees for
the product. This product covers a variety of different events, such as unemployment, disability, natural
disasters or other life events, such as marriage or birth of a child. Depending on the product level and
availability under state laws, outstanding balances up to $10,000 or $25,000, are cancelled in the event of
death.

• Wallet Protection.

 This product offers one-call convenience if a customer’s wallet is lost or stolen, including

WW
requesting cancellation and replacement of the customer’s credit and debit cards, monitoring the customer’s
credit bureau reports at the three major credit bureaus for 180 days and alerting them to key changes to their
credit files, and providing up to $100 to replace the customer’s wallet or purse.

Brand and Advertising Management 

We maintain a full-service marketing department charged with delivering integrated mass and direct 

communications to foster customer engagement with our products and services. We also leverage strategic partnerships 
with sponsorship properties such as the NHL and the Big Ten Conference to help drive loan growth. Our brand team 
utilizes consumer insights and market intelligence to define our mass communication strategy, create multi-channel 
advertising messages and develop marketing partnerships with sponsorship properties. This work is performed in house 
as well as with a variety of external agencies and vendors.

Customer Service

Our credit card customers have the option to manage their accounts online via Discover.com, through Discover 

Mobile applications and by calling our U.S.-based customer service personnel. Our digital solutions offer a range of 
benefits, which may include:

• Access to overall credit health tools such as Credit Scorecard, Freeze it, Social Security Number Alerts and

New Account Alerts;

• Customer service via multiple communication channels, including messaging, chat and 24/7 customer service

by telephone; and

•

Proactive notifications via email, text messaging and in-app messaging for monitoring transaction activity and
account security.

Our student loan, personal loan, home equity loan and deposit product customers can utilize our online account 

services to manage their accounts and to use interactive tools and calculators.

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Processing Services 

Our processing services cover four functional areas: card personalization, print/mail, remittance processing and 

document processing. Card personalization is responsible for the mailing of credit and debit cards for new accounts, 
replacements and reissues. Print/mail specializes in statement and letter printing and mailing. Remittance processing 
handles account payments and check processing. Document processing handles hard-copy forms, including new 
account applications.

Fraud Prevention

We monitor our customers’ accounts to help prevent, detect, investigate and resolve fraud. Our fraud prevention

processes are designed to protect the security of cards, applications and accounts in a manner consistent with our 
customers’ needs to easily acquire and use our products. Prevention systems monitor the authorization of application
information, verification of customer identity, sales, processing of convenience and balance transfer checks, and 
electronic transactions. 

Each credit and debit card transaction is subject to screening, authorization and approval through externally 
developed and proprietary POS decision systems and each transaction for a deposit account is subject to screening and
approval through a dynamic transaction evaluation and scoring methodology. We use a variety of techniques that help 
identify and halt fraudulent transactions, including adaptive models, rules-based decision-making logic, report analysis,
data integrity checks and manual account reviews. We manage accounts identified by the fraud detection system 
through technology that integrates fraud prevention and customer service. Strategies are subject to regular review and
enhancement to enable us to respond quickly to changing conditions as well as to protect our customers and our 
business from emerging fraud activity.

Discover Network Operations

We support our merchants through a merchant acquiring model that includes direct relationships with large 
merchants in the United States and arrangements with merchant acquirers generally for small- and mid-size merchants.
In addition to our U.S.-based merchant acceptance locations, Discover Network cards also are accepted at many 
locations in Canada, Mexico, the Caribbean, China, Japan and a growing number of countries around the world on 
the Diners Club network, or through reciprocal acceptance arrangements made with international payment networks
(i.e., network-to-network).

We maintain direct relationships with most of our large merchant accounts, which enables us to benefit from joint 

marketing programs and opportunities and to retain the entire discount revenue from the merchants. The terms of our 
direct merchant relationships are governed by merchant services agreements. These agreements are also accompanied 
by additional program documents that further define our network functionality and requirements, including operating 
regulations, technical specifications and dispute rules. To enable ongoing improvements in our network’s functionality 
and in accordance with industry convention, we publish updates to our program documents on a semi-annual basis.

Discover Network services the majority of its small- and mid-size merchant portfolios through third-party 
merchant acquirers to allow such acquirers to offer a comprehensive payments processing package to such merchants. 
Merchants also can apply to our merchant acquirer partners directly to accept Discover Network cards through the
acquirers’ integrated payments solutions. Merchant acquirers provide merchants with consolidated servicing for 
Discover, Visa and MasterCard transactions, resulting in streamlined statements and customer service for merchants, 
and reduced costs for us. These acquirer partners also perform credit evaluations and screen applications against 
unacceptable business types and the Office of Foreign Asset Control Specifically Designated Nationals list.

Discover Network operates systems and processes that seek to ensure data integrity, prevent fraud and ensure 

compliance with our operating regulations. Our systems evaluate incoming transaction activity to identify abnormalities
that require investigation and fraud mitigation. Designated Discover Network personnel are responsible for validating 
compliance with our operating regulations and law, including enforcing our data security standards and prohibitions
against illegal or otherwise unacceptable activities. Discover Network is a founding and current member of the Payment 
Card Industry Security Standards Council, LLC (the “Council”) and is working to expand the adoption of the Council’s 
security standards globally for merchants and service providers that store, transmit or process cardholder data.

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Technology

We provide technology systems processing through a combination of owned and hosted data centers and the use 

of third-party vendors. These data centers support our payment networks, provide customers with access to their 
accounts and manage transaction authorizations, among other functions. Discover Network works with a number of 
vendors to maintain our connectivity in support of POS authorizations. This connectivity also enables merchants to
receive timely payment for their Discover Network card transactions.

Our approach to technology development and management involves both third-party and in-house resources. We 
use third-party vendors for basic technology services (e.g., telecommunications, hardware and operating systems) as well 
as for processing and other services for our direct banking and payment services businesses. We subject each vendor to 
a formal approval process, which includes among other things a security assessment, to ensure that the vendor can assist 
us in maintaining a cost-effective and reliable technology platform. We use our in-house resources to build, maintain
and oversee some of our technology systems. We believe this approach enhances our operations and improves cost 
efficiencies.

Seasonality

In our credit card business, we experience fluctuations in transaction volumes and the level of loan receivables as 

a result of higher seasonal consumer spending and payment patterns around the winter holidays, summer vacations 
and back-to-school periods. In our student loan business, our loan disbursements peak at the beginning of a school’s 
academic semester or quarter. Although there is a seasonal impact to transaction volumes and the levels of credit card
and student loan receivables, seasonal trends have not caused significant fluctuations in our results of operations or 
credit quality metrics between quarterly and annual periods.

Revenues in our Diners Club business are generally higher in the first half of the year as a result of Diners Club’s
tiered pricing system where licensees qualify for lower royalty rate tiers as cumulative volume grows during the course 
of the year.

Competition

We compete with other consumer financial services providers, including non-traditional providers such as

financial technology firms and payment networks on the basis of a number of factors, including brand, reputation,
customer service, product and service offerings, incentives, pricing and other terms. Our credit card business also 
competes on the basis of reward programs and merchant acceptance. We compete for accounts and utilization with
cards issued by other financial institutions (including American Express, Bank of America, JPMorgan Chase, Capital
One and Citi) and, to a lesser extent, businesses that issue their own private label cards or otherwise extend credit to 
their customers. In comparison to our largest credit card competitors, our strengths include cash rewards, conservative 
portfolio management and strong customer service. Competition based on rewards and other card features and benefits 
continues to be strong. Our student loan product competes for customers with Sallie Mae and Wells Fargo, as well as 
other lenders that offer private student loans. Our personal loan product competes for customers primarily with Wells 
Fargo, Citi and non-traditional lenders, including financial technology firms and peer to peer lenders. Our home equity 
loan product faces competition primarily from traditional branch lending institutions, credit unions and other home
equity installment lenders, as well as providers of cash-out refinance loans and home equity lines of credit.

Although our student and personal loan receivables have increased, our credit card receivables continue to 
represent a majority of our receivables. The credit card business is highly competitive. Some of our competitors offer a 
wider variety of financial products than we do, which may currently position them better among customers who prefer 
to use a single financial institution to meet all of their financial needs. Some of our competitors enjoy greater financial
resources, diversification and scale than we do, and are therefore able to invest more in initiatives and technology to 
attract and retain customers, such as advertising, targeted marketing, account acquisitions and pricing offerings in
interest rates, annual fees, reward programs and low-priced balance transfer programs. In addition, some of our 
competitors have assets such as branch locations and co-brand relationships that may help them compete more 
effectively. Another competitive factor in the credit card business is the increasing use of debit cards as an alternative to 
credit cards for purchases.

Because most domestically-issued credit cards, other than those issued on the American Express network, are

issued on the Visa and MasterCard networks, most other card issuers benefit from the dominant market share of Visa
and MasterCard. The former exclusionary rules of Visa and MasterCard limited our ability to attract merchants and
credit and debit card issuers, contributing to Discover not being as widely accepted in the U.S. as Visa and 

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MasterCard. Merchant acceptance of the Discover card has increased in the past several years, both in the number of 
merchants enabled for acceptance and the number of merchants actively accepting Discover. We continue to make 
investments in expanding Discover and Diners Club acceptance in key international markets where an acceptance gap 
exists. 

In our payment services business, we compete with other networks for volume and to attract network partners to 
issue credit, debit and prepaid cards on the Discover, PULSE and Diners Club networks. We generally compete on the 
basis of customization of services and various pricing strategies, including incentives and rebates. We also compete on
the basis of issuer fees, fees paid to networks (including switch fees), merchant acceptance, network functionality,
customer perception of service quality, brand image, reputation and market share. The Diners Club and Discover 
networks’ primary competitors are Visa, MasterCard and American Express, and PULSE’s network competitors include 
Visa’s Interlink, MasterCard’s Maestro and First Data’s STAR. American Express is a particularly strong competitor to 
Diners Club as both cards target international business travelers. As the payments industry continues to evolve, we are 
also facing increasing competition from financial technology firms and alternative payment solutions, which leverage 
new technologies and a customer’s existing deposit and credit card accounts and bank relationships to create payment 
or other fee-based solutions. 

In our direct-to-consumer deposits business, we have acquisition and servicing capabilities similar to other large 
direct banks, including Ally, American Express, Barclays, Capital One (360), Goldman Sachs, Synchrony and USAA. 
We compete with traditional banks and credit unions that source deposits through branch locations and direct 
channels. We seek to differentiate our deposit product offerings on the basis of brand reputation, digital experience,
customer service and value. 

For more information regarding the nature of and the risks we face in connection with the competitive 

environment for our products and services, see “Risk Factors — Strategic Business Risk.”

Intellectual Property

We use a variety of methods, such as trademarks, patents, copyrights and trade secrets, to protect our intellectual

property. We also place appropriate restrictions on our proprietary information to control access and prevent 
unauthorized disclosures. Our Discover, PULSE and Diners Club brands are important assets, and we take steps to 
protect the value of these assets and our reputation.

Employees

As of December 31, 2018, we employed approximately 16,600 individuals. 

Risk Management

Our business exposes us to strategic (including reputational), credit, market, liquidity, operational, compliance 

and legal risks. We use an enterprise-wide risk management framework to identify, measure, monitor, manage and
report risks that affect or could affect the achievement of our strategic, financial and other objectives.

Enterprise Risk Management Principles 

Our enterprise risk management philosophy is expressed through five key principles that guide our approach to

risk management: Comprehensiveness, Accountability, Independence, Defined Risk Appetite and Transparency.

Comprehensiveness

We seek to maintain a comprehensive risk management framework for managing risk enterprise-wide, including 

policies, risk management processes, monitoring and testing, and reporting. Our framework is designed to be 
comprehensive with respect to our business units and their control and support functions, and across all risk types.

Accountability

We structure accountability across three lines of defense along the principles of risk management execution,

oversight and independent validation. As the first line of defense, our business units seek to manage the risks to which
they are exposed as a result of their activities, including those risks arising from activities that have been outsourced to 
third parties. The principles apply across all businesses and risk types and guide the definition of specific roles and
responsibilities.

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Independence

Our second and third lines of defense, which are comprised of risk and control functions, operate independent of 

the business units. The second line of defense includes our corporate risk management (“CRM”) department, which is 
led by our Chief Risk Officer (“CRO”), who is appointed by our Board of Directors. The CRM department sets risk 
management standards and policies that are consistent with the size and complexity of our business, industry practices 
and applicable legal and regulatory requirements. The CRO is accountable for providing our Board of Directors and 
executive management with an independent perspective on: the risks to which we are exposed; how well management 
is identifying, assessing and managing risk; and the capabilities we have in place to manage risks across the 
enterprise. Our internal audit department, as the third line of defense, performs periodic, independent reviews and tests 
compliance with risk management policies, procedures and standards across the Company. It also periodically reviews 
the design and operating effectiveness of our risk management program and processes, including the independence 
and effectiveness of our CRM function, and reports the results to our Audit Committee of the Board of the Directors 
(“Audit Committee”) and, where appropriate, the Risk Oversight Committee of the Board of Directors (“Risk Oversight 
Committee”).

Defined Risk Appetite

We operate within a risk appetite framework approved by our Board of Directors, which guides an acceptable 

level of risk-taking, considering desired financial returns and other objectives. To that end, limits and escalation 
thresholds are set consistent with the risk appetite approved by our Board of Directors.

Transparency

We seek to provide transparency of exposures and outcomes, which is core to our risk culture. We provide this 
risk transparency through our risk committee structure and standardized processes for escalating issues and reporting. 
This is accomplished at several levels within the organization, including quarterly meetings held by our Risk Committee 
and quarterly reports to the Risk Oversight Committee and Audit Committee, as well as regular reporting to our Risk 
subcommittees commensurate with the needs of our businesses. Further, our CRO is a member of the Company’s 
Executive Committee.

Enterprise Risk Management Governance Structure 

Our governance structure is based on the principle that each line of business is responsible for managing risks 

inherent in its business with appropriate oversight from our senior management and Board of Directors. Various 
committees are in place to oversee the management of risks across our Company. We seek to apply operating 
principles consistently to each committee. These operating principles are detailed in committee charters, which are 
approved by the Risk Committee. Our banking subsidiaries have their own risk governance, compliance, auditing and 
other requirements. Our risk governance framework is implemented such that bank-level risk governance requirements 
are satisfied as well.

Board of Directors

Our Board of Directors (i) approves certain risk management policies, (ii) approves our capital targets and goals, 

(iii)(cid:1)approves our risk appetite framework, (iv) monitors our strategic plan, (v) appoints our CRO and other risk(cid:1)
governance function leaders, as appropriate, (vi) receives reports on any exceptions to the Enterprise Risk Management(cid:1)
policy and (vii) receives and reviews regulatory examination reports. The Board of Directors receives reports from the(cid:1)
Audit Committee and Risk Oversight Committee on risk management matters and from the Compensation and(cid:1)
Leadership Development Committee on risks associated with compensation and leadership development.

Risk Oversight Committee of our Board of Directors

Our Risk Oversight Committee is responsible for overseeing our risk management policies and the operations of 

our enterprise-wide risk management framework and our capital planning, liquidity risk management and resolution 
planning activities. The Committee is responsible for (i) approving and periodically reviewing our risk management 
policies, (ii) overseeing the operation of our policies and procedures for establishing our risk management governance, 
risk management procedures and risk-control infrastructure, (iii) overseeing the operation of processes and systems for 
implementing and monitoring compliance with such policies and procedures, (iv) reviewing and making 
recommendations to the Board of Directors, as appropriate, regarding the Company’s risk management framework, key 
risk management policies and the Company’s risk appetite and tolerance, (v) receiving and reviewing regular reports 

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from our CRO on risk management deficiencies and emerging risks, the status of and changes to risk exposures, 
policies, procedures and practices, and the steps management has taken to monitor and control risk exposures, (vi) 
receiving reports on compliance with our risk appetite and limit structure and risk management policies, procedures and 
controls, (vii) overseeing capital planning, liquidity risk management and resolution planning related activities, and (viii) 
sharing information, liaising and meeting in joint session with the Audit Committee (which it may do through the Chairs 
of the Committees) as necessary or desirable to help ensure that the committees have received the information necessary 
to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters.

Audit Committee of our Board of Directors

With respect to the enterprise risk management framework, our Audit Committee is responsible for the following: 

(i)(cid:1)discussing policies with respect to risk assessment and management, (ii) receiving and reviewing reports from our(cid:1)
CRO and other members of management as the Committee deems appropriate on the guidelines and policies for(cid:1)
assessing and managing our exposure to risks, the corporation’s major financial risk exposures and the steps(cid:1)
management has taken to monitor and control such exposures, and (iii) sharing information and liaising with the Risk(cid:1)
Oversight Committee as necessary or desirable to help ensure that the committees have received the information(cid:1)
necessary to permit them to fulfill their duties and responsibilities with respect to oversight of risk management matters.

Compensation and Leadership Development Committee of our Board of Directors

Our Compensation and Leadership Development Committee is responsible for overseeing risk management 
associated with the Company’s compensation and leadership development practices. The Committee receives reporting 
regarding the Company’s compensation practices and evaluates whether these practices encourage excessive risk-
taking. As a part of its reviews, the Committee considers input from our CRO and takes into account risk outcomes. The 
Compensation and Leadership Development Committee receives reporting regarding talent management practices and 
evaluates risks associated with leadership development and succession planning.

Risk Committee

Our Risk Committee is an executive management-level committee that establishes a comprehensive enterprise risk 

management program, which includes (i) providing a regular forum for representatives of our different functional 
groups to identify and discuss key risk issues and to recommend to senior management actions that should be taken to 
manage the level of risk taken by the business lines, (ii) establishing and overseeing an enterprise-wide approach to risk 
management through the development of our Enterprise Risk Management Policy and the associated oversight 
framework for the identification, measurement, monitoring, management and reporting of enterprise risk, (iii) 
communicating our risk appetite and philosophy, including establishing limits and thresholds for managing enterprise-
wide risks, and (iv) reviewing, on a periodic basis, our aggregate enterprise-wide risk exposures and the effectiveness 
of risk identification, measurement, monitoring, management and reporting policies and procedures, and related 
controls within the lines of business.

Our Risk Committee has formed and designated a number of committees to assist it in carrying out its 

responsibilities. These committees, made up of representatives from senior levels of management, escalate issues to our 
Risk Committee as guided by escalation thresholds. These risk management committees include the Discover Bank Credit 
Committee, Asset/Liability Management Committees (Discover Financial Services and Discover Bank), the Counterparty 
Credit Committee, the New Initiatives Committee, the Operational Risk Committee, the Capital Planning Committee, the 
Compliance Committee, the Information Security Executive Committee and the Human Resources Committee.

Chief Executive Officer

The Chief Executive Officer (“CEO”) is ultimately responsible for risk management within our Company. In that 

capacity, the CEO establishes a risk management culture throughout the Company and ensures that businesses operate 
in accordance with this risk culture.

Business Unit Heads

Our business unit heads are responsible for managing risk associated with pursuit of their strategic, financial and 

other business objectives. Business unit heads are responsible for (i) complying with all risk limits and risk policies, (ii) 
identifying risks and implementing appropriate controls, (iii) explicitly considering risk when developing strategic plans, 
budgets and new products, (iv) implementing appropriate controls when pursuing business strategies and objectives, (v) 
ensuring business units implement business unit processes, controls and monitoring to support corporate model risk 

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management standards such as documentation standards and reporting standards, (vi) coordinating with CRM to 
produce relevant, sufficient, accurate and timely risk reporting that is consistent with the processes and methodology 
established by CRM, (vii) ensuring sufficient financial resources and qualified personnel are deployed to control the risks 
inherent in the business activities, and (viii) designating, in consultation with the CRO, a Business Risk Officer to assist 
with the above and to perform the specific duties described below.

Business Risk Officers work in conjunction with the business unit head to implement a business risk management 

program that satisfies business unit needs and adheres to corporate policy, standards and risk architecture.

Chief Risk Officer

As a member of the Company’s senior management team, the CRO chairs our Risk Committee. In addition, the 
CRO has oversight responsibility to establish the CRM function with capabilities to exercise its mandate across all risk 
categories. Our CRO reports directly to our Risk Oversight Committee and administratively to the CEO. Our CRO 
provides an independent view on the key risks to which our Company is exposed to our Risk Committee, our Audit 
Committee, our Risk Oversight Committee and our Board of Directors.

Corporate Risk Management 

The CRM department is led by the CRO and supports business units by providing objective oversight of our risk 

profile to help ensure that risks are managed, aggregated and reported to our Risk Committee, our Risk Oversight 
Committee and our Audit Committee. The CRM department participates in our Risk Committee and sub-committee 
meetings to provide an enterprise-wide perspective on risk, governance matters, policies and risk thresholds. The CRM 
department is comprised of operational, consumer credit, counterparty credit, and market and liquidity risk oversight 
functions. In addition, the CRM department has enterprise risk management, corporate compliance, third-party risk 
management, model risk management, information security and risk and insurance management frameworks to 
manage potential risk that might arise within these respective areas.

Credit Risk Management 

Credit Risk Management is responsible for (i) developing, validating and implementing credit policy criteria and 
predictive loan origination and servicing models in order to optimize the profitability of Company lending activities, (ii) 
ensuring adherence to our credit risk policies and approval limits, and that departmental policies, procedures, and 
internal controls are consistent with the standards defined by the Company, (iii) ensuring that we manage credit risk 
within approved limits, and (iv) monitoring performance for both new and existing consumer loan products and 
portfolios.

Law Department

The CRM department collaborates and coordinates closely with other risk and control functions in exercising its 
oversight responsibilities, in particular with the law department. This department plays a significant role in managing 
our legal risk by, among other things, identifying, interpreting and advising on legal and regulatory risks. Our law 
department participates in meetings of the Risk Committee and the sub-committees of the Risk Committee in order to 
advise on legal risks and to inform the committees of any relevant legislative and regulatory developments.

Internal Audit Department

Our internal audit department performs periodic, independent reviews and testing of compliance with risk 

management policies and standards across the Company, as well as assessments of the design and operating 
effectiveness of these policies and standards. The internal audit department also validates that risk management controls 
are functioning as intended by reviewing and evaluating the design and operating effectiveness of the CRM program 
and processes, including the independence and effectiveness of the CRM function. The results of such reviews are 
reported to our Audit Committee.

Risk Categories 

We are exposed to a broad set of risks in the course of our business activities due to both internal and external 

factors, which we segment into six major risk categories. The first five are defined to be broadly consistent with 
guidance published by the Federal Reserve and the Basel Committee on Banking Supervision (“BCBS”): credit, market, 
liquidity, operational, compliance and legal risk. We recognize the sixth, strategic risk, as a separate risk category. We 

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evaluate the potential impact of a risk event on the Company by assessing the financial impact, the impact to our 
reputation, the legal and regulatory impact, and the client/customer impact. In addition, we have established various 
policies to help govern these risks.

Credit Risk

Our credit risk arises from the potential that a borrower or counterparty will fail to perform on an obligation. Our 

credit risk includes consumer credit risk and counterparty credit risk. Consumer credit risk is primarily incurred by 
Discover Bank through the issuance of (i) unsecured credit including credit cards, student loans and personal loans and 
(ii)(cid:1)secured credit including secured credit cards, deposit secured loans and home equity loans. Counterparty credit risk(cid:1)
is incurred through a number of activities including settlement, certain marketing programs, treasury and asset/liability(cid:1)
management, network incentive programs, guarantors, vendor relationships and insurers.

Market Risk

Market risk is the risk to our financial condition resulting from adverse movements in market rates or prices, such 
as interest rates, foreign exchange rates, credit spreads or equity prices. Given the nature of our business activities, we 
are exposed to various types of market risk; in particular interest rate risk, foreign exchange risk and other risks that 
arise through the management of our investment portfolio. Interest rate risk is more significant relative to other market 
risk exposures and results from potential mismatches in the repricing term of assets and liabilities (yield curve risk) and 
volatility in reference rates used to reprice floating-rate structures (basis risk). Foreign exchange risk is primarily 
incurred through exposure to currency movements across a variety of business activities and is derived, specifically, 
from the timing differences between transaction authorizations and settlement.

Liquidity Risk

Liquidity risk is the risk that we will be unable to meet our obligations as they become due because of an inability 

to liquidate assets or obtain adequate funding, or an inability to easily unwind or offset specific exposures without 
significantly lowering market prices because of inadequate market depth or market disruptions. 

Operational Risk

Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and 

systems or from external events. Operational risk is inherent in all our businesses. Operational risk categories 
incorporate all of the operational loss event-type categories set forth by the BCBS, which include the following: (i) 
internal fraud, (ii) external fraud, (iii) employment practices and workplace safety, (iv) clients, products and business 
practices, (v) damage to physical assets, (vi) business disruption and system failures, and (vii) execution, delivery and 
process management.

Compliance Risk

Compliance risk is the operational risk of legal or regulatory sanctions, financial loss or damage to reputation 
resulting from failure to comply with laws, regulations, rules, other regulatory requirements, or codes of conduct and 
other standards of self-regulatory organizations applicable to us. Compliance risk exposures are actively and primarily 
managed by our business units in conjunction with our compliance department. Our compliance program governs the 
management of compliance risk. Our Risk Committee and Compliance Committee oversee our compliance program. 

Legal Risk

Legal risk arises from the potential that unenforceable contracts, lawsuits or adverse judgments can disrupt or 

otherwise negatively affect our operations or condition. These risks are inherent in all of our businesses. Legal risk 
exposures are actively and primarily managed by our business units in conjunction with our law department. Our Risk 
Committee and Compliance Committee oversee our legal risk management. Specifically, the law department is 
responsible for providing advice, interpreting and identifying developments regarding laws, regulations, regulatory 
guidance and litigation, and setting standards for communicating relevant changes to corporate compliance, the 
business and internal audit. The law department also identifies and communicates legal risk associated with new 
products and business practices.

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Strategic Risk

Strategic risk is the risk that our strategies and the execution of those strategies do not produce the desired 
outcome, resulting in a negative impact on our enterprise value. This risk can be driven by internal and external factors, 
including (i) our business model, market position, selection of strategies and execution of those strategies and (ii) 
competitor strategies, emergence of new competitors, emergence of new technologies, changing consumer preferences 
or other market factors.

Our Risk Committee actively manages strategic risk through the development, implementation and oversight of 
our business strategies, including the development of budgets and business plans. Our business units take on and are 
accountable for managing strategic risk in pursuit of their objectives.

Enterprise Risk Management Framework

Our enterprise risk management principles are executed through a risk management framework that is based 

upon industry standards for managing risk and controls. While the detailed activities vary by risk type, there are 
common process elements that apply across risk types. We seek to apply these elements consistently in the interest of 
effective and efficient risk management. This framework seeks to link risk processes and infrastructure with the 
appropriate risk oversight to create a risk management structure that raises risk awareness, reduces impact of potential 
risk events, improves business decision-making and increases operational efficiency.

Risk Identification

We seek to identify potential exposures that could adversely affect our ability to successfully implement strategies 
and achieve objectives. To ensure that the full scale and scope of risk exposures from firm-wide activities are identified, 
we seek to identify risk exposures based on (i) significant enterprise-level risks that are strategic, systemic, or emerging 
in nature, (ii) granular risk exposures from on-balance sheet and off-balance sheet positions, including concentrations, 
and (iii) risk exposures from initiatives focused on new, expanded, customized, or modified products, services, and 
processes.

Risk exposures identified through these three approaches are consolidated to create a comprehensive risk 
inventory. This inventory is leveraged by a number of processes within the Company including stress scenario design 
and stress testing, capital planning, risk appetite setting and risk modeling. The risk inventory is reviewed and approved 
at least annually by the Risk Committee while the sub-committees review the risks mapped to the relevant risk categories 
for transparency and comprehensive coverage of risk exposures.

Risk Measurement 

Our risk measurement process seeks to ensure that the identified risk exposures are appropriately assessed. Risk 

measurement techniques appropriate to the risk category, including econometric modeling, statistical analysis, peer 
benchmarking and qualitative assessments, are employed to measure our material risk exposures.

Risk Monitoring

Our risks are monitored through an integrated monitoring framework consisting of risk appetite metrics and key 

risk indicators (“KRIs”). These metrics are established to monitor changes in our risk exposures and external 
environment. Risk appetite metrics are used to monitor the overall risk profile of the Company by setting risk boundaries 
and expectations through quantitative limits and qualitative expressions. We use KRIs to monitor our risk profile through 
direct or indirect alignment with the risk appetite limits.

These metrics enable monitoring of risk by business management and by measuring risk and performance data 
against risk appetite and KRI escalation thresholds that are updated periodically. Escalation procedures are in place to 
notify the appropriate governance committees in the event of any actual risk limit breaches or potential upcoming 
breaches.

Risk Management

We have policies and a defined governance structure in place to manage risks. In the event of a risk exposure 

exceeding established thresholds, management determines appropriate response actions. Responses, which may be 
taken by the Board of Directors, the Risk Oversight Committee, the Audit Committee, the Risk Committee, sub-
committees or the CRO, or business units, may include (i) actions to directly mitigate or resolve risk, (ii) actions to 

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terminate any activities resulting in an undesired or unintended risk position, or (iii) actions to prevent, avoid, modify, 
share or accept a risk position (or activity prior to its occurrence).

Risk Reporting

As the constituents primarily responsible for proactively managing the risks to which they are exposed, our 

business units and risk and control functions periodically report to the governance committees. The CRM function is 
responsible for independent reporting on risk matters to various constituencies across the Company on a periodic basis. 
The CRM department periodically provides risk management reporting to the Risk Committee, the Audit Committee, the 
Risk Oversight Committee and the Board of Directors.

Stress Testing

We use stress testing to better understand the range of potential risks and their impacts to which the Company is 

exposed. A stress testing framework is employed to provide a comprehensive, integrated and forward-looking 
assessment of material risks and vulnerabilities. Stress test results inform on business strategy, risk appetite setting, and 
decisions related to capital actions, contingency capital plans, liquidity buffer, contingency funding plans and balance 
sheet positioning. Our stress testing framework utilizes a risk inventory, which covers our risk exposures across our 
defined risk categories. The risk inventory provides a comprehensive view of our vulnerabilities capturing current and 
emerging risks from management’s view, granular risks relevant to business units and emerging risks associated with 
new initiatives.

Risk Management Review of Compensation 

We believe in a pay for performance philosophy, which considers performance across the Company, business 
segments and individual performance, as appropriate, as well as the long-term interests of our shareholders and the 
safety and soundness of the Company. We design compensation to be competitive relative to our peers to attract, retain 
and motivate our employees. In addition to being competitive in the markets in which we compete for talent and 
encouraging employees to achieve objectives set out by our management, our compensation programs are designed to 
balance an appropriate mix of compensation components to align the interests of employees with the long-term interests 
of shareholders and the safety and soundness of the Company.

The design and administration of our compensation programs provide incentives that seek to appropriately 
balance risk and financial results in a manner that does not incentivize employees to take imprudent risks, is compatible 
with effective controls and enterprise-wide risk management, and is supported by strong corporate governance, 
including oversight by our Board of Directors and the Compensation and Leadership Development Committee of our 
Board of Directors.

Risk Appetite and Strategic Limit Structure

Risk appetite is defined as the aggregate level and the type of risks we are willing to accept or avoid in order to 

achieve our strategic objectives. Risk appetite expressions are consistent with the Company’s aspirations, mission 
statement and core values, and also serve as tools to preclude business activities that could have a negative impact on 
our reputation.

Our risk appetite statement consists of both quantitative limits and qualitative expressions to recognize a range of 

possible outcomes and set boundaries for proactive management of risks. Limits focus on achieving business 
performance and earnings objectives, and on maintaining capital and franchise resiliency under stress conditions 
featuring combined impacts of macroeconomic and idiosyncratic shocks. These limits and expressions are revised at 
least annually or as warranted by changes in business strategy, risk profile and external environment. 

Management and our CRM department monitor approved limits and escalation triggers to ensure that the 
business is operating within the approved risk appetite. Risk limits are monitored and reported on to various risk sub-
committees, the Risk Committee and our Board of Directors, as appropriate. Through ongoing monitoring of risk 
exposures, management seeks to be able to identify appropriate risk response and mitigation strategies in order to 
react dynamically to changing conditions.

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Capital Planning

Risk exposures identified through the risk identification process across risk categories and risk types are 
consolidated to create a comprehensive risk inventory. This inventory is leveraged by a number of processes within the 
Company including stress scenario design, capital planning, risk appetite setting and risk modeling. The risk inventory is
reviewed and approved at least annually by the Capital Planning Committee along with the Risk Committee and sub-
committees to ensure transparency and comprehensive coverage of risk exposures. Our capital planning and 
management framework encompasses forecasting capital levels, establishing capital targets, monitoring capital 
adequacy against targets, maintaining appropriate contingency capital plans and identifying strategic options to deploy 
excess capital. 

Supervision and Regulation

General

Our operations are subject to extensive regulation, supervision and examination under U.S. federal, state and 

foreign laws and regulations. As a bank holding company under the Bank Holding Company Act of 1956 and a
financial holding company under the Gramm-Leach-Bliley Act, we are subject to the supervision, examination and
regulation of the Federal Reserve. As a large provider of consumer financial services, we are subject to the supervision, 
examination and regulation of the Consumer Financial Protection Bureau (the “CFPB”).

We operate two banking subsidiaries, each of which is in the United States. Discover Bank, our main banking 

subsidiary, offers credit card loans, student loans, personal loans and home equity loans as well as certificates of 
deposit, savings and checking accounts and other types of deposit accounts. Discover Bank is chartered and regulated
by the Office of the Delaware State Bank Commissioner (the “Delaware Commissioner”), and is also regulated by the 
FDIC, which insures its deposits up to applicable limits and serves as the bank’s primary federal banking regulator. Our 
other bank, Bank of New Castle, is also chartered and regulated by the Delaware Commissioner and insured and
regulated by the FDIC.

Bank Holding Company Regulation

Permissible activities for a bank holding company include owning a bank as well as those activities that are so 
closely related to banking as to be a proper incident thereto, such as consumer lending and other activities that have 
been approved by the Federal Reserve by regulation or order. Certain servicing activities are also permissible for a 
bank holding company if conducted for or on behalf of the bank holding company or any of its affiliates. Impermissible 
activities for bank holding companies include activities that are related to commerce such as retail sales of nonfinancial
products.

A financial holding company and the non-bank companies under its control are permitted to engage in activities 

considered financial in nature, incidental to financial activities, or complementary to financial activities, if the Federal
Reserve determines that such activities pose no risk to the safety or soundness of depository institutions or the financial
system in general. Being a financial holding company under the Gramm-Leach-Bliley Act requires that the depository 
institutions that we control meet certain criteria, including capital, management and Community Reinvestment Act 
requirements. In addition, under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank 
Act”) we are required to meet certain capital and management criteria to maintain our status as a financial holding
company. Failure to meet the criteria for financial holding company status results in restrictions on new financial 
activities or acquisitions and could require discontinuance of existing activities that are not generally permissible for 
bank holding companies. 

Federal Reserve regulations and the Federal Deposit Insurance Act (the “FDIA”), as amended by the Dodd-Frank 

Act, require that bank holding companies serve as a source of strength to each subsidiary bank and commit resources
to support each subsidiary bank. This support may be required at times when a bank holding company may not be 
able to provide such support without adversely affecting its ability to meet other obligations.

The Dodd-Frank Act addresses risks to the economy and the payments system, especially those posed by large 

systemically significant financial firms. The Economic Growth, Regulatory Relief, and Consumer Protection Act 
(“EGRRCPA”) amended the Dodd-Frank Act by raising the asset size thresholds for certain enhanced prudential 
standards. Under the amended statute, the Federal Reserve is authorized to impose certain enhanced prudential
standards on bank holding companies with total assets of at least $100 billion, including Discover, only after issuing a
new regulation or order based on a risk-based determination. The Federal Reserve and other federal banking agencies
issued proposals on October 31, 2018, to tailor existing regulations in accordance with the EGRRCPA. The proposals

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were open for public comment until January 22, 2019. The timing and substance of any final rules is currently 
unknown.

On February 5, 2019, the Federal Reserve announced that certain less complex firms subject to Comprehensive 
Capital Analysis and Review (“CCAR”), generally those with total consolidated assets between $100 billion and $250 
billion, have been provided relief from certain components of the Federal Reserve’s capital planning and stress testing 
framework for the 2019 stress test cycle. The Federal Reserve issued a temporary order granting Discover relief from the 
regulatory requirements related to supervisory stress testing and company-run stress testing for the 2019 stress test cycle 
and provided Discover a one-year extension of the requirement to submit a capital plan to the Federal Reserve until 
April 5, 2020. Additionally, Discover is not required to participate in the 2019 CCAR process. Notwithstanding this 
relief, Discover is still required to prepare a capital plan to be approved by its Board of Directors, containing planned 
capital distributions for the period from July 1, 2019 to June 30, 2020. Under the terms of the Federal Reserve’s order, 
Discover’s capital distributions during this period will be limited based on a formula that is largely based on results from 
the Federal Reserve’s 2018 supervisory stress test. The Federal Reserve will continue to review Discover’s capital 
planning and risk management practices through the regular supervisory process and has stated that it will propose a 
final rule to address these matters for the 2020 stress test cycle and beyond. It is currently anticipated based on the 
Federal Reserve’s public statements and its proposed rule issued on October 31, 2018, as discussed above, that 
Discover will be required to submit a capital plan to the Federal Reserve and participate in supervisory stress tests as 
part of the 2020 stress test cycle.

Regulatory developments, findings and ratings could negatively impact our business strategies or require us to: 
limit or change our business practices, restructure our products in ways that we may not currently anticipate, limit our 
product offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for 
services or limit our ability to pursue certain business opportunities and obtain related required regulatory approvals. 
For additional information regarding bank regulatory limitations on acquisitions and investments, see “— Acquisitions 
and Investments.” See Note 19: Litigation and Regulatory Matters to our consolidated financial statements for more 
information on recent matters affecting Discover. Regulatory developments could also influence our strategies, impact 
the value of our assets, or otherwise adversely affect our businesses. For more information regarding the regulatory 
environment and developments under the Dodd-Frank Act, see “Management’s Discussion and Analysis of Financial 
Condition and Results of Operations — Regulatory Environment and Developments” and “Risk Factors.” 

Capital, Dividends and Share Repurchases 

We, Discover Bank and Bank of New Castle are subject to capital adequacy guidelines adopted by federal 

banking regulators, which include maintaining minimum capital and leverage ratios for capital adequacy and higher 
ratios to be deemed “well-capitalized” for other regulatory purposes. We and our subsidiary banks are each required 
to maintain Tier 1 and total capital equal to at least 6% and 8% of our total risk-weighted assets, respectively. We and 
our subsidiary banks are also required to maintain a minimum “leverage ratio” (Tier 1 capital to adjusted total assets) 
of 4% and a common equity Tier 1 capital ratio (common equity Tier 1 capital to total risk-weighted assets) of 4.5%. 
Further, under the Federal Reserve’s annual capital plan requirements, Discover Financial Services is required to 
demonstrate that under stress scenarios we will maintain each of the minimum capital ratios on a pro-forma basis 
throughout the nine-quarter planning horizon.

In addition to the supervisory minimum levels of capital described above, Federal Reserve rules applicable to 

Discover Financial Services require maintenance of the following minimum capital ratios to be considered “well-
capitalized” for certain purposes under Regulation Y (12 CFR 225): (i) a Tier 1 risk-based capital ratio of 6% and (ii) a 
total risk-based capital ratio of 10%. Our banking subsidiaries are required by the FDIC’s Prompt Corrective Action 
rules to maintain the following minimum capital ratios to be considered “well-capitalized”: (i) a common equity Tier 1 
capital ratio of 6.5%; (ii) a Tier 1 risk-based capital ratio of 8%; (iii) a total risk-based capital ratio of 10%; and (iv) a 
Tier 1 leverage ratio of 5%. At December 31, 2018, Discover Financial Services met all requirements to be deemed 
“well-capitalized” pursuant to the applicable regulations. For related information regarding our bank subsidiaries see 
“— FDIA” below.

There are various federal and state law limitations on the extent to which our banking subsidiaries can provide 
funds to us through dividends, loans or otherwise. These limitations include minimum regulatory capital requirements, 
federal and state banking law requirements concerning the payment of dividends out of net profits or surplus, affiliate 
transaction limits and general federal and state regulatory oversight to prevent unsafe or unsound practices. In general, 
federal and applicable state banking laws prohibit, without first obtaining regulatory approval, insured depository 
institutions, such as our banking subsidiaries, from making dividend distributions if such distributions are not paid out of 

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available earnings or would cause the institution to fail to meet applicable capital adequacy standards. For more 
information, see “— FDIA” below. 

Additionally, we are subject to regulatory requirements imposed by the Federal Reserve as part of its stress testing 

framework and its CCAR program. In 2018, Discover was required to submit a capital plan to the Federal Reserve that 
included an assessment of our expected uses and sources of capital over a nine-quarter planning horizon. We 
submitted our capital plan to the Federal Reserve in April 2018 for the 2018 CCAR cycle and received notice in June 
2018 that the Federal Reserve does not object to our proposed capital plan, including share repurchases and planned 
quarterly capital distributions through June 30, 2019. As described above, Discover has been notified that it is not 
required to participate in CCAR or submit to supervisory stress tests for the 2019 stress test cycle. However, Discover’s 
capital distributions for the period between July 1, 2019 and June 30, 2020 will be limited based on a formula that is 
largely based on results from the Federal Reserve’s 2018 supervisory stress test. The Federal Reserve has issued a 
proposed rule, and indicated that it will propose additional rule changes, that will substantially change the stress testing 
and capital planning requirements applicable to Discover for 2020 and beyond. 

For more information, including additional conditions and limits on our ability to pay dividends and repurchase 
our stock, see “— Bank Holding Company Regulation,” “Risk Factors — Credit, Market and Liquidity Risk — We may 
be limited in our ability to pay dividends on and repurchase our stock” and “— We are a holding company and 
depend on payments from our subsidiaries,” “Management’s Discussion and Analysis of Financial Condition and 
Results of Operations — Liquidity and Capital Resources — Capital” and Note 17: Capital Adequacy to our 
consolidated financial statements.

FDIA 

The FDIA imposes various requirements on insured depository institutions. For example, the FDIA requires, 
among other things, the federal banking agencies to take “prompt corrective action” in respect of depository institutions 
that do not meet minimum capital requirements. The FDIA sets forth the following five capital tiers: “well-capitalized,” 
“adequately capitalized,” “undercapitalized,” “significantly undercapitalized” and “critically undercapitalized.” A 
depository institution’s capital tier will depend upon how its capital levels compare with various relevant capital 
measures and certain other factors that are established by regulation. At December 31, 2018, Discover Bank and Bank 
of New Castle met all applicable requirements to be deemed “well-capitalized.” 

The FDIA also prohibits any depository institution from making any capital distributions (including payment of a 

dividend) or paying any management fee to its parent holding company if the depository institution would thereafter be 
“undercapitalized.” “Undercapitalized” institutions are subject to growth limitations and are required to submit a capital 
restoration plan. For a capital restoration plan to be acceptable, among other things, the depository institution’s parent 
holding company must guarantee that the institution will comply with the capital restoration plan. 

If a depository institution fails to submit an acceptable capital restoration plan, it is treated as if it is “significantly 
undercapitalized.” “Significantly undercapitalized” depository institutions may be subject to a number of requirements 
and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to 
reduce total assets, and cessation of receipt of deposits from correspondent banks. “Critically undercapitalized” 
institutions are subject to the appointment of a receiver or conservator.

Each of our banking subsidiaries may also be held liable by the FDIC for any loss incurred, or reasonably 
expected to be incurred, due to the default of the other U.S. banking subsidiary and for any assistance provided by the 
FDIC to the other U.S. banking subsidiary that is in danger of default. 

The FDIA prohibits insured banks from accepting brokered deposits or offering interest rates on any deposits 

significantly higher than the prevailing rate in the bank’s normal market area or nationally (depending upon where the 
deposits are solicited), unless it is “well-capitalized,” or it is “adequately capitalized” and receives a waiver from the 
FDIC. A bank that is less than “well-capitalized” is generally prohibited from paying an interest rate on deposits in 
excess of 75 basis points over the national market average. There are no such restrictions under the FDIA on a bank 
that is “well-capitalized.” As of December 31, 2018, Discover Bank and Bank of New Castle each met the FDIC’s 
definition of a “well-capitalized” institution for purposes of accepting brokered deposits. An inability to accept brokered 
deposits in the future could materially adversely impact our funding costs and liquidity. For more information, see “Risk 
Factors — Credit, Market and Liquidity Risk — An inability to accept or maintain deposits in the future could materially 
adversely affect our liquidity position and our ability to fund our business.” 

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The FDIA also affords FDIC insured depository institutions, such as Discover Bank and Bank of New Castle, the 

ability to “export” interest rates permitted under the laws of the state where the bank is located. Discover Bank and 
Bank of New Castle are both located in Delaware and, therefore, charge interest on loans to out-of-state borrowers at 
rates permitted under Delaware law, regardless of the usury limitations imposed by the state laws of the borrower’s 
residence. Delaware law does not limit the amount of interest that may be charged on loans of the type offered by 
Discover Bank or Bank of New Castle. This flexibility facilitates the current nationwide lending activities of Discover 
Bank and Bank of New Castle. 

The FDIA subjects Discover Bank to deposit insurance assessments. Under the Dodd-Frank Act, in order to bolster 

the reserves of the Deposit Insurance Fund, the minimum reserve ratio set by the FDIC was increased to 1.35% and 
subsequently the FDIC set a reserve ratio of 2%. The Dodd-Frank Act removed the statutory cap for the reserve ratio, 
leaving the FDIC free to set a cap in the future. The FDIC also previously amended its deposit insurance regulations in 
ways that have raised Discover Bank’s cost of deposit insurance. Further increases may occur in the future. 

Acquisitions and Investments

Since we are a bank holding company, and Discover Bank and Bank of New Castle are insured depository 

institutions, we are subject to banking laws and regulations that limit the types of acquisitions and investments that we 
can make. In addition, certain permitted acquisitions and investments that we seek to make are subject to the prior 
review and approval of our banking regulators, including the Federal Reserve and FDIC. Our banking regulators have 
broad discretion on whether to approve proposed acquisitions and investments. In deciding whether to approve a 
proposed acquisition, federal bank regulators will consider, among other factors, the effect of the acquisition on 
competition, our financial condition, and our future prospects, including current and projected capital ratios and levels; 
the competence, experience, and integrity of our management and our record of compliance with laws and regulations; 
the convenience and needs of the communities to be served, including our record of compliance under the Community 
Reinvestment Act; and our effectiveness in combating money laundering. Therefore, results of supervisory activities of 
the banking regulators, including examination results and ratings, can impact whether regulators approve proposed 
acquisitions and investments. Supervisory action related to anti-money laundering and related laws and regulations will 
limit for a period of time our ability to enter into certain types of acquisitions and make certain types of investments. For 
more information on recent matters affecting Discover, see Note 19: Litigation and Regulatory Matters to our 
consolidated financial statements. For information on the challenging regulatory environment, see “Risk Factors.”

In addition, certain acquisitions of our voting stock may be subject to regulatory approval or notice under U.S. 

federal or Delaware state law. Investors are responsible for ensuring that they do not, directly or indirectly, acquire 
shares of our stock in excess of the amount that can be acquired without regulatory approval under the Change in Bank 
Control Act, the Bank Holding Company Act and the Delaware Change in Bank Control provisions, which prohibit any 
person or company from acquiring control of us without, in most cases, the prior written approval of each of the FDIC, 
the Federal Reserve and the Delaware Commissioner. 

Consumer Financial Services 

The relationship between us and our U.S. customers is regulated extensively under federal and state consumer 

protection laws. Federal laws include the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit 
Reporting Act, the Gramm-Leach-Bliley Act, the CARD Act, the Servicemembers Civil Relief Act, the Military Lending Act 
and the Dodd-Frank Act. These and other federal laws, among other things, prohibit unfair, deceptive and abusive 
trade practices, require disclosures of the cost of credit, provide substantive consumer rights, prohibit discrimination in 
credit transactions, regulate the use of credit report information, provide privacy protections, require safe and sound 
banking operations, restrict our ability to raise interest rates, protect customers serving in the military and their 
dependents and subject us to substantial regulatory oversight. The CFPB has rulemaking and interpretive authority under 
the Dodd-Frank Act and other federal consumer financial services laws, as well as broad supervisory, examination and 
enforcement authority over large providers of consumer financial products and services, such as Discover. For more 
information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — 
Regulatory Environment and Developments — Consumer Financial Services.” State and, in some cases, local laws also 
may regulate in these areas, as well as in the areas of collection practices, and may provide other additional consumer 
protections. 

Violations of applicable consumer protection laws can result in significant potential liability in litigation by 

customers, including civil monetary penalties, actual damages, restitution and attorneys’ fees. Federal banking 
regulators, as well as state attorneys general and other state and local consumer protection agencies, also may seek to 

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enforce consumer protection requirements and obtain these and other remedies. Further violations may cause federal 
banking regulators to deny, or delay approval of, potential acquisitions and investments. See “— Acquisitions and 
Investments.”

We are subject to additional laws and regulations affecting mortgage lenders. Federal, state and, in some 
instances, local laws apply to mortgage lending activities. These laws generally regulate the manner in which mortgage 
lending and lending-related activities are conducted, including advertising and other consumer disclosures, payments 
for services and recordkeeping requirements. These laws include the Real Estate Settlement Procedures Act, the Fair 
Credit Reporting Act, the Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Housing Act, the Home 
Mortgage Disclosure Act and various state laws. For more information, see “Management’s Discussion and Analysis of 
Financial Condition and Results of Operations — Regulatory Environment and Developments — Consumer Financial 
Services.”

Payment Networks

We operate the Discover and PULSE networks, which deliver switching and settlement services to financial 
institutions and other program participants for a variety of ATM, POS and other electronic banking transactions. These 
operations are regulated by certain federal and state banking, privacy and data security laws. Moreover, the Discover 
and PULSE networks are subject to examination under the oversight of the Federal Financial Institutions Examination 
Council, an interagency body composed of the federal bank regulators and the National Credit Union Administration. 
In addition, as our payments business has expanded globally through Diners Club, we are subject to government 
regulation in countries in which our networks operate or our cards are used, either directly or indirectly through 
regulation affecting Diners Club network licensees. Changes in existing federal, state or international regulation could 
increase the cost or risk of providing network services, change the competitive environment, or otherwise materially 
adversely affect our operations. The legal environment regarding privacy and data security is particularly dynamic, and 
any unpermitted disclosure of confidential customer information could have a material adverse impact on our business, 
including loss of consumer confidence. 

The Dodd-Frank Act contains several provisions that are relevant to the business practices, network transaction 

volume, revenue and prospects for future growth of PULSE, our debit card network business. The Dodd-Frank Act 
requires that merchants control the routing of debit transactions, and that interchange fees received by certain payment 
card issuers on debit card transactions be “reasonable and proportional” to the issuer’s cost in connection with such 
transactions, as determined by the Federal Reserve. The Dodd-Frank Act also requires the Federal Reserve to restrict 
debit card networks and issuers from requiring debit card transactions to be processed solely on a single payment 
network or two or more affiliated networks, or from requiring that transactions be routed over certain networks. For 
information regarding related impacts on our debit card business, see “Management’s Discussion and Analysis of 
Financial Condition and Results of Operations — Regulatory Environment and Developments — Payment Networks.” 

Money Laundering & Terrorist Financing Prevention Program 

We maintain an enterprise-wide program designed to comply with all applicable anti-money laundering and 

anti-terrorism laws and regulations, including the Bank Secrecy Act and the USA PATRIOT Act of 2001. This program 
includes policies, procedures, training and other internal controls designed to mitigate the risk of money laundering or 
terrorist financing posed by our products, services, customers and geographic locale. These controls include procedures 
and processes to detect and report suspicious transactions, perform customer due diligence, and meet all recordkeeping 
and reporting requirements related to particular transactions involving currency or monetary instruments. The program 
is coordinated by our anti-money laundering compliance and sanctions officer and undergoes an annual independent 
audit to assess its effectiveness. Our program is typically reviewed on an annual basis by federal banking regulators. In 
May 2015, Discover Financial Services entered into a written agreement with the Federal Reserve Bank of Chicago to 
resolve matters related to the Federal Reserve’s examination of Discover Financial Services’ anti-money laundering and 
related compliance programs. Discover Financial Services agreed to, among other things, enhance its anti-money 
laundering and related compliance programs. See Note 19: Litigation and Regulatory Matters to our consolidated 
financial statements for more information. For additional information regarding bank regulatory limitations on 
acquisitions and investments, see “— Acquisitions and Investments.”

Sanctions Programs 

We have a program designed to comply with applicable economic and trade sanctions programs, including 
those administered and enforced by the U.S. Department of the Treasury’s Office of Foreign Assets Control. These 

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sanctions are usually targeted against foreign countries, terrorists, international narcotics traffickers and those believed 
to be involved in the proliferation of weapons of mass destruction. These regulations generally require either the 
blocking of accounts or other property of specified entities or individuals, but they may also require the rejection of 
certain transactions involving specified entities or individuals. We maintain policies, procedures and other internal 
controls designed to comply with these sanctions programs.

Executive Officers of the Registrant

Set forth below is information concerning our executive officers, each of whom is a member of our Executive 

Committee. 

Name

Age Position

Roger C. Hochschild............ 54 Chief Executive Officer and President

R. Mark Graf ...................... 54

Executive Vice President, Chief Financial Officer

Brian D. Hughes ................. 51

Executive Vice President, Chief Risk Officer

Daniel P. Capozzi ............... 47

Executive Vice President, President - Credit Operations and Decision Management

R. Andrew Eichfeld.............. 49

Executive Vice President, Chief Human Resources and Administrative Officer

Julie A. Loeger.................... 55

Executive Vice President, President - U.S. Cards

Carlos M. Minetti ................ 56

Executive Vice President, President - Consumer Banking

Diane E. Offereins............... 61

Executive Vice President, President - Payment Services

Glenn P. Schneider ............. 57

Executive Vice President, Chief Information Officer

David W. Nelms ................. 58

Executive Officer

Kathryn McNamara Corley.. 59

Executive Vice President

Roger C. Hochschild is our Chief Executive Officer and President, a position he has held since October 2018. 

Mr. Hochschild was also elected to the Discover Board of Directors in August 2018. From 2004 to 2018, Mr.
Hochschild served as President and Chief Operating Officer. Prior to that, he was Executive Vice President, Chief 
Administrative and Strategic Officer (2001 to 2004) and Executive Vice President, Chief Marketing Officer - Discover 
(1998 to 2001) of our former parent company Morgan Stanley. Mr. Hochschild holds a Bachelor’s degree in
Economics from Georgetown University and an M.B.A. from the Amos Tuck School at Dartmouth College.

R. Mark Graf is our Executive Vice President, Chief Financial Officer. He has held this role since April 2011. In
his role, he is also responsible for the Comprehensive Capital Analysis and Review and Resolution Planning program 
offices. He was also Chief Accounting Officer until December 2012. Prior to joining us, Mr. Graf was an investment 
advisor with Aquiline Capital Partners, a private equity firm specializing in investments in the financial services industry. 
From 2006 to 2008, Mr. Graf was a partner at Barrett Ellman Stoddard Capital. Mr. Graf was Executive Vice President 
and Chief Financial Officer for Fifth Third Bank from 2004 to 2006, after having served as its Treasurer from 2001 to
2004. He holds a Bachelor’s degree in Economics from the Wharton School of the University of Pennsylvania.

Brian D. Hughes is our Executive Vice President, Chief Risk Officer. He has held this role since December 2016 
and been Chief Risk Officer since May 2016. Mr. Hughes is responsible for Corporate Risk Management, Model Risk 
Management, Information Security and Compliance, including the AML/BSA compliance program. Mr. Hughes joined
Discover in 2012 as Senior Vice President and held leadership positions in Credit Risk Management, Deposit Products 
and Cardmember Marketing. Prior to joining us, Mr. Hughes held leadership roles at HSBC North America 
(2004-2012) and Booz & Co. (1993-2004). He holds a Bachelor’s degree in Electrical Engineering from the University 
of Illinois and an M.B.A. from the Booth School of Business at The University of Chicago.

PP
Daniel P. Capozzi

is our Executive Vice President, President - Credit Operations and Decision Management. He 

has held this role since October 2018 and previously served as Senior Vice President, Credit and Decision 
Management beginning in June 2017. Mr. Capozzi is responsible for Credit Risk Management, Loss Forecasting,
Analytics, Decision Science and related functions. Since joining Discover in 2007, Mr. Capozzi has held leadership 
positions in the Deposits business and Corporate Finance. Prior to joining Discover, he held various leadership positions 

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in Finance at Citi and Bank of America. Mr. Capozzi holds a Bachelor’s degree in Business Administration from 
Northeastern University.

R.(cid:1)Andrew Eichfeld is our Executive Vice President, Chief Human Resources and Administrative Officer. He has(cid:1)
held this role since September 2018. Prior to joining Discover, Mr. Eichfeld was an independent advisor from 2017 to 
2018 and held various positions at McKinsey & Company from 1995 to 2017, where he was elected a senior partner 
in 2009. Mr. Eichfeld holds a Bachelor’s degree in Government from Oberlin College, as well as a Master’s degree in 
Middle Eastern studies and an M.B.A. in Marketing, both from the University of Chicago.

Julie A. Loeger is our Executive Vice President, President - U.S. Cards. She has held this role since October 
2018. She served as Executive Vice President, Chief Marketing Officer from December 2015 to October 2018 and was 
Senior Vice President, Chief Marketing Officer from April to December 2015. Ms. Loeger joined Discover in 1991 and 
has held leadership positions in many areas, including Rewards, Portfolio Marketing, Acquisition, Brand Management 
and Product Development. Prior to joining Discover, she held various marketing positions at Anheuser Busch, Inc. She 
holds a Bachelor’s of Business Administration degree in Finance from The University of Texas at San Antonio, an M.B.A. 
from Loyola University Chicago and attended the executive program at The Amos Tuck School at Dartmouth College.

Carlos M. Minetti is our Executive Vice President, President - Consumer Banking. He has held this role since 
February 2014. Previously, he served as Executive Vice President, President - Consumer Banking and Operations (2010 
to 2014), Executive Vice President, Cardmember Services and Consumer Banking (2007 to 2010), and Executive Vice 
President for Cardmember Services, and Chief Risk Officer (2001 to 2007). Prior to joining us, Mr. Minetti worked in 
card operations and risk management for American Express from 1987 to 2000, most recently as Senior Vice 
President. Mr. Minetti holds a Bachelor’s degree in Industrial Engineering from Texas A & M University and an M.B.A. 
from the Booth School of Business at The University of Chicago.

Diane E. Offereins is our Executive Vice President, President - Payment Services. She has held this role since April 

2010. Previously, she served as Executive Vice President, Payment Services (2008 to 2010) and Executive Vice 
President and Chief Technology Officer (1998 to 2008). In 2006, she assumed leadership of the PULSE network. Prior 
to joining us, Ms. Offereins worked at MBNA America Bank from 1993 to 1998, most recently as Senior Executive Vice 
President. Ms. Offereins holds a Bachelor’s degree in Accounting from Loyola University New Orleans.

Glenn P. Schneider is our Executive Vice President, Chief Information Officer. He has held this role since January 

2015. Previously, he served as Senior Vice President and Chief Information Officer (2008 to 2015), Senior Vice 
President, Application Development (2003 to 2008), and Vice President, Marketing Applications (1998 to 2003). Prior 
to joining us in 1993, Mr. Schneider worked for Kemper Financial Services as a Programmer. He holds a Bachelor’s 
degree in Economics/Computer Science with a minor in Statistics from Northern Illinois University.

David W. Nelms is an Executive Officer of the Company (formerly Chief Executive Officer from February 2004 to 

October 2018). Mr. Nelms also assumed the role of Chairman in January 2009, a position that he held until stepping 
down as Executive Chairman in December 2018. He served as President and Chief Operating Officer from 1998 to 
2004. Prior to joining us, Mr. Nelms worked at MBNA America Bank from 1991 to 1998, most recently as Vice 
Chairman. Mr. Nelms holds a Bachelor’s degree in Mechanical Engineering from the University of Florida and an 
M.B.A. from Harvard Business School. Mr. Nelms is expected to retire from the Company in March 2019.

Kathryn McNamara Corley is an Executive Vice President of the Company (formerly Executive Vice President, 

General Counsel and Secretary from February 2008 to January 2019). Previously, she served as Senior Vice President, 
General Counsel and Secretary (1999 to 2008). Prior to becoming General Counsel, Ms. Corley was Managing 
Director for our former parent company Morgan Stanley’s global government and regulatory relations. Ms. Corley 
holds a Bachelor’s degree in Political Science from the University of Southern California and a J.D. and Honorary 
Doctors of Law degree from George Mason University. Ms. Corley is expected to retire from the Company in March 
2019.

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Item 1A.  Risk Factors

YY
You should carefully consider each of the following risks described below and all of the other information in this 

annual report on Form 10-K in evaluating us. Our business, financial condition, cash flows and/or results of operations 
could be materially adversely affected by any of these risks. The trading price of our common stock could decline due to 
any of these risks. This annual report on Form 10-K also contains forward-looking statements that involve risks and 
uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a 
result of certain factors, including the risks faced by us described below and elsewhere in this annual report on Form
10-K. See “Special Note Regarding Forward-Looking Statements,” which immediately follows the risks below.

Current Economic and Regulatory Environment

Economic conditions could have a material adverse effect on our business, results of operations and financial 
condition. 

As a provider of consumer financial services, our business, results of operations and financial condition are

subject to the United States and global economic environment. While the economy appears to be stable, we are 
experiencing the normalization of delinquency and charge-off rates and entering a period during which these rates
increase to long-run levels as the supply of consumer credit grows. A customer’s ability and willingness to repay us can
be negatively impacted by not only economic conditions but also a customer’s other payment obligations.

Economic conditions also can reduce the usage of credit cards in general and the average purchase amount of 

transactions industry-wide, including our cards, which reduces interest income and transaction fees. We rely heavily on 
interest income from our credit card business to generate earnings. Our interest income from credit card loans was
$8.8 billion for the year ended December 31, 2018, which was 83% of net revenues (defined as net interest income 
plus other income), compared to $7.9 billion for the year ended December 31, 2017, which was 80% of net revenues. 
Economic conditions combined with a competitive marketplace could result in slow loan growth, resulting in reduced 
revenue growth from our core direct banking business.

Financial regulatory developments have and will continue to significantly impact the environment for the financial 
services industryr , which could adversely impact our business, results of operations and financial condition. 

yy

The EGRRCPA was signed into law on May 24, 2018. The act generally redefined a Systemically Important 
Financial Institution (“SIFI”) as one with assets above $250 billion. As a result, Discover anticipates being released from 
the SIFI designation as the act is implemented, since our assets are below the statutory threshold. However, the 
applicability of various prudential standards, such as those related to capital, on Discover will be determined by how 
our prudential banking regulators implement the act.

Meanwhile, the portions of the Dodd-Frank Act unchanged by the EGRRCPA remain law, including provisions 
governing the practices and oversight of financial institutions and other firms that participate in financial markets. The
Senate and regulatory agency leadership are expected to continue to support tailoring of the regulatory burden on 
large financial institutions, including Discover. Success in making further legislative changes to the Dodd-Frank Act 
remains uncertain due to the potentially divergent agendas of the House and Senate. Further, the outcome of 
supervisory and regulatory reform efforts at the federal banking agencies remains uncertain. Also, it is possible that 
regulatory reform measures may disproportionately benefit our competitors or not benefit Discover at all due to our 
size, structure or product offerings, among other things.

The impact of the evolving regulatory environment on our business and operations depends upon a number of 

factors including the supervisory priorities and actions of the Federal Reserve, the FDIC and the CFPB, the actions of our 
competitors and other marketplace participants, as well as the behavior of consumers. Regulatory developments, 
findings and actions have, and could continue to, negatively impact our business strategies or require us to: limit, exit or 
change our business practices, restructure our products in ways that we may not currently anticipate, limit our product 
offerings, invest more management time and resources in compliance efforts, limit the fees we can charge for services, 
or limit our ability to pursue certain business opportunities and obtain related required regulatory approvals. For 
example, the Federal Reserve and the FDIC enforcement actions related to our anti-money laundering program have
caused us to change our processes and incur significant expenses. For additional information regarding bank 
regulatory limitations on acquisitions and investments, see “Business — Supervision and Regulation — Acquisitions and
Investments.” See also Note 19: Litigation and Regulatory Matters to our consolidated financial statements for more 
information on recent matters affecting Discover. Regulatory developments could also influence our strategies, impact 
the value of our assets, or otherwise adversely affect our businesses.

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Compliance expectations and expenditures have increased significantly for Discover and other financial services 

firms, and could continue to increase as regulators remain focused on controls and operational processes and we
introduce new products or features or enter into new business arrangements. We may face additional compliance and
regulatory risk to the extent that we enter into new business arrangements with third-party service providers, alternative 
payment providers, or other industry participants. The additional expense, time and resources needed to comply with 
ongoing or additional regulatory requirements may adversely impact our business and results of operations.

For more information regarding the regulatory environment and developments potentially impacting Discover, 

see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory 
Environment and Developments.”

Strategic Business Risk

We face competition in the credit card market from other consumer financial services providers, and we may not be 
able to compete effectivelyll , which could result in fewer customers and lower account balances and could materially 
adversely affect our financial condition, cash flows and results of operations. 

yy

The consumer financial services business is highly competitive. We compete with other consumer financial
services providers, including non-traditional providers such as financial technology firms, on the basis of a number of 
factors, including brand, reputation, customer service, product offerings, incentives, pricing, e-wallet participation and
other terms. Competition in credit cards is also based on merchant acceptance and the value provided to the customer 
by rewards programs. Many credit card issuers have instituted rewards programs that are similar to ours, and, in some 
cases, could be viewed as more attractive to customers than our programs. These competitive factors affect our ability to 
attract and retain customers, increase usage of our products and maximize the revenue generated by our products. In
addition, because most domestically-issued credit cards, other than those issued by American Express, are issued on 
the Visa and MasterCard networks, most other card issuers benefit from the dominant position and marketing and
pricing power of Visa and MasterCard. The competitive marketplace could result in slower loan growth, resulting in
reduced revenue growth from our core direct banking business. If we are unable to compete successfully, or if 
competing successfully requires us to take aggressive actions in response to competitors’ actions, our financial condition, 
cash flows and results of operations could be materially adversely affected. 

We incur considerable cost in competing with other consumer financial services providers, and many of our 
competitors have greater financial resources than we do, which may place us at a competitive disadvantage and 
negatively affect our financial results. 

We incur considerable cost in competing with other consumer financial services providers to attract and retain

customers and increase usage of our products. A substantial portion of this cost relates to marketing expenditures and 
rewards programs. Since 2013 our rewards rate, which represents rewards cost divided by Discover Card sales 
volume, has increased from less than 1% to 1.30% in 2018. We expect the competitive intensity in the rewards space to 
continue, which could result in a continued increase in the rewards rate. Our consumer financial services products
compete primarily on the basis of pricing, terms and service. Because of the highly competitive nature of the credit card-
issuing business, a primary method of competition among credit card issuers, including us, has been to offer rewards 
programs, low introductory interest rates, attractive standard purchase rates and balance transfer programs that offer a
favorable annual percentage rate or other financial incentives for a specified length of time on account balances 
transferred from another credit card.

Competition is intense in the credit card industry, and customers may frequently switch credit cards or transfer 

their balances to another card. We expect to continue to invest in initiatives to remain competitive in the consumer 
financial services industry, including the launch of new cards and features, brand awareness initiatives, targeted 
marketing, online and mobile enhancements, e-wallet participation, customer service improvements, credit risk 
management and operations enhancements, and infrastructure efficiencies. There can be no assurance that any of the 
cost we incur or incentives we offer to attempt to acquire and maintain accounts and increase usage of our products
will be effective. In addition, to the extent that we offer new products, features or services to remain competitive, we may 
be subject to increased operational or other risks.

Furthermore, many of our competitors are larger than we are, have greater financial resources than we do, have

more breadth in consumer banking products, have lower funding costs than we have and expect to have, and have 
assets, such as branch locations and co-brand relationships, that may be appealing to certain customers. For example, 
larger credit card issuers, which have greater resources than we do, may be better positioned to fund appealing 

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rewards, marketing and advertising programs. We may be at a competitive disadvantage as a result of the greater 
financial resources, diversification and scale of many of our competitors. 

Our costs directly affect our earnings results. Many factors can influence the amount of our costs, as well as how 

quickly it may increase. Our ongoing investments in infrastructure, which may be necessary to maintain a competitive 
business, integrate newly-acquired businesses and establish scalable operations, increase our cost. In addition, as our 
business develops, changes or expands, additional cost can arise as a result of a reevaluation of business strategies, 
management of outsourced services, asset purchases, structural reorganization, compliance with new laws or 
regulations or the acquisition of new businesses. If we are unable to successfully manage our cost, our financial results 
will be negatively affected.

We face competition from other operators of payment networks and alternative payment providers, and we may not 
be able to compete effectively, which could result in reduced transaction volume, limited merchant acceptance of our 
cards, limited issuance of cards on our networks by third parties and materially reduced earnings from our payment 
services business. 

We face substantial and increasingly intense competition in the payments industry, both from traditional players 

and new, emerging alternative payment providers. For example, we compete with other payment networks to attract 
network partners to issue credit and debit cards and other card products on the Discover, PULSE and Diners Club 
networks. Competition with other operators of payment networks is generally based on issuer fees, fees paid to 
networks (including switch fees), merchant acceptance, network functionality and other economic terms. Competition is 
also based on customer perception of service quality, brand image, reputation and market share. Further, we are facing 
increased competition from alternative payment providers, who may create innovative network or other arrangements 
with our primary competitors or other industry participants, which could adversely impact our costs, transaction volume 
and ability to grow our business. 

Many of our competitors are well established, larger than we are and/or have greater financial resources or 

scale than we do. These competitors have provided financial incentives to card issuers, such as large cash signing 
bonuses for new programs, funding for and sponsorship of marketing programs and other bonuses. Visa and 
MasterCard each enjoy greater merchant acceptance and broader global brand recognition than we do. Although we 
have made progress in merchant acceptance, we have not achieved global market parity with Visa and MasterCard. In 
addition, Visa and MasterCard have entered into long-term arrangements with many financial institutions that may 
have the effect of discouraging those institutions from issuing cards on the Discover Network or issuing debit cards on 
the PULSE network. Some of these arrangements are exclusive, or nearly exclusive, which further limits our ability to 
conduct material amounts of business with these institutions. If we are unable to remain competitive on issuer fees and 
other incentives, we may be unable to offer adequate pricing to network partners while maintaining sufficient net 
revenues. 

We also face competition as merchants put pressure on transaction fees. Increasing merchant fees or acquirer 
fees could adversely affect our effort to increase merchant acceptance of credit cards issued on the Discover Network 
and may cause merchant acceptance to decrease. This, in turn, could adversely affect our ability to attract network 
partners and our ability to maintain or grow revenues from our proprietary network. In addition, competitors’ 
settlements with merchants and related actions, including pricing pressures and/or surcharging, could negatively impact 
our business practices. Competitor actions related to the structure of merchant and acquirer fees and merchant and 
acquirer transaction routing strategies have adversely affected and are expected to continue to adversely affect our 
PULSE network’s business practices, network transaction volume, revenue and prospects for future growth, and entry 
into new product markets. Visa has entered into arrangements with some merchants and acquirers that have, and are 
expected to continue to have, the effect of discouraging those merchants and acquirers from routing debit transactions 
to PULSE. In addition, the Dodd-Frank Act’s network participation requirements and competitor actions negatively 
impact PULSE’s ability to enter into exclusivity arrangements, which affects PULSE’s business practices and may 
materially adversely affect its network transaction volume and revenue. PULSE has a pending lawsuit against Visa with 
respect to these competitive concerns. PULSE’s transaction processing revenue was $178 million and $167 million for 
the years ended December 31, 2018 and 2017, respectively.

American Express is also a strong competitor, with international acceptance, high transaction fees and an 

upscale brand image. Internationally, American Express competes in the same market segments as Diners Club. We 
may face challenges in increasing international acceptance on our networks, particularly if third parties that we rely on 
to issue Diners Club cards, increase card acceptance and market our brands do not perform to our expectations. 

-26-

In addition, if we are unable to maintain sufficient network functionality to be competitive with other networks, or 

if our competitors develop better data security solutions or more innovative products and services than we do, our 
ability to retain and attract network partners and maintain or increase the revenues generated by our proprietary card-
issuing business or our PULSE business may be materially adversely affected. Additionally, competitors may develop 
data security solutions, which as a consequence of the competitors’ market power, we may be forced to use. In which 
case, our business may be adversely affected as they may be better positioned to absorb the costs over higher volumes 
or a larger customer base.

Our business depends upon relationships with issuers, merchant acquirers and licensees, which are generally 
financial institutions. The economic and regulatory environment and increased consolidation in the financial services 
industry decrease our opportunities for new business and may result in the termination of existing business relationships 
if a business partner is acquired or goes out of business. In addition, as a result of this environment, financial institutions 
may have decreased interest in engaging in new card issuance opportunities or expanding existing card issuance 
relationships, which would inhibit our ability to grow our payment services business. We continue to face substantial 
and intense competition in the payments industry, which impacts our revenue margins, transaction volume and business 
strategies.

If we are unsuccessful in maintaining our international network business and achieving meaningful global card 
acceptance, we may be unable to grow our international network business. 

We continue to make progress toward, but have not completed, achieving global card acceptance across the 

Diners Club network, the Discover Network and PULSE since we acquired the Diners Club network and related assets in 
2008. This would allow Discover customers to use their cards at merchant and ATM locations that accept Diners Club 
cards around the world and would allow Diners Club customers to use their cards on the Discover Network in North 
America and on the PULSE network both domestically and internationally. 

Our international network business depends upon the cooperation, support and continuous operation of the 

network licensees that issue Diners Club cards and that maintain a merchant acceptance network. As is the case for 
other card payment networks, our Diners Club network does not issue cards or determine the terms and conditions of 
cards issued by the network licensees. If we are unable to continue our relationships with network licensees or if the 
network licensees are unable to continue their relationships with merchants, our ability to maintain or increase revenues 
and to remain competitive would be adversely affected due to the potential deterioration in customer relationships and 
related demand that could result. If one or more licensees were to experience a significant impairment of their business 
or were to cease doing business for economic, regulatory or other reasons, we would face the adverse effects of 
business interruption in a particular market, including loss of volume, acceptance and revenue, and exposure to 
potential reputational risk. If such conditions arise in the future, we may deploy resources and incur expenses in order 
to sustain network acceptance. Additionally, interruption of network licensee relationships could have an adverse effect 
on the acceptance of Discover cards when they are used on the Diners Club network outside of North America. 

Also, as we have non-amortizable intangible assets that resulted from the purchase of Diners Club, if we are 
unable to maintain or increase revenues due to the reasons described above, we may be exposed to an impairment 
loss on the Diners Club acquisition that, when recognized, could have a material adverse impact on our consolidated 
financial condition and results of operations. The long-term success of our international network business depends upon 
achieving meaningful global card acceptance, which has included and may continue to include higher overall costs or 
longer timeframes than anticipated. 

The success of our student loan strategy depends upon our ability to manage the risks of our student loan portfolio 
and the student lending environment. If we fail to do so, we may be unable to sustain and grow our student loan 
portfolio. 

The long-term success of our student loan strategy depends upon our ability to manage the credit risk, pricing, 

funding, operations and expenses of our student loan portfolio, as well as grow student loan originations. Our student 
loan strategy is also impacted by external factors such as the overall economic environment, a competitive marketplace 
and a challenging regulatory environment for private student loans and student loans generally. For more information 
on the regulatory environment, see “Management’s Discussion and Analysis of Financial Condition and Results of 
Operations — Regulatory Environment and Developments — Consumer Financial Services” and Note 19: Litigation and 
Regulatory Matters to our consolidated financial statements. Economic weakness, government and regulatory focus on 
higher education costs, student lending and student loan servicing, as well as competitive factors, such as competition 
from non-traditional lenders such as financial technology firms, may present challenges to managing and growing our 

-27-

private student loan business in the future, and could cause us to restructure our private student loan products in ways
that we may not currently anticipate. In addition, changes that adversely affect the private student loan market generally 
may negatively impact the profitability and growth of our student loan portfolio.

Acquisitions or strategic investments that we pursue may not be successful and could disrupt our business, harm our 
financial condition or reduce our earnings. 

We may consider or undertake strategic acquisitions of, or material investments in, businesses, products,

portfolios of loans or technologies in the future. We may not be able to identify suitable acquisition or investment 
candidates, or even if we do identify suitable candidates, they may be difficult to finance, expensive to fund and there is 
no guarantee that we can obtain any necessary regulatory approvals or complete the transactions on terms that are
favorable to us. We generally must receive federal regulatory approvals before we can acquire a bank, bank holding 
company, deposits or certain assets or businesses. For additional information regarding bank regulatory limitations on 
acquisitions and investments, see “Business — Supervision and Regulation — Acquisitions and Investments.”

To the extent we pay the purchase price of any strategic acquisition or investment in cash, it may have an adverse 

effect on our financial condition; similarly, if the purchase price is paid with our stock, it may be dilutive to our 
stockholders. In addition, we may assume liabilities associated with a business acquisition or investment, including 
unrecorded liabilities that are not discovered at the time of the transaction, and the repayment or settlement of those
liabilities may have an adverse effect on our financial condition.

We may not be able to successfully integrate the personnel, operations, businesses, products, or technologies of 
an acquisition or investment. Integration may be particularly challenging if we enter into a line of business in which we 
have limited experience and the business operates in a difficult legal, regulatory or competitive environment. We may 
find that we do not have adequate operations or expertise to manage the new business. The integration of any 
acquisition or investment may divert management’s time and resources from our core business, which could impair our 
relationships with our current employees, customers and strategic partners and disrupt our operations. Acquisitions and
investments also may not perform to our expectations for various reasons, including the loss of key personnel, customers 
or vendors. If we fail to integrate acquisitions or investments or realize the expected benefits, we may lose the return on 
these acquisitions or investments or incur additional transaction costs, and our business, reputation and financial
condition may be harmed as a result.

Credit, Market and Liquidity Risk

Our business depends on our ability to manage our credit risk, and failing to manage this risk successfully may 
result in high charge-off rates, which would materially adversely affect our business, profitability and financial 
condition. 

We seek to grow our loan receivables while maintaining quality credit performance. Our success depends on our 

ability to manage our credit risk while attracting new customers with profitable usage patterns. We select our 
customers, manage their accounts and establish terms and credit limits using externally developed and proprietary 
scoring models and other analytical techniques that are designed to set terms and credit limits to appropriately 
compensate us for the credit risk we accept, while encouraging customers to use their available credit. The models and 
approaches we use may not accurately predict future charge-offs due to, among other things, inaccurate assumptions. 
While we continually seek to improve our assumptions and models, we may make modifications that unintentionally 
cause them to be less predictive or we may incorrectly interpret the data produced by these models in setting our credit 
policies.

Our ability to manage credit risk and avoid high charge-off rates may be adversely affected by economic
conditions that may be difficult to predict. At December 31, 2018 and 2017, $1.2 billion, or 1.27%, and $987 million, 
or 1.17%, of our loan receivables were non-performing (defined as loans over 90 days delinquent and accruing
interest plus loans not accruing interest). While the U.S. economy appears to be stable, we are experiencing the
normalization of delinquency and charge-off rates and entering a period during which these rates increase to long-run
levels as the supply of consumer credit grows. There can be no assurance that our underwriting and portfolio
management strategies will permit us to avoid high charge-off levels, or that our allowance for loan losses will be 
sufficient to cover actual losses.

A customer’s ability and willingness to repay us can be negatively impacted by increases in their payment 

obligations to other lenders and by restricted availability of credit to consumers generally. Our collection operations
may not compete effectively to secure more of customers’ diminished cash flow than our competitors. In addition, we 

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may fail to quickly identify customers who are likely to default on their payment obligations and reduce our exposure by 
closing credit lines and restricting authorizations, which could adversely impact our financial condition and results of 
operations. Our ability to manage credit risk also may be adversely affected by legal or regulatory changes (such as 
restrictions on collections, bankruptcy laws, minimum payment regulations and re-age guidance), competitors’ actions 
and consumer behavior, as well as inadequate collections staffing, resources, techniques and models. 

We continue to expand our marketing of our non-credit card consumer lending products. A customer’s ability 

and willingness to repay personal loans, private student loans and home equity loans may be more significantly 
impacted than other consumer loans by other debts or increases in their payment obligations to other lenders. 
Additionally, a customer’s ability to repay personal loans, private student loans and home equity loans may be 
significantly impaired by the unavailability of consumer credit generally. There can be no assurance that we will be able 
to grow these products in accordance with our strategies, manage our credit and other risks associated with these 
products, or generate sufficient revenue to cover our expenses in these markets. Our failure to manage our credit and 
other risks may materially adversely affect our profitability and our ability to grow these products, limiting our ability to 
further diversify our business.

Adverse market conditions or an inability to effectively manage our liquidity risk could negatively impact our ability 
to meet our liquidity and funding needs, which could materially adversely impact our business operations and 
overall financial condition. 

We must effectively manage the liquidity risk to which we are exposed. We require liquidity in order to meet 
cash requirements such as day-to-day operating expenses, extensions of credit on our consumer loans and required 
payments of principal and interest on our borrowings. Our primary sources of liquidity and funding are payments on 
our loan receivables, deposits, and proceeds from securitization transactions and securities offerings. We may maintain 
too much liquidity, which can be costly and limit financial flexibility, or we may be too illiquid, which could result in 
financial distress during a liquidity stress event. Our liquidity portfolio had a balance of approximately $15.9 billion as 
of December 31, 2018, compared to $13.6 billion as of December 31, 2017. Our total contingent liquidity sources 
amounted to $52.9 billion as of December 31, 2018, compared to $48.7 billion as of December 31, 2017. As of 
December 31, 2018, our total contingent liquidity sources consisted of $15.9 billion in our liquidity portfolio, $31.5 
billion in incremental Federal Reserve discount window capacity, and $5.5 billion of undrawn capacity in private 
securitizations.

In the event that our current sources of liquidity do not satisfy our needs, we would be required to seek additional 

financing. The availability of additional financing will depend on a variety of factors such as market conditions, the 
general availability of credit to the financial services industry, new regulatory restrictions and requirements, and our 
credit ratings. Disruptions, uncertainty or volatility in the capital, credit or deposit markets, such as the volatility 
experienced in the capital and credit markets during the financial crisis of 2007, may limit our ability to repay or 
replace maturing liabilities in a timely manner. As such, we may be forced to delay the acquisition of additional funding 
or be forced to issue or raise funding at undesirable terms and/or costs, which could decrease profitability and 
significantly reduce financial flexibility. Regulations such as the liquidity coverage ratio, which requires firms to hold a 
minimum level of high-quality assets, may increase the cost of funding and impact funding availability and are 
described more fully in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — 
Regulatory Environment and Developments.” Further, in disorderly financial markets or for other reasons, it may be 
difficult or impossible to liquidate some of our investments to meet our liquidity needs. 

There can be no assurance that significant disruption and volatility in the financial markets will not occur in the 

future. Likewise, adverse developments with respect to financial institutions and other third parties with whom we 
maintain important financial relationships could negatively impact our funding and liquidity. If we are unable to 
continue to fund our assets through deposits or access capital markets on favorable terms, or if we experience an 
increase in our borrowing costs or otherwise fail to manage our liquidity effectively, our liquidity, operating results, 
financial results and condition may be materially adversely affected.

An inability to accept or maintain deposits in the future could materially adversely affect our liquidity position and 
our ability to fund our business. 

We obtain deposits from consumers either directly or through affinity relationships and through third-party 
securities brokerage firms that offer our deposits to their customers. We had $44.7 billion in deposits acquired directly 
or through affinity relationships and $23.1 billion in deposits originated through securities brokerage firms as of 
December 31, 2018, compared to $39.4 billion and $19.4 billion, respectively, as of December 31, 2017. Competition 

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from other financial services firms that use deposit funding, the rates and services we offer on our deposit products, and 
our ability to maintain a high level of customer experience may affect deposit renewal rates, costs or availability. 
Changes we make to the rates offered on our deposit products may affect our profitability (through funding costs) and 
our liquidity (through volumes raised). In addition, our ability to maintain existing or obtain additional deposits may be 
impacted by factors, including factors beyond our control, such as: perceptions about our financial strength or quality 
of deposit servicing or online banking generally, which could reduce the number of consumers choosing to place 
deposits with us; third parties continuing or entering into affinity relationships with us; disruptions in technology services 
or the internet, generally; or third-party securities brokerage firms continuing to offer our deposit products. 

Our ability to obtain deposit funding and offer competitive interest rates on deposits is also dependent on capital 

levels of our bank subsidiaries. The FDIA in certain circumstances prohibits insured banks, such as our subsidiary 
Discover Bank, from accepting brokered deposits (as defined in the FDIA) and applies other restrictions, such as a cap 
on interest rates we may pay. See “Business — Supervision and Regulation” and Note 17: Capital Adequacy to our 
consolidated financial statements for more information. While Discover Bank met the FDIC’s definition of “well-
capitalized” as of December 31, 2018, and has no restrictions regarding acceptance of brokered deposits or setting of 
interest rates, there can be no assurance that it will continue to meet this definition. Additionally, our regulators can 
adjust the requirements to be “well-capitalized” at any time and have authority to place limitations on our deposit 
businesses, including the interest rate we pay on deposits. 

If we are unable to securitize our receivables, it may have a material adverse effect on our liquidity, cost of funds 
and overall financial condition. 

We use the securitization of credit card receivables, which involves the transfer of receivables to a trust and the 

issuance by the trust of beneficial interests to third-party investors, as a significant source of funding as well as for 
contingent liquidity. Our average level of credit card securitized borrowings from third parties was $16.0 billion and 
$16.1 billion for the years ended December 31, 2018 and 2017, respectively. There can be no assurance that there 
will not be future disruptions in the credit card securitization market similar to those experienced during the financial 
crisis. Our ability to raise funding through the securitization market also depends, in part, on the credit ratings of the 
securities we issue from our securitization trusts. If we are not able to satisfy rating agency requirements to confirm the 
ratings of asset-backed securities issued by our trusts at the time of a new issuance of securities, it could limit our ability 
to access the securitization markets. Additional factors affecting the extent to which we may securitize our credit card 
receivables in the future include the overall credit quality of our receivables, the costs of securitizing our receivables, the 
demand for credit card asset-backed securities, and the legal, regulatory, accounting and tax requirements governing 
securitization transactions and asset-backed securities, generally. For example, the implementation of the Basel 
Committee on Banking Supervision’s revised securitization framework for banks by the member countries by the 
beginning of 2019 could negatively impact the pricing and/or volume of our asset-backed securities issuances. A 
prolonged inability to securitize our credit card receivables, or an increase in the costs of such issuances, may have a 
material adverse effect on our liquidity, cost of funds and overall financial condition.

The occurrence of events that result in the early amortization of our existing credit card securitization transactions or 
an inability to delay the accumulation of principal collections in our credit card securitization trusts would materially 
adversely affect our liquidity. 

Our liquidity would be materially adversely affected by the occurrence of events that could result in the early 
amortization of our existing credit card securitization transactions. Our credit card securitizations are structured as 
“revolving transactions” that do not distribute to securitization investors their share of monthly principal payments 
received on the underlying receivables during the revolving period, and instead use those principal payments to fund 
the purchase of new receivables. The occurrence of an “early amortization event” may result in termination of the 
revolving periods of our securitization transactions, which would require us to repay the affected outstanding 
securitized borrowings out of principal collections without regard to the original payment schedule. Early amortization 
events include, for example, insufficient cash flows in the securitized pool of receivables to meet contractual 
requirements (i.e. excess spread less than zero) and certain breaches of representations, warranties or covenants in the 
agreements relating to the securitization. For more information on excess spread, see Note 5: Credit Card and Student 
Loan Securitization Activities to our consolidated financial statements. An early amortization event would negatively 
impact our liquidity, and require us to rely on alternative funding sources, which may or may not be available at the 
time. An early amortization event also could impact our ability to access the undrawn conduit facilities that we maintain 
for contingent liquidity purposes. 

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Our credit card securitization structure includes a requirement that we accumulate principal collections into a 
restricted account in the amount of scheduled maturities on a pro rata basis over the 12 months prior to a security’s 
maturity date. We have the option under our credit card securitization documents to shorten this accumulation period, 
subject to the satisfaction of certain conditions. Historically, we have exercised this option to shorten the accumulation 
period to one month prior to maturity. If we were to determine that the payment rate on the underlying receivables 
would not support a one-month accumulation period, we would need to begin accumulating principal cash flows earlier 
than we have historically. A lengthening of the accumulation period would negatively impact our liquidity, requiring 
management to implement mitigating measures. During periods of significant maturity levels, absent management 
actions, the lengthening of the accumulation period could materially adversely affect our financial condition.

A downgrade in the credit ratings of our securities could materially adversely affect our business and financial 
condition. 

We, along with Discover Bank, are regularly evaluated by the ratings agencies, and their ratings for our long-

term debt and other securities, including asset-backed securities issued by our securitization trusts, are based on a 
number of factors that may change from time to time, including our financial strength as well as factors that may not be 
within our control. Factors that affect our unsecured credit ratings include, but are not limited to, the macroeconomic 
environment in which we operate and the credit ratings of the U.S. government, the credit quality and performance of 
our assets, the amount and quality of our capital, the level and stability of our earnings, and the structure and amount 
of our liquidity. In addition to these factors, the ratings of our asset-backed securities are also based on the quality of 
the underlying receivables and the credit enhancement structure of the trusts. Downgrades in our ratings or those of 
Discover Bank or our trusts could materially adversely affect our cost of funds, access to capital and funding, and 
overall financial condition. There can be no assurance that we will be able to maintain our current credit ratings or that 
our credit ratings will not be lowered or withdrawn. 

We may not be successful in managing the investments in our liquidity investment portfolio and investment 
performance may deteriorate due to market fluctuations, which would adversely affect our business and financial 
condition. 

We must effectively manage the risks of the investments in our liquidity investment portfolio, which is comprised 

of cash and cash equivalents and high-quality liquid investments. The value of our investments may be adversely 
affected by market fluctuations including changes in interest rates, prices, prepayment rates, credit risk premiums and 
overall market liquidity. Also, investments backed by collateral could be adversely impacted by changes in the value of 
the underlying collateral. In addition, economic conditions may cause certain of the obligors, counterparties and 
underlying collateral on our investments to incur losses of their own or default on their obligations to us due to 
bankruptcy, lack of liquidity, operational failure or other reasons, thereby increasing our credit risk exposure to these 
investments. These risks could result in a decrease in the value of our investments, which could negatively impact our 
financial condition. These risks could also restrict our access to funding. While the securities in our investment portfolio 
are currently limited to obligations of high-quality sovereign and government-sponsored issuers, we may choose to 
expand the range of our investments over time, which may result in greater fluctuations in market value. While we 
expect these investments to be readily convertible into cash and do not believe they present a material increase to our 
risk profile or will have a material impact on our risk-based capital ratios, they are subject to certain market fluctuations 
that may reduce the ability to fully convert them into cash.

Changes in the level of interest rates could materially adversely affect our earnings. 

Changes in interest rates cause our net interest income to increase or decrease, as some of our assets and 
liabilities carry interest rates that fluctuate with market benchmarks. External factors may cause interest rates to increase. 
Tighter Federal Reserve monetary policy and rising interest rates would increase the cost of borrowing for consumers, 
businesses and governments. Higher interest rates could negatively impact Discover’s customers as total debt service 
payments would increase, impede Discover’s ability to grow its consumer lending businesses, and increase the cost of 
our funding, which would put Discover at a disadvantage as compared to competitors that have less expensive funding 
sources.

Some of our consumer loan receivables bear interest at a fixed rate or do not earn interest, and we are not able 

to increase the rate on those loans to offset any higher cost of funds, which could materially reduce earnings. At the 
same time, our variable rate loan receivables, most of which are based on the prime rate, may not change at the same 
rate as our floating-rate borrowings or may be subject to a cap, subjecting us to basis risk. The majority of our floating-
rate borrowings and interest rate derivatives are generally based on the one-month London Interbank Offered Rate 

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(“LIBOR”). If the one-month LIBOR rate were to increase without a corresponding increase in the prime rate, our 
earnings would be negatively impacted. While the majority of our existing certificates of deposit bear interest at fixed 
rates that do not fluctuate with market benchmarks, we may use derivative instruments to hedge the fixed rates 
associated with some of these certificates of deposit. However, the costs of new deposits fluctuate with interest rates. 
Moreover, although certificates of deposit we issue directly to consumers are subject to early withdrawal penalties, these
penalties may not fully mitigate early withdrawal behavior in a rising interest rate environment. Additionally, on July 
27, 2017, the UK Financial Conduct Authority announced that it would no longer encourage or compel banks to 
continue to contribute quotes and maintain LIBOR after 2021. Potential replacements for LIBOR are emerging; however, 
the transition process is still ongoing and the outcome is still uncertain. 

Interest rates may also adversely impact our delinquency and charge-off rates. Many consumer lending products

bear interest rates that fluctuate with certain base lending rates published in the market, such as the prime rate and 
LIBOR. As a result, higher interest rates often lead to higher payment requirements by consumers under obligations to us
and other lenders, most of which may reduce their ability to remain current on their obligations to us and thereby lead 
to loan delinquencies and additions to our loan loss provision, which could materially adversely affect our earnings.

We continually monitor interest rates and have a number of tools, including the composition of our investments, 
liability terms and interest rate derivatives, to manage our interest rate risk exposure. Changes in market assumptions 
regarding future interest rates could significantly impact our interest rate risk strategy, our financial position and results 
of operations. If our interest rate risk management strategies are not appropriately monitored or executed, these 
activities may not effectively mitigate our interest rate sensitivity or have the desired impact on our results of operations
or financial condition. For information related to interest rate risk sensitivities, see “Quantitative and Qualitative 
Disclosures About Market Risk.”

We may be limited in our ability to pay dividends on and repurchase our stock.

In the year ended December 31, 2018, we increased our quarterly common stock dividend to $0.40 per share

and repurchased approximately 8% of our outstanding common stock under our share repurchase program. The
declaration and payment of future dividends, as well as the amount thereof, are subject to the discretion of our Board of 
Directors. The amount and size of any future dividends and share repurchases will depend upon regulatory limitations
imposed by the Federal Reserve, and our results of operations, financial condition, capital levels, cash requirements, 
future prospects, regulatory review and other factors as further described in “Business — Supervision and Regulation — 
Capital, Dividends and Share Repurchases.” Holders of our shares of common stock are subject to the prior dividend 
rights of holders of our preferred stock or the depositary shares representing such preferred stock outstanding, and if 
full dividends have not been declared and paid on all outstanding shares of our preferred stock in any dividend period,
no dividend may be declared or paid on or set aside for payment on our common stock. Banking laws and regulations 
and our banking regulators may limit or prohibit our payment of dividends on or our repurchase of our stock at any 
time. There can be no assurance that we will declare and pay any dividends on or repurchase our stock in the future.

We are a holding company and depend on payments from our subsidiaries. 

Discover Financial Services, our parent holding company, depends on dividends, distributions and other 
payments from its subsidiaries, particularly Discover Bank, to fund dividend payments, share repurchases, payments on 
its obligations, including debt obligations, and to provide funding and capital as needed to its operating subsidiaries. 
Banking laws and regulations and our banking regulators may limit or prohibit our transfer of funds freely, either to or 
from our subsidiaries, at any time. These laws, regulations and rules may hinder our ability to access funds that we may 
need to make payments on our obligations or otherwise achieve strategic objectives. For more information, see
“Business — Supervision and Regulation — Capital, Dividends and Share Repurchases.”

Operational and Other Risk

Our risk management framework and models for managing risks may not be effective in mitigating our risk of loss.

Our risk management framework seeks to identify and mitigate risk and appropriately balance risk and return. 

We have established processes and procedures intended to identify, measure, manage, monitor and report the types of 
risk to which we are subject, including credit risk, market risk, liquidity risk, operational risk, compliance and legal risk,
and strategic risk. We seek to monitor and control our risk exposure through a framework of policies, procedures, limits 
and reporting requirements. 

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Management of our risks in some cases depends upon the use of analytical and/or forecasting models. We use a 

variety of models to manage and inform decision-making with respect to customers, and for the measurement of risk 
including credit, market and operational risks and for our finance and treasury functions. Models used by Discover can 
vary in their complexity and are designed to identify, measure and mitigate risks at various levels such as loan-level, 
portfolio segments, entire portfolios and products. These models use a set of computational rules to generate numerical 
estimates of uncertain values to be used for assessment of price, financial forecasts, and estimates of credit, interest rate, 
market and operational risk. All models carry some level of uncertainty that introduces risks in the estimates.

If the models that we use to mitigate risks are inadequate, we may incur increased losses. In addition, there may 

be risks that exist, or that develop in the future, that we have not appropriately anticipated, identified or mitigated. If 
our risk management framework and models do not effectively identify or mitigate our risks, we could suffer unexpected 
losses and our financial condition and results of operations could be materially adversely affected.

If our security systems, or those of third parties, containing information about us, our customers or third parties with 
which we do business, are compromised, our business could be disrupted and we may be subject to significant 
financial exposure, liability and damage to our reputation. 

Our direct banking and network operations rely heavily on the secure processing, storage and transmission of 
confidential or sensitive information about us, our customers and third parties with which we do business. Information 
security risks for financial institutions have increased and continue to increase in part because of the proliferation of new 
technologies, the use of the internet, mobile and telecommunications technologies to conduct financial transactions, and 
the increased sophistication and activities of organized crime, activists, hackers, terrorist organizations, nation state 
actors and other external parties. Those parties may also attempt to fraudulently induce employees, customers or other 
users of our systems (including third parties) to disclose confidential or sensitive information in order to gain access to 
our data or that of our customers. 

Our technologies, systems, networks and software, those of other financial institutions and other firms that handle 
or maintain confidential or sensitive information (including customer information), have been, and are likely to continue 
to be, the target of increasingly frequent cyber-attacks, malicious code, computer viruses, denial of service attacks, 
phishing and social engineering, other remote access attacks, and physical attacks that could result in unauthorized 
access, misuse, loss, unavailability or destruction of data (including confidential customer information), account 
takeovers, identity theft and fraud, unavailability of service or other events. These types of threats may derive from 
human error, fraud or malice on the part of external or internal parties, or may result from technological failure or 
otherwise. 

Despite our efforts to ensure the integrity of our systems through our information security and business continuity 

programs, we may not be able to anticipate or to implement effective preventive measures against all known and 
unknown security threats, attacks or breaches or events of these types, especially because the techniques used change 
frequently and are becoming increasingly more sophisticated or are not recognized until launched or vulnerabilities in 
software or hardware are unknown or are unable to be entirely addressed even after becoming known, and because: 

•

Security attacks can originate from a wide variety of sources and geographic locations and may be
undetected for a period of time.

• We rely on many third-party service providers and network participants, including merchants, and, as such,
a security breach or cyber-attack affecting one of these third parties could impact us. For example, the
financial services industry continues to see attacks against the environments where personal and identifiable
information is handled. For additional information see the risk factor “— We rely on third parties to deliver
services. If we face difficulties managing our relationships with third-party service providers, our revenue or
results of operations could be materially adversely affected.”

•

To access our products and services, our customers may use computers and mobile devices that are beyond
our security control systems.

We are subject to increasing risk related to information and data security as we increase acceptance of the 

Discover card internationally, expand our suite of online direct banking products, enhance our mobile payment 
technologies, acquire new or outsource some of our business operations, expand our internal usage of web-based 
products and applications, and otherwise attempt to keep pace with rapid technological changes in the financial 
services industry. Our efforts to mitigate this risk increase our expenses. While we continue to invest in our information 
security defenses (including cybersecurity defenses), if our security systems or those of third parties are penetrated or 

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circumvented such that the confidentiality, integrity or availability of information about us, our customers, transactions 
processed on our networks or on third-party networks on our behalf or third parties with which we do business is 
compromised, we could be subject to significant liability that may not be covered by insurance, including significant 
legal and financial exposure, actions by our regulators, damage to our reputation, or a loss of confidence in the 
security of our systems, products and services that could materially adversely affect our business. For additional 
information on risks in this area, see the risk factors below regarding fraudulent activity, the introduction of new 
products and services, the use of third parties for outsourcing, technology generally, and laws and regulations 
addressing consumer privacy and data use and security.

If we cannot remain organizationally effective, we will be unable to address the opportunities and challenges 
presented by our strategy and the increasingly dynamic and competitive economic and regulatory environment. 

To remain organizationally effective, we must effectively empower, integrate and deploy our management and 

operational resources and incorporate global and local business, regulatory and consumer perspectives into our 
decisions and processes. In order to execute on our objective to be the leading consumer bank and payments partner, 
we must develop and implement innovative and efficient technology solutions and marketing initiatives while effectively 
managing legal, regulatory, compliance, security, operational and other risks as well as expenses. Examples include the 
implementation of a broader rollout of our checking product and a structure for a more competitive global network 
business. If we fail to develop and implement these solutions, we may be unable to expand quickly and the results of our 
expansion may be unsatisfactory. In addition, if we are unable to make decisions quickly, assess our opportunities and 
risks, execute our strategy, and implement new governance, managerial and organizational processes as needed in 
this increasingly dynamic and competitive economic and regulatory environment, our financial condition, results of 
operations, relationships with our business partners, banking regulators, customers and shareholders, and ultimately 
our prospects for achieving our long-term strategies, may be negatively impacted.

We may be unable to increase or sustain Discover card usage, which could impair growth in, or lead to diminishing, 
average balances and total revenue. 

A key element of our business strategy is to increase the usage of the Discover card by our customers, including 
making it their primary card, and thereby increase our revenue from transaction and service fees and interest income. 
However, our customers’ use and payment patterns may change because of social, legal and economic factors, and 
customers may decide to use debit cards or other payment products instead of credit cards, not increase card usage, or 
pay their balances within the grace period to avoid finance charges. We face challenges from competing card products 
in our attempts to increase credit card usage by our existing customers. Our ability to increase card usage also is 
dependent on customer satisfaction, which may be adversely affected by factors outside of our control, including 
competitors’ actions and legislative/regulatory changes. Existing legal and regulatory restrictions limit pricing changes 
that may impact an account throughout its lifecycle, which may reduce our capability to offer lower price promotions to 
drive account usage and customer engagement. As part of our strategy to increase usage, we have been increasing the 
number of merchants who accept cards issued on the Discover Network. If we are unable to continue increasing 
merchant acceptance or fail to improve awareness of existing merchant acceptance of our cards, our ability to grow 
usage of Discover cards may be hampered. As a result of these factors, we may be unable to increase or sustain credit 
card usage, which could impair growth in or lead to diminishing average balances and total revenue.

Our transaction volume is concentrated among large merchants, and a reduction in the number of large merchants 
that accept cards on the Discover Network or PULSE network or the rates they pay could materially adversely affect 
our business, financial condition, results of operations and cash flows. 

Discover card transaction dollar volume was concentrated among our top 100 merchants in 2018, with our 
largest merchant accounting for approximately 5% of that transaction volume. Transaction volume on the PULSE network 
was also concentrated among the top 100 merchants in 2018, with our largest merchant accounting for approximately 
20% of PULSE transaction volume. These merchants could seek to negotiate better pricing or other financial incentives 
by conditioning their continued participation in the Discover Network and/or PULSE network on a change in the terms 
of their economic participation. Loss of acceptance at our largest merchants would decrease transaction volume, 
negatively impact our brand, and could cause customer attrition. In addition, some of our merchants, primarily our 
remaining small- and mid-size merchants, are not contractually committed to us for any period of time and may cease 
to participate in the Discover Network at any time on short notice. 

Actual or perceived limitations on acceptance of credit cards issued on the Discover Network or debit cards 

issued on the PULSE network could adversely affect the use of Discover cards by existing customers and the 

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attractiveness of the Discover card to prospective customers. Also, we may have difficulty attracting and retaining 
network partners if we are unable to add or retain acquirers or merchants who accept cards issued on the Discover or 
PULSE networks. As a result of these factors, a reduction in the number of our merchants or the rates they pay could 
materially adversely affect our business, financial condition, results of operations and cash flows. 

Our business, financial condition and results of operations may be adversely affected by merchants’ increasing focus 
on the fees charged by credit card and debit card networks. 

Merchant acceptance and fees are critical to the success of both our card-issuing and payment processing 
businesses. Merchants are concerned with the fees charged by credit card and debit card networks. They seek to 
negotiate better pricing or other financial incentives as a condition of continued participation in the Discover Network 
and PULSE network. During the past few years, merchants and their trade groups have filed numerous lawsuits against 
Visa, MasterCard, American Express and their card-issuing banks, claiming that their practices toward merchants, 
including issuer fees, violate federal antitrust laws. There can be no assurance that they will not in the future bring legal 
proceedings against other credit card and debit card issuers and networks, including us. Merchants also may promote 
forms of payment with lower fees, such as ACH-based payments, or seek to impose surcharges at the point of sale for 
use of credit or debit cards. Merchant groups have also promoted federal and state legislation that would restrict issuer 
practices or enhance the ability of merchants, individually or collectively, to negotiate more favorable fees. The 
heightened focus by merchants on the fees charged by credit card and debit card networks, together with the Dodd-
Frank Act and recent industry litigation, which would allow merchants to encourage customers to use other payment 
methods or cards and may increase merchant surcharging, could lead to reduced transactions on, or merchant 
acceptance of, Discover Network or PULSE network cards or reduced fees, any of which could adversely affect our 
business, financial condition and results of operations. 

Political, economic or other instability in a country or geographic region, or other unforeseen or catastrophic events, 
could adversely affect our international business activities and reduce our revenue. 

Natural disasters or other catastrophic events, including terrorist attacks, may have a negative effect on our 
business and infrastructure, including our information technology systems. Our Diners Club network, concentrated 
primarily on serving the global travel industry, could be adversely affected by international conditions that may result in 
a decline in consumer or business travel activity. Armed conflict, public health emergencies, natural disasters, political 
instability or terrorism may have a significant negative effect on travel activity and related revenue. Although a 
regionalized event or condition may primarily affect one of our network participants, it may also affect our overall 
network and card activity and our resulting revenue. Overall network and card transaction activity may decline as a 
result of concerns about safety or disease or may be limited because of economic conditions that result in spending on 
travel to decline. The impact of such events and other catastrophes on the overall economy may also adversely affect 
our financial condition or results of operations. 

Fraudulent activity associated with our products or our networks could cause our brands to suffer reputational 
damage, the use of our products to decrease and our fraud losses to be materially adversely affected. 

We are subject to the risk of fraudulent activity associated with merchants, customers and other third parties 
handling customer information. The risk of fraud continues to increase for the financial services industry in general. We 
incurred fraud losses and other charges of $83 million and $89 million for the years ended December 31, 2018 and 
2017, respectively. Credit and debit card fraud, identity theft and related crimes are prevalent and perpetrators are 
growing ever more sophisticated. Our resources, customer authentication methods and fraud prevention tools may be 
insufficient to accurately predict or prevent fraud. Additionally, our risk of fraud continues to increase as third parties 
that handle confidential consumer information suffer security breaches, acceptance of the Discover card grows 
internationally and we expand our direct banking business and introduce new products and features. Our financial 
condition, the level of our fraud charge-offs and other results of operations could be materially adversely affected if 
fraudulent activity were to significantly increase. High-profile fraudulent activity could negatively impact our brand and 
reputation. In addition, significant increases in fraudulent activity could lead to regulatory intervention (such as 
mandatory card reissuance) and reputational and financial damage to our brands, which could negatively impact the 
use of our deposit accounts, cards and networks and thereby have a material adverse effect on our business. Further, 
fraudulent activity may result in lower license fee revenue from our Diners Club licensees. 

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The financial services and payment services industries are rapidly evolving, and we may be unsuccessful in 
introducing new products or services on a large scale in response to these changes. 

Technological changes continue to significantly impact the financial services and payment services industries, 
such as continuing development of technologies in the areas of smart cards, radio frequency and proximity payment 
devices, electronic wallets, mobile commerce, data analytics, machine learning and artificial intelligence, among others. 
For example, we may be unsuccessful in deploying new technologies to strengthen our credit underwriting capabilities, 
marketing efforts, enhance customer service, drive efficiencies in back-office functions or reduce fraud. The increasingly 
competitive mobile, e-wallet and tokenization spaces are expected to continue to bring risks and opportunities to both 
our card-issuing and payments businesses.

The effect of technological changes on our business is unpredictable. We depend, in part, on third parties for the 
development of and access to new technologies. We expect that new services and technologies relating to the payments 
business will continue to appear in the market, and these new services and technologies may be superior to, or render 
obsolete, the technologies that we currently use in our products and services. Rapidly evolving technologies and new 
entrants in mobile and emerging payments pose a risk to Discover both as a card issuer and to the payments business. 
As a result, our future success may be dependent on our ability to identify and adapt to technological changes and 
evolving industry standards and to provide payment solutions for our customers, merchants and financial institution 
customers. 

Difficulties or delays in the development, production, testing and marketing of new products or services may be 

caused by a number of factors including, among other things, operational, capital and regulatory constraints. The 
occurrence of such difficulties may affect the success of our products or services, and developing unsuccessful products 
and services could result in financial losses as well as decreased capital availability. In addition, the new products and 
services offered may not be attractive to consumers, merchants or financial institution customers. Also, success of a new 
product or service may depend upon our ability to deliver it on a large scale, which may require a significant capital 
investment that we may not be in a position to make. If we are unable to successfully introduce and maintain new 
income-generating products and services while also managing our expenses, it may impact our ability to compete 
effectively and materially adversely affect our business and earnings. 

We rely on third parties to deliver services. If we face difficulties managing our relationships with third-party service 
providers, our revenue or results of operations could be materially adversely affected. 

We depend on third-party service providers for many aspects of the operation of our business. For example, we 

depend on third parties for software and systems development, the timely transmission of information across our data 
transportation network, and for other telecommunications, processing, remittance, technology-related and other services 
in connection with our direct banking and payment services businesses. If a service provider fails to provide the services 
that we require or expect, or fails to meet contractual requirements, such as service levels, security requirements or 
compliance with applicable laws, the failure could negatively impact our business by adversely affecting our ability to 
process customers’ transactions in a timely and accurate manner, otherwise hampering our ability to serve our 
customers, or subjecting us to litigation and regulatory risk for poor vendor oversight. Such a failure could adversely 
affect the perception of the reliability of our networks and services, and the quality of our brands, and could have a 
materially adverse effect on our reputation, revenues and/or our results of operations. 

We rely on technology to deliver services. If key technology platforms become obsolete, or if we experience 
disruptions, including difficulties in our ability to process transactions, our revenue or results of operations could be 
materially adversely affected.

Our ability to deliver services to our customers and run our business in compliance with applicable laws and 

regulations may be affected by the functionality of our technology systems. The implementation of technology changes 
as well as patches and upgrades to maintain current and integrated systems may result in compliance issues and may, 
at least temporarily, cause disruptions to our business, including, but not limited to, systems interruptions, transaction 
processing errors and system conversion delays, all of which could have a negative impact on us. In addition, our 
transaction processing systems and other operational systems may encounter service interruptions at any time due to 
system or software failure, natural disaster or other reasons. Such services could be disrupted at any of our primary or 
back-up facilities or our other owned or leased facilities. Third parties to whom we outsource the maintenance and 
development of certain technological functionality may experience errors or disruptions that could adversely impact us 
and over which we may have limited control. In addition, there is no assurance that we will be able to sustain our 
investment in new technology to avoid obsolescence of critical systems and applications. A failure to maintain current 

-36-

technology, systems and facilities or to control third-party risk, could cause disruptions in the operation of our business, 
which could materially adversely affect our transaction volumes, revenues, reputation and/or our results of operations.

Our success is dependent, in part, upon our executive officers and other key employees. If we are unable to recruit, 
retain and motivate key officers and employees to drive our business, our business could be materially adversely 
affected. 

Our success depends, in large part, on our ability to recruit, retain and motivate key officers and employees to 

manage and grow our business. Our senior management team has significant industry experience and would be 
difficult to replace. We believe we are in a critical period of competition in the financial services and payments industry. 
The market for qualified individuals is highly competitive, and we may not be able to attract and retain qualified 
personnel or candidates to replace or succeed members of our senior management team or other key personnel or it 
may be expensive to do so. We may be subject to restrictions under future legislation or regulation limiting executive 
compensation. For example, the federal banking agencies have previously issued proposed rulemaking on incentive 
compensation practices for certain employees at banking organizations, including executives, and may issue additional 
rules relating to such activities in the future. These requirements could negatively impact our ability to compete with 
other companies in attracting, hiring and retaining key personnel and offer incentives that motivate our key personnel to 
perform and may require us to extensively restructure certain of our existing incentive compensation practices. 
Additionally, the market for individuals with skills in fields such as technology, analytics and payments is increasingly 
competitive and we may not be able to attract and retain persons with the desired skill set or experience. If we are 
unable to recruit, retain and motivate key personnel to manage and grow our business well, our business could be 
materially adversely affected. 

Merchant defaults may adversely affect our business, financial condition, cash flows and results of operations.

As an issuer and merchant acquirer in the United States on the Discover Network, and as a holder of certain 
merchant agreements internationally for the Diners Club network, we may be contingently liable for certain disputed 
credit card sales transactions that arise between customers and merchants. If a dispute is resolved in the customer’s 
favor, we will cause a credit or refund of the amount to be issued to the customer and charge back the transaction to 
the merchant or merchant acquirer. If we are unable to collect this amount from the merchant or merchant acquirer, we 
will bear the loss for the amount credited or refunded to the customer. Where the purchased product or service is not 
provided until some later date following the purchase, such as an airline ticket, the likelihood of potential liability 
increases. For the years ended December 31, 2018 and 2017 losses related to merchant chargebacks were not 
material.

Damage to our reputation could damage our business. 

In recent years, financial services companies have experienced increased reputational risk as consumers protest 

and regulators scrutinize business and compliance practices of such companies. Maintaining a positive reputation is 
critical to attracting and retaining customers, investors and employees. Damage to our reputation can therefore cause 
significant harm to our business and prospects. Harm to our reputation can arise from numerous sources, including, 
among others, employee misconduct, a breach of our or our service providers’ cybersecurity defenses, litigation or 
regulatory outcomes, failing to deliver minimum standards of service and quality, compliance failures, and the activities 
of customers, business partners and counterparties. Social media also can cause harm to our reputation. By its very 
nature, social media can reach a wide audience in a very short amount of time, which presents unique corporate 
communications challenges. Negative or ‘wrong’ type of publicity generated through unexpected social media 
coverage can damage Discover’s reputation and brand. Negative publicity regarding us, whether or not true, may 
result in customer attrition and other harm to our business prospects. 

We may be unsuccessful in promoting and protecting our brands or protecting our other intellectual property, or 
third parties may allege that we are infringing their intellectual property rights. 

The Discover, PULSE and Diners Club brands have substantial economic and goodwill value. Our success is 
dependent on our ability to promote and protect these brands and our other intellectual property. Our ability to attract 
and retain customers is highly dependent upon the external perception of our company and brands. Our brands are 
licensed for use to business partners and network participants, some of whom have contractual obligations to promote 
and develop our brands. For example, the Discover card brand is now being issued by certain Diners Club licensees in 
their local markets. If our business partners do not adhere to contractual standards, engage in improper business 
practices, or otherwise misappropriate, use or diminish the value of our brands or our other intellectual property, we 

-37-

may suffer reputational and financial damage. If we will not be able to adequately protect our brands, our proprietary 
information and other intellectual property, our business success may be adversely affected. In addition, third parties 
may allege that our marketing, processes or systems may infringe their intellectual property rights. Given the potential 
risks and uncertainties of such claims, our business could be adversely affected by having to pay significant monetary 
damages, technology development expenses or licensing fees, and we may have to alter our business practices or be 
prevented from competing effectively. 

Laws, regulations, and supervisory guidance and practices, or the application thereof, may adversely affect our 
business, financial condition and results of operations. 

We must comply with an array of banking, consumer lending, and payment services laws and regulations in all 

of the jurisdictions in which we operate as described more fully in “Business — Supervision and Regulation” and 
“Management’s Discussion and Analysis of Financial Condition and Results of Operations — Regulatory Environment 
and Developments.” Regulatory developments, findings and ratings could negatively impact our business strategies or 
require us to: limit or change our business practices, restructure our products in ways that we may not currently 
anticipate, limit our product offerings, invest more management time and resources in compliance efforts, limit the fees 
we can charge for services, or limit our ability to pursue certain business opportunities and obtain related required 
regulatory approvals. For additional information regarding bank regulatory limitations on acquisitions and investments, 
see “Business — Supervision and Regulation — Acquisitions and Investments.” See Note 19: Litigation and Regulatory 
Matters to our consolidated financial statements for more information on recent matters affecting Discover and the 
second risk factor in this section regarding the regulatory environment for the businesses in which we engage.

In addition, we are subject to inquiries and enforcement actions from states’ attorney general offices and 

regulation by the Federal Trade Commission, state banking regulators and the U.S. Department of Justice, as well as the 
SEC and New York Stock Exchange in our capacity as a public company. We also are subject to the requirements of 
entities that set and interpret the accounting standards (such as the FASB, the SEC, banking regulators and our 
independent registered public accounting firm), which may add new requirements or change their interpretations on 
how standards should be applied. In June 2016, the FASB issued new guidance that will require lenders to adopt the 
current expected credit loss (“CECL”) approach to evaluate impairment of loans and financial instruments. The CECL 
approach requires evaluation of credit impairment based on an estimate of life of loan losses whereas rules currently in 
effect require utilization of incurred losses. We are required to put the CECL standard in place for the 2020 fiscal year. 
See Note 1: Background and Basis of Presentation — Recently Issued Accounting Pronouncements to our consolidated 
financial statements for more information on the new standard and its potential impact on our financial condition and 
results of operations. This and other guidance not yet issued could potentially have a material impact on business lines, 
as well as how we record and report our financial condition and results of operations, and could have an impact on 
regulatory capital. 

Failure to comply with laws, regulations and standards could lead to adverse consequences such as financial, 
structural, reputational and operational penalties, including receivership, litigation exposure and fines, (as described 
further below). Failure to comply with anti-corruption and other laws can expose us and/or individual employees to 
potentially severe criminal and civil penalties. Specifically, we are subject to anti-corruption laws and regulations, 
including the U.S. Foreign Corrupt Practices Act and other laws, that prohibit the making or offering of improper 
payments. 

Legislative, regulatory and tax code changes could impact the profitability of our business activities, alter 
consumer behavior in ways we did not anticipate, require us to limit or change our business practices or our product 
offerings, or expose us to additional costs (including increased compliance costs). Significant changes in laws and 
regulations may have a more adverse effect on our results of operations than on the results of our competitors or may 
disproportionately benefit our competitors. 

Current and proposed laws and regulations addressing consumer privacy and data use and security could affect the 
competitiveness of our products and increase our costs.

Legal or regulatory pronouncements relating to consumer privacy, data use and security affect our business. We 
are subject to a number of laws concerning consumer privacy and data use and security such as the European Union’s 
General Data Privacy Regulation and the California Consumer Privacy Act. Due to recent consumer data compromise 
events in the United States, which resulted in unauthorized access to millions of customers’ data, these areas continue to 
be a focus of the executive administration, Congress, state legislators and attorneys general and other regulators. 
Developments in this area, such as new laws, regulations, regulatory guidance, litigation or enforcement actions, could 

-38-

result in new or different requirements on Discover and other card issuers or networks that could increase costs or 
adversely affect the competitiveness of our credit card or debit card products. See the discussion on recent security 
developments in “Management’s Discussion and Analysis of Financial Condition and Results of Operations — 
Regulatory Environment and Developments” for more information. In addition, failure to comply with the privacy and
data use and security laws and regulations to which we are subject, including by reason of inadvertent disclosure of 
confidential information or the failure to provide timely notification of a disclosure, could result in litigation, fines, 
sanctions, penalties or other adverse consequences and loss of consumer confidence, which could materially adversely 
affect our results of operations, overall business and reputation.

Litigation and regulatory actions could subject us to significant fines, penalties and/or requirements resulting in 
increased expenses. 

Businesses in the consumer banking and payment services industries have historically been subject to significant 
legal actions, including class action lawsuits and commercial, shareholder and patent litigation. Many of these actions
have included claims for substantial compensatory, statutory or punitive damages. We have historically offered
customers an arbitration clause in agreements to quickly and economically resolve disputes. The arbitration clause has,
in some cases, also limited our exposure to consumer class action litigation, however, there can be no assurance that 
we will be able to continue to offer arbitration clauses in the future or that we will be successful in enforcing the 
arbitration clause. Legal challenges to the enforceability of these clauses have led most card issuers, and may cause us, 
to discontinue their use. There have previously been bills pending in Congress to directly or indirectly prohibit the use of 
pre-dispute arbitration clauses in some or all consumer banking products. Further, from time to time, we are involved in 
legal actions challenging the use of our arbitration clause. In addition, we have been and may again be involved in 
various actions or proceedings brought by governmental regulatory and enforcement agencies, which could harm our 
reputation, require us to change our business activities and product offerings, or subject us to significant fines, penalties,
customer restitution or other requirements, resulting in increased expenses. For example, complying with our 
agreements with the Federal Reserve and the FDIC consent order related to our anti-money laundering program have
caused us to incur significant expenses. See Note 19: Litigation and Regulatory Matters to our consolidated financial
statements for more information on current matters affecting Discover.

Special Note Regarding Forward-Looking Statements

This annual report on Form 10-K and materials we have filed or will file with the SEC (as well as information 
included in our other written or oral statements) contain or will contain certain statements that are forward-looking 
within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are not guarantees of future 
performance and involve certain risks, uncertainties and assumptions that are difficult to predict. Actual outcomes and
results may differ materially from those expressed in, or implied by, our forward-looking statements. Words such as 
“expects,” “anticipates,” “believes,” “estimates” and other similar expressions or future or conditional verbs such as 
“will,” “should,” “would” and “could” are intended to identify such forward-looking statements. You should not rely 
solely on the forward-looking statements and should consider all uncertainties and risks throughout this annual report 
on Form 10-K, including those described under “Risk Factors.” The statements are only as of the date they are made, 
and we undertake no obligation to update any forward-looking statement.

Possible events or factors that could cause results or performance to differ materially from those expressed in our 

forward-looking statements include the following:

•

•

•

•

•

•

changes in economic variables, such as the availability of consumer credit, the housing market, energy costs,
the number and size of personal bankruptcy filings, the rate of unemployment, the levels of consumer
confidence and consumer debt, and investor sentiment;

the impact of current, pending and future legislation, regulation, supervisory guidance, and regulatory and
legal actions, including, but not limited to, those related to tax reform, financial regulatory reform, consumer
financial services practices, anti-corruption and funding, capital and liquidity;

the actions and initiatives of current and potential competitors;

our ability to manage our expenses;

our ability to successfully achieve card acceptance across our networks and maintain relationships with
network participants and merchants;

our ability to sustain and grow our card, private student loan and personal loan products;

-39-

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

our ability to increase or sustain Discover card usage or attract new customers;

difficulty obtaining regulatory approval for, financing, closing, transitioning, integrating or managing the
expenses of acquisitions of or investments in new businesses, products or technologies;

our ability to manage our credit risk, market risk, liquidity risk, operational risk, compliance and legal risk,
and strategic risk;

the availability and cost of funding and capital;

access to deposit, securitization, equity, debt and credit markets;

the impact of rating agency actions;

the level and volatility of equity prices, commodity prices and interest rates, currency values, investments,
other market fluctuations and other market indices;

losses in our investment portfolio;

limits on our ability to pay dividends and repurchase our common stock;

limits on our ability to receive payments from our subsidiaries;

fraudulent activities or material security breaches of our or others’ key systems;

our ability to remain organizationally effective;

the effect of political, economic and market conditions, geopolitical events and unforeseen or catastrophic
events;

our ability to introduce new products or services;

our ability to manage our relationships with third-party vendors;

our ability to maintain current technology and integrate new and acquired systems and technology;

our ability to collect amounts for disputed transactions from merchants and merchant acquirers;

our ability to attract and retain employees;

our ability to protect our reputation and our intellectual property; and

new lawsuits, investigations or similar matters or unanticipated developments related to current matters.

We routinely evaluate and may pursue acquisitions of or investments in businesses, products, technologies, loan

portfolios or deposits, which may involve payment in cash or our debt or equity securities.

The foregoing review of important factors should not be construed as exclusive and should be read in conjunction 

with the other cautionary statements that are included in this annual report on Form 10-K. These factors expressly 
qualify all subsequent oral and written forward-looking statements attributable to us or persons acting on our behalf. 
Except for any ongoing obligations to disclose material information as required under U.S. federal securities laws, we 
do not have any intention or obligation to update forward-looking statements after we distribute this annual report on 
Form 10-K, whether as a result of new information, future developments or otherwise.

-40-

Item 1B.  Unresolved Staff Comments

None.

Item 2. 

Properties

We have eight principal properties located in seven states in the United States. We own four principal properties, 

which include our corporate headquarters, two call centers and a processing center, and we lease four principal 
properties, which include two call centers, our PULSE headquarters and an office supporting our student loan business. 
The call centers, processing center and student loan office largely support our Direct Banking segment; the PULSE 
headquarters is used by our Payment Services segment; and our corporate headquarters is used by both our Direct 
Banking and Payment Services segments. Each of our call centers and our processing center are operating at and being 
utilized to a reasonable capacity. We believe our principal facilities are both suitable and adequate to meet our current 
and projected needs. We also have eleven leased offices located outside the United States, which include eight offices 
that support our Payment Services segment, two offices that support our Direct Banking segment and one office that 
supports business activities in both segments.

Item 3. 

Legal Proceedings

For a description of legal proceedings, see Note 19: Litigation and Regulatory Matters to our consolidated 

financial statements.

Item 4.  Mine Safety Disclosures

None.

-41-

Part II.

Part II | Item 5. 

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer 
Purchases of Equity Securities

yy

Our common stock is traded on the New York Stock Exchange (ticker symbol DFS). The approximate number of 

record holders of our common stock as of February 15, 2019 was 46,343.

Issuer Purchases of Equity Securities

The following table sets forth information regarding purchases of our common stock related to our share 
repurchase program and employee transactions that were made by us or on our behalf during the most recent quarter:

Period

October 1-31, 2018

Total Number of
TT
Shares
Purchased

gg
Average Price
Paid Per Share

Total Number of 
TT
Shares Purchased as 
y
Part of Publicly 
Announced Plan or 
Program(1)

Maximum Dollar 
Value of Shares that 
VV
y yy y
may yet be 
pp
purchased under the
(1)
Plans or Programs

Repurchase program(1) ....................................................................

2,272,952

Employee transactions(2) ..................................................................

752

November 1-30, 2018

Repurchase program(1) ....................................................................

2,152,488

Employee transactions(2) ..................................................................

2,443

December 1-31, 2018

Repurchase program(1) ....................................................................

2,192,483

Employee transactions(2) ..................................................................

90,738

TT
Total

Repurchase program(1) ....................................................................

6,617,923

Employee transactions(2) ..................................................................

93,933

$

$

$

$

$

$

$

$

75.07

76.53

69.89

69.93

63.37

59.08

69.51

59.50

2,272,952

$ 2,429,638,265

N/A

N/A

2,152,488

$ 2,279,209,552

N/A

N/A

2,192,483

$ 2,140,279,796

N/A

N/A

6,617,923

$ 2,140,279,796

N/A

N/A

(1) On July 19, 2018, our Board of Directors approved a share repurchase program authorizing the purchase of up to $3.0 billion of our outstanding shares of

(2)

common stock. This share repurchase program expires on January 31, 2020 and may be terminated at any time.
Reflects shares withheld (under the terms of grants under employee stock compensation plans) to offset tax withholding obligations that occur upon the delivery of
outstanding shares underlying restricted stock units or upon the exercise of stock options.

-42-

Stock Performance Graph

The following graph compares the cumulative total stockholder return of our common stock, the S&P 500 

Financials Index and the S&P 500 Index for the period from December 31, 2013 through December 31, 2018. The
graph assumes an initial investment of $100 on December 31, 2013. The cumulative returns include stock price
appreciation and assume full reinvestment of dividends. This graph does not forecast future performance of our 
common stock.

2013

2014

2015

2016

2017

2018

Discover Financial Services ........................ $

100.00

S&P 500 Financials Index .......................... $

100.00

S&P 500 Index ......................................... $

100.00

$

$

$

118.92

115.18

113.68

$

$

$

99.24

113.38

115.24

$

$

$

136.39

139.17

129.02

$

$

$

148.54

169.98

157.17

$

$

$

116.18

147.82

150.27

Item 6. 

Selected Financial Data 

The following table presents our selected financial data and operating statistics. The statement of income data for 

the years ended December 31, 2018, 2017 and 2016, and the statement of financial condition data as of 
December 31, 2018 and 2017 have been derived from our audited consolidated financial statements included 
elsewhere in this annual report on Form 10-K. The statement of income data for the years ended December 31, 2015 
and 2014, and the statement of financial condition data as of December 31, 2016, 2015, and 2014 have been 
derived from audited consolidated financial statements not included elsewhere in this annual report on Form 10-K.

-43-

Discover Financial Services
Selected Financial Data

For the Years Ended December 31,

YY

2018

2017

2016

2015

2014

(in millions, except per share amounts)

Statement of Income Data

Interest income .................................................................. $

10,893

$

9,648

$

8,616

$

7,945

$

Interest expense .................................................................

Net interest income ............................................................

Other income ....................................................................

2,139

8,754

1,955

Revenue net of interest expense ...........................................

10,709

Provision for loan losses .....................................................

Other expense ...................................................................

Income before income tax expense ......................................

Income tax expense ...........................................................

Net income ....................................................................... $

Net income allocated to common stockholders ...................... $

Statement of Financial Condition Data (as of)

3,035

4,077

3,597

855

2,742

2,689

Loan receivables ................................................................ $

90,512

Total assets ....................................................................... $

109,553

Total stockholders’ equity .................................................... $

11,130

Allowance for loan losses ................................................... $

3,041

Long-term borrowings ........................................................ $

27,228

Per Share of Common Stock

Basic EPS from continuing operations ................................... $

Diluted EPS from continuing operations ................................ $

Weighted-average shares outstanding .................................

Weighted-average shares outstanding (fully diluted) .............

7.81

7.79

344

345

1,648

8,000

1,897

9,897

2,579

3,781

3,537

1,438

2,099

2,031

84,248

100,087

10,892

2,621

26,326

5.43

5.42

374

374

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

1,398

7,218

1,881

9,099

1,859

3,584

3,656

1,263

2,393

2,339

77,254

92,308

11,323

2,167

25,443

5.77

5.77

405

406

$

$

$

$

$

$

$

$

$

1,263

6,682

2,057

8,739

1,512

3,615

3,612

1,315

2,297

2,246

72,385

86,799

11,275

1,869

24,650

5.14

5.13

437

437

$

$

$

$

$

$

$

$

$

Dividends declared per share of common stock ..................... $

1.50

$

1.30

$

1.16

$

1.08

$

7,596

1,134

6,462

2,015

8,477

1,443

3,340

3,694

1,371

2,323

2,270

69,969

82,998

11,134

1,746

22,477

4.91

4.90

462

463

0.92

Common stock dividend payout ratio ...................................

19.21%

23.94%

20.10%

21.01%

18.73%

Ratios

Return on average total equity ............................................

Return on average assets ....................................................

Average stockholders’ equity to average total assets .............

25%

3%

11%

19%

2%

12%

21%

3%

13%

21%

3%

14%

21%

3%

14%

-44-

Selected Financial Data (continued)

For the Years Ended December 31,

2018

2017

2016

2015

2014

(dollars in millions)

Selected Statistics

Total Loan Receivables

Loan receivables ................................................................ $

90,512

Average loan receivables ................................................... $

85,256

$

$

84,248

78,525

$

$

77,254

72,280

$

$

72,385

69,061

$

$

69,969

65,853

Interest yield ......................................................................

12.39%

12.06%

11.78%

11.40%

11.40%

Net principal charge-off rate ...............................................

Delinquency rate (over 30 days) ..........................................

Delinquency rate (over 90 days) ..........................................

3.06%

2.31%

1.08%

2.70%

2.20%

0.99%

2.16%

1.97%

0.87%

2.01%

1.67%

0.76%

2.04%

1.66%

0.78%

Credit Card Loans

Credit card loan receivables ............................................... $

72,876

Average credit card loan receivables ................................... $

67,953

$

$

67,291

62,079

$

$

61,522

57,238

$

$

57,896

54,846

$

$

56,128

52,600

Interest yield ......................................................................

13.00%

12.74%

12.50%

12.08%

12.09%

Net principal charge-off rate ...............................................

Delinquency rate (over 30 days) ..........................................

Delinquency rate (over 90 days) ..........................................

3.26%

2.43%

1.22%

2.91%

2.28%

1.12%

2.34%

2.04%

0.97%

2.22%

1.72%

0.85%

2.27%

1.73%

0.85%

Personal Loans

Personal loan receivables ................................................... $

Average personal loan receivables ...................................... $

7,454

7,423

$

$

7,374

7,020

$

$

6,481

5,895

$

$

5,490

5,245

$

$

5,007

4,592

Interest yield ......................................................................

12.60%

12.25%

12.19%

12.04%

12.36%

Net principal charge-off rate ...............................................

Delinquency rate (over 30 days) ..........................................

Delinquency rate (over 90 days) ..........................................

4.15%

1.60%

0.47%

3.30%

1.40%

0.41%

2.55%

1.12%

0.29%

2.15%

0.89%

0.27%

2.04%

0.79%

0.22%

Private Student Loans (excluding PCI)

Private student loan receivables ........................................... $

Average private student loan receivables ............................. $

7,728

7,441

$

$

7,076

6,764

$

$

6,393

6,042

$

$

5,647

5,272

$

$

4,850

4,450

Interest yield ......................................................................

Net principal charge-off rate ...............................................

Delinquency rate (over 30 days) ..........................................

Delinquency rate (over 90 days) ..........................................

8.25%

1.14%

2.00%

0.49%

7.72%

1.21%

2.35%

0.47%

7.35%

1.10%

2.22%

0.55%

7.16%

1.07%

1.91%

0.43%

7.02%

1.29%

1.80%

0.52%

-45-

 
 
 
 
 
 
Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of our financial condition and results of operations should be read in

rr

mation contained in this discussion and analysis constitutes for

conjunction with our audited consolidated financial statements and related notes included elsewhere in this annual 
report on Form 10-K. Some of the infor
ward-looking 
rr
statements that involve risks and uncertainties. Actual results could differ materially from those discussed in these 
ff
forward-looking statements. Factors that could cause or contribute to these differences include, but are not limited to, 
ticularly under “Risk Factors” and “Special 
those discussed below and elsewhere in this annual report on Form 10-K par
Note Regarding Forward-Looking Statements,” which immediately follows “Risk Factors.” Unless otherwise specified, 
references to Notes to our consolidated financial statements are to the Notes to our audited consolidated financial 
statements as of December 31, 2018 and 2017 and for years ended December 31, 2018, 2017 and 2016.

rr

ff

Introduction and Overview

Discover Financial Services (“DFS”) is a direct banking and payment services company. We provide direct 
banking products and services and payment services through our subsidiaries. We offer our customers credit card
loans, private student loans, personal loans, home equity loans and deposit products. We also operate the Discover 
Network, the PULSE network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network processes
transactions for Discover-branded credit and debit cards and provides payment transaction processing and settlement 
services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit cards on the 
PULSE network with access to ATMs domestically and internationally, as well as point-of-sale (“POS”) terminals at retail 
locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of licensees, which 
are generally financial institutions, that issue Diners Club branded charge cards and/or provide card acceptance
services.

Our primary revenues consist of interest income earned on loan receivables and fees earned from customers, 
financial institutions, merchants and issuers. The primary expenses required to operate our business include funding
costs (interest expense), loan loss provisions, customer rewards and expenses incurred to grow, manage and service
our loan receivables and networks. Our business activities are funded primarily through consumer deposits,
securitization of loan receivables and the issuance of unsecured debt.

2018 Highlights

• Net income was $2.7 billion, or $7.79 per diluted share, compared to $2.1 billion, or $5.42 per diluted

share, in the prior year.

•

Total loans grew $6.3 billion, or 7%, from the prior year to $90.5 billion.

• Credit card loans grew $5.6 billion, or 8%, from the prior year to $72.9 billion.

•

•

The total net charge-off rate increased 36 basis points from the prior year to 3.06%.

The net charge-off rate for credit card loans increased 35 basis points from the prior year to 3.26% and the
delinquency rate for credit card loans over 30 days past due increased 15 basis points to 2.43%.

• Direct-to-consumer deposits grew $5.3 billion, or 13%, from the prior year to $44.7 billion.

•

Payment Services transaction volume for the segment was $232.6 billion, up 15% from the prior year.

Prior Year Highlights

• Net income was $2.1 billion and $2.4 billion, or $5.42 and $5.77 per diluted share in 2017 and 2016,

respectively.

•

Total loans grew $7.0 billion in 2017, or 9%, from 2016 to $84.2 billion.

• Credit card loans grew $5.8 billion in 2017, or 9%, from 2016 to $67.3 billion.

•

•

The total net charge-off rate increased 54 basis points in 2017 from 2016 to 2.70%.

The net charge-off rate for credit card loans increased 57 basis points in 2017 from 2016 to 2.91% and the
delinquency rate for credit card loans over 30 days past due increased 24 basis points to 2.28%.

• Direct-to-consumer deposits grew $3.4 billion in 2017, or 9%, from 2016 to $39.4 billion.

•

Payment Services transaction volume for the segment was $202.9 billion in 2017, up 12% from 2016.

-46-

• During 2017, the effective tax rate increased 6.2 percentage points, primarily driven by a one-time

adjustment of $179 million as a result of the Tax Cuts and Jobs Act of 2017 (“TCJA”).

Outlook

We continue to focus on disciplined capital deployment through profitable organic loan growth and execution of 

our capital plan. Our marketing strategy remains focused on expanding wallet share with existing customers and 
adding new accounts to achieve continued loan growth in 2019.

Total expenses are expected to increase in 2019 as we continue to invest in business growth and technology,

including the deployment of advanced analytics and automation. We expect the rewards rate to modestly increase in
2019 largely resulting from the ongoing shift in product mix to the Discover it platform. 

The total net charge-off rate in 2019 is expected to increase in comparison to the prior year and we expect to

add to the loan loss reserve due to the seasoning of continued loan growth and supply-driven credit normalization. We 
expect net interest margin in 2019 to remain relatively flat.

In our payments segment, we will continue to pursue new ways to drive volume growth in a competitive 

environment. We continue to leverage our network to support our card-issuing business.

Regulatory Environment and Developments

Federal banking regulators continue to propose and implement new regulations and supervisory guidance,
including under the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"), and modify 
their examination and enforcement priorities. The Dodd-Frank Act created a framework for regulation of large
systemically significant financial firms, including Discover, through a variety of measures, including increased capital 
and liquidity requirements and limits on leverage and enhanced supervisory authority. The impact of the evolving 
regulatory environment on our business and operations depends upon a number of factors, including supervisory 
priorities and actions, our actions, those of our competitors and other marketplace participants, and the behavior of 
consumers.

On May 24, 2018, the President signed into law a package of legislative reforms titled the Economic Growth, 

Regulatory Relief, and Consumer Protection Act (“EGRRCPA”), which are intended to promote economic growth, 
provide tailored regulatory relief for smaller and less complex financial institutions, and enhance consumer protections.
Among other provisions, the new law raises the asset threshold for automatically designating a bank holding company 
as “systemically important” from $50 billion to $250 billion. The new law became effective immediately for bank 
holding companies with assets less than $100 billion and will become effective 18 months from its enactment for banks 
with assets of $100 billion or more. Upon effectiveness of the new law, bank holding companies with assets less than 
$250 billion will no longer automatically be subject to regulatory requirements that establish enhanced prudential 
standards pursuant to the Dodd-Frank Act. However, the extent of relief afforded to Discover under the law will depend 
on how it is implemented. On October 31, 2018, the Federal Reserve and other federal banking regulators issued
proposals to tailor the existing regulatory requirements related to capital, liquidity and enhanced prudential standards 
to an institution’s risk and complexity profile for banking institutions with total assets of $100 billion or more. The timing 
and substance of any final rules are currently unknown. On February 5, 2019, the Federal Reserve announced that 
certain less complex firms subject to Comprehensive Capital Analysis and Review (“CCAR”), generally those with total
consolidated assets between $100 billion and $250 billion, have been provided relief from certain components of the 
Federal Reserve’s capital planning and stress testing framework for the 2019 stress test cycle. The Federal Reserve 
issued a temporary order granting Discover relief from the regulatory requirements related to supervisory stress testing 
and company-run stress testing for the 2019 stress test cycle and provided Discover a one-year extension of the
requirement to submit a capital plan to the Federal Reserve until April 5, 2020. Additionally, Discover is not required to 
participate in the 2019 CCAR process. For more information, see “Business — Supervision and Regulation — Bank 
Holding Company Regulation.”

Another provision contained in the EGRRCPA authorizes the Social Security Administration to modernize the 

process in which it verifies information to help financial institutions detect and prevent the unauthorized use of Social 
Security numbers to open fraudulent accounts. While improvements to processes and procedures are underway, the 
timing and impact is uncertain.

Policymakers at the federal and state levels are increasingly focused on measures to enhance data security and 

data breach incident response requirements as a result of growing cybersecurity threats and the number of incidents 

-47-

involving unauthorized access to consumer information. Furthermore, regulations and legislation at various levels of 
government have been proposed to create data privacy standards. For example, the California Consumer Privacy Act 
(“CCPA”) creates a broad set of privacy rights and remedies modeled in part on the European Union's General Data 
Protection Regulation. The CCPA goes into effect on January 1, 2020. While it is too early to know their full impact, 
these developments could ultimately result in the imposition of requirements on Discover and other providers of 
consumer financial services or networks that could increase costs or otherwise adversely affect our businesses.

The impact of the evolving regulatory environment on our business and operations depends upon a number of 

factors, including supervisory priorities and actions, our actions, actions of our competitors and other marketplace 
participants, and the behavior of consumers. For more information on how the regulatory environment, enforcement 
actions, findings and ratings could also have an impact on our strategies, the value of our assets, or otherwise 
adversely affect our business see “Risk Factors — Current Economic and Regulatory Environment”. For more information 
on recent matters affecting us, see Note 19: Litigation and Regulatory Matters to our consolidated financial statements.

Consumer Financial Services

The Consumer Financial Protection Bureau (the “CFPB”) regulates consumer financial products and services, as 

well as certain financial services providers, including Discover. The CFPB has rulemaking and interpretive authority 
under the Dodd-Frank Act and other federal consumer financial services laws, as well as broad supervisory, 
examination and enforcement authority over designated financial services providers, including Discover. The CFPB’s 
regulatory authority includes the exercise of rulemaking, supervision and enforcement powers with respect to “unfair, 
deceptive or abusive acts or practices” and consumer access to fair, transparent and competitive financial products and 
services. Historically, the CFPB’s policy priorities focused on several financial products of the type we offer (e.g. credit 
cards and student loans).

On December 6, 2018, a new director of the CFPB was confirmed. The new director has indicated that her initial 

priorities include ensuring that the CFPB is fair and transparent in taking actions to empower consumers and provides 
certainty for market participants, including through the use of cost-benefit analysis and rulemaking processes. 
Previously, the CFPB issued formal requests for information on various topics, which are expected to continue. Despite 
the changes in the CFPB’s leadership, the CFPB is required by statute to undertake certain actions such as its bi-annual 
review of the consumer credit card market.

There continues to be legislative and regulatory focus on the private student loan market, including by some state 

legislatures and state attorneys general. Recent areas of focus have included servicing, payments and collection 
practices, which have resulted in an increase in supervisory examinations of Discover related to private student loans. 
Legislative focus on student loans has resulted in the enactment of student loan servicing laws in several states, and 
consideration of new licensing, servicing, reporting and regulatory oversight requirements for student loan servicers. 
Such legislation, regulation or guidance may increase the complexity and expense of servicing student loans and impact 
the entire student loan market, which could cause us to change our private student loan products or servicing practices 
in ways that we may not currently anticipate.

Payment Networks

The Dodd-Frank Act contains several provisions impacting the debit card market, including network participation 
requirements and interchange fee limitations. The changing debit card environment, including competitor actions related 
to merchant and acquirer pricing and transaction routing strategies, has adversely affected, and is expected to continue 
to adversely affect, our PULSE network's business practices, network transaction volume, revenue and prospects for 
future growth. We continue to closely monitor competitor pricing and technology development strategies in order to 
assess their impact on our business and on competition in the marketplace. Following an inquiry by the U.S. Department 
of Justice into some of these competitor pricing strategies, PULSE filed a lawsuit against Visa in late 2014 with respect to 
these competitive concerns. The Court granted summary judgment in favor of Visa on August 31, 2018. PULSE filed an 
appeal on January 17, 2019. Visa also faces ongoing merchant litigation as it relates to the underlying anticompetitive 
behavior that is the subject of PULSE’s case against Visa. In addition, the Dodd-Frank Act's network participation 
requirements impact PULSE's ability to enter into exclusivity arrangements, which affects PULSE's current business 
practices and may materially adversely affect its network transaction volume and revenue. 

-48-

Banking

Capital

Discover Financial Services and Discover Bank are subject to regulatory capital requirements that became 

effective January 1, 2015 under final rules issued by the Federal Reserve and the Federal Deposit Insurance 
Corporation (“FDIC”) to implement the provisions under the Basel Committee’s December 2010 framework (referred to 
as “Basel III”). The final capital rules ("Basel III rules") require minimum risk-based capital and leverage ratios and 
define what constitutes capital for purposes of calculating those ratios. In addition, the Basel III rules establish a capital 
conservation buffer (“CCB”) above the regulatory minimum capital requirements, which must consist entirely of Common 
Equity Tier 1 ("CET1") capital and result in higher required minimum ratios by at least 2.5%. The new CCB requirement 
became effective January 2016; however, the buffer threshold amounts have been subject to a gradual phase-in 
period. The full 2.5% buffer requirement is fully phased-in as of January 2019. A banking organization is subject to 
limitations on paying dividends, engaging in share repurchases and paying discretionary bonuses if its capital level falls 
below any of the minimum capital requirements, taking into account the applicable CCB thresholds. Based on our 
current capital composition and levels and business plans, we are and expect to continue to be in compliance with the 
requirements for the foreseeable future. For additional information, see "— Liquidity and Capital Resources — Capital."

On April 10, 2018, the Federal Reserve issued a notice of proposed rulemaking that would significantly revise 
the regulatory capital and stress testing frameworks for mid-sized bank holding companies such as Discover Financial 
Services by, among other things, imposing new “stress buffer” requirements and revising certain assumptions used in 
supervisory stress tests. The proposal is intended to make regulatory capital requirements more forward-looking, risk-
sensitive and firm-specific by linking them to the annual CCAR stress testing and capital plan review process. The timing 
and substance of any final rulemaking is uncertain at this time. 

On December 21, 2018, federal banking agencies adopted a joint final rule that will, among other things, give 
bank holding companies and banks, including Discover and its bank subsidiaries, the option to phase in the regulatory 
capital impacts of implementing the current expected credit loss ("CECL") approach over a three-year transition period. 
Recognition would be on a straight-line basis (i.e., 25% in year one, 50% in year two, 75% in year three and 100% 
thereafter). The final rule will become effective on April 1, 2019, although public companies such as Discover are not 
required to implement CECL until 2020. Separately on December 21, 2018, the Federal Reserve announced that it will 
not incorporate CECL into its supervisory stress tests until at least 2022 to reduce uncertainty, allow for better capital 
planning at affected firms and allow the Federal Reserve to gather additional information on the impact of CECL. The 
Federal Reserve will still require banking institutions subject to Dodd-Frank Act company-run stress test requirements to 
incorporate CECL into their internal stress testing processes beginning in 2020. For more information on CECL and how 
it may affect Discover, see Note 1: Background and Basis of Presentation to our consolidated financial statements.

Liquidity

We are currently subject to the U.S. liquidity coverage ratio rule issued by federal banking regulators. This 

quantitative requirement is designed to promote the short-term resilience of the liquidity risk profile of large and 
internationally active banking organizations in the United States. The rule requires covered banks to maintain an 
amount of high-quality liquid assets sufficient to cover projected net cash outflows during a prospective 30-day 
calendar period under an acute, hypothetical liquidity stress scenario. Given our current asset size, we are subject to a 
modified liquidity coverage ratio requirement, which requires a lower level of high-quality liquid assets to meet the 
minimum ratio requirement due to adjustments to the net cash outflow amount. The Federal Reserve issued a proposal 
on October 31, 2018 that would exempt bank holding companies with less than $250 billion in assets and less than 
$75 billion in certain other exposures from the liquidity coverage ratio rule. The timing and substance of any final 
rulemaking is unknown.

-49-

Results of Operations

The discussion below provides a summary of our results of operations for the year ended December 31, 2018 
compared to our results of operations for the year ended December 31, 2017 and year ended December 31, 2016. 
The discussion also provides information about our loan receivables as of December 31, 2018 compared to December 
31, 2017 and December 31, 2016. 

Segments

We manage our business activities in two segments, Direct Banking and Payment Services, based on the products

and services provided. For a detailed description of the operations of each segment, as well as the allocation 
conventions used in our business segment reporting, see Note 22: Segment Disclosures to our consolidated financial
statements.

The following table presents segment data (dollars in millions):

For the Years Ended December 31,

YY

2018

2017

2016

Direct Banking

Interest income

Credit card .................................................................................................................... $

8,835

$

7,907

$

7,155

Private student loans .......................................................................................................

PCI student loans ............................................................................................................

Personal loans ...............................................................................................................

Other ............................................................................................................................

614

139

935

369

Total interest income ..........................................................................................................

10,892

Interest expense .................................................................................................................

Net interest income ............................................................................................................

Provision for loan losses .....................................................................................................

Other income ....................................................................................................................

Other expense ...................................................................................................................

Income before income tax expense ......................................................................................

Payment Services

Net interest income ............................................................................................................

Provision for loan losses .....................................................................................................

Other income ....................................................................................................................

Other expense ...................................................................................................................

Income before income tax expense ......................................................................................

2,139

8,753

3,035

1,645

3,918

3,445

1

—

310

159

152

523

159

860

199

9,648

1,648

8,000

2,586

1,607

3,629

3,392

—

(7)

290

152

145

444

185

719

113

8,616

1,398

7,218

1,858

1,611

3,422

3,549

—

1

270

162

107

Total income before income tax expense .............................................................................. $

3,597

$

3,537

$

3,656

-50-

The following table presents information on transaction volume (in millions):

For the Years Ended December 31,

2018

2017

2016

Network Transaction Volume

PULSE Network .................................................................................................................. $

179,792

$

157,128

$

138,003

Network Partners ...............................................................................................................

Diners Club(1)

.....................................................................................................................

Total Payment Services .......................................................................................................

Discover Network—Proprietary(2) .........................................................................................

18,948

33,877

232,617

143,865

14,213

31,544

202,885

133,044

13,833

28,601

180,437

126,144

Total Volume ..................................................................................................................... $

376,482

$

335,929

$

306,581

Transactions Processed on Networks

Discover Network ..............................................................................................................

PULSE Network ..................................................................................................................

Total

.................................................................................................................................

2,469

4,364

6,833

2,240

3,856

6,096

2,125

3,456

5,581

Credit Card Volume

Discover Card Volume(3)

..................................................................................................... $

152,826

Discover Card Sales Volume(4) ............................................................................................. $

139,031

$

$

141,858

128,806

$

$

132,324

121,423

(1)

(2)
(3)
(4)

Diners Club volume is derived from data provided by licensees for Diners Club branded cards issued outside North America and is subject to subsequent revision or
amendment.
Represents gross proprietary sales volume on the Discover Network.
Represents Discover card activity related to net sales, balance transfers, cash advances and other activity.
Represents Discover card activity related to net sales.

Direct Banking

For the Year Ended December 31, 2018 compared to the Year Ended December 31, 2017

Our Direct Banking segment reported pretax income of $3.4 billion for the years ended December 31, 2018 and 

2017. 

Net interest income increased for the year ended December 31, 2018 as compared to the year ended December 

31, 2017 primarily driven by loan growth and higher yields on credit card loans, partially offset by higher funding 
costs. Interest income increased over the prior year due to continued loan growth and yield expansion resulting from 
prime rate increases. Interest expense increased during the year primarily due to higher market rates and a larger 
funding base.

For the year ended December 31, 2018, the provision for loan loss dollars increased as compared to the year 
ended December 31, 2017 primarily due to higher levels of net charge-offs, partially offset by a lower reserve build. 
For a detailed discussion on provision for loan losses, see “— Loan Quality — Provision and Allowance for Loan 
Losses.”

Total other income increased for the year ended December 31, 2018 as compared to the year ended December 
31, 2017 primarily due to higher discount and interchange revenue and loan fee income. The increase in discount and 
interchange revenue is partially offset by higher rewards, both of which were primarily the result of higher sales 
volume. Loan fee income increased primarily as the result of an increase in late fees due to a higher number of 
delinquent accounts.

Total other expense increased for the year ended December 31, 2018 as compared to the year ended December 

31, 2017 primarily due to higher employee compensation and benefits, marketing and business development costs, 
other expenses and information processing and communications. Employee compensation and benefits increased due to 
additional headcount for business growth and technological capabilities, as well as higher average salaries. The 
increase in marketing and business development costs was primarily due to higher acquisition costs and brand 
advertising targeting loan and deposit growth. The increase in other expense was largely driven by an increase in 
incentives supporting global merchant acceptance. Information processing and communications increased as the result 
of higher investments in infrastructure and analytic capabilities. 

-51-

 
 
Discover card sales volume was $139.0 billion for the year ended December 31, 2018, which was an increase 

of 7.9% as compared to the year ended December 31, 2017. This volume growth was driven primarily by growth in 
active cardmembers.

For the Year Ended December 31, 2017 compared to the Year Ended December 31, 2016 

Our Direct Banking segment reported pretax income of $3.4 billion for the year ended December 31, 2017 as 

compared to $3.5 billion for the year ended December 31, 2016.

Net interest income increased for the year ended December 31, 2017 as compared to the year ended December 

31, 2016 primarily driven by loan growth and higher yields on credit card loans, partially offset by higher funding 
costs. The increase in credit card yields was primarily due to prime rate increases and a higher portion of revolving 
card receivables, partially offset by the portfolio mix and higher interest charge-offs. Interest income increased during 
the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to loan growth and 
higher yields. Interest expense increased during the year ended December 31, 2017 as compared to the year ended 
December 31, 2016 primarily due to increased borrowings to fund asset growth, higher market rates and a change in 
funding mix.

For the year ended December 31, 2017, the provision for loan loss dollars increased as compared to the year 
ended December 31, 2016 due to higher levels of net charge-offs combined with a larger build of the allowance for 
loan losses as compared to 2016. For a detailed discussion on provision for loan losses, see “— Loan Quality — 
Provision and Allowance for Loan Losses.”

Total other income remained relatively flat for the year ended December 31, 2017 as compared to the year 
ended December 31, 2016. Discount and interchange revenue remained flat for the year ended December 31, 2017 in 
comparison to the year ended December 31, 2016 with offsetting increases in gross discount and interchange revenue 
and rewards, both of which were primarily the result of higher sales volume. Loan fee income increased for the year 
ended December 31, 2017 as compared to the previous year primarily due to an increase in late fees.

Total other expense increased for the year ended December 31, 2017 as compared to the year ended December 

31, 2016 primarily due to an increase in employee compensation and benefits, professional fees, marketing and 
business development costs, offset by a decrease in information processing and communications. The increase in 
employee compensation and benefits was driven by the impact of additional headcount for regulatory and compliance 
needs and business growth, higher average salaries and a one-time special bonus for eligible employees in response to 
the TCJA in 2017. The increase in professional fees was driven primarily by investments in technology and 
infrastructure, offset by the completion of a look back project related to anti-money laundering remediation in 2016. 
The increase in marketing and business development was primarily the result of higher brand advertising and loan 
acquisition costs that contributed to loan growth. The decrease in information processing and communications was 
primarily the result of infrastructure efficiencies.

Discover card sales volume was $128.8 billion for the year ended December 31, 2017, which was an increase 
of 6.1% as compared to the year ended December 31, 2016. This volume growth was driven primarily by an increase 
in active cardmembers.

Payment Services

For the Year Ended December 31, 2018 compared to the Year Ended December 31, 2017

Our Payment Services segment reported pretax income of $152 million for the year ended December 31, 2018 

as compared to pretax income of $145 million for the year ended December 31, 2017. The increase in segment pretax 
income was primarily due to higher other income driven by higher transaction volume across multiple channels.

Downturns in the global economy or negative impacts in foreign currency may adversely affect our financial 
condition or results of operations in our Payment Services segment. We continue to work with our Diners Club licensees 
with regard to their ability to maintain financing sufficient to support business operations. We may continue to provide 
additional support in the future, including loans, facilitating transfer of ownership, or acquiring assets or licensees, 
which may cause us to incur losses. The licensees that we currently consider to be of concern accounted for 
approximately 4% of Diners Club revenue for the years ended December 31, 2018 and 2017.

-52-

For the Year Ended December 31, 2017 compared to the Year Ended December 31, 2016 

Our Payment Services segment reported pretax income of $145 million for the year ended December 31, 2017 

as compared to pretax income of $107 million the year ended December 31, 2016. The increase in segment pretax 
income was primarily driven by an increase in transaction processing revenue due to higher POS transactions and
lower expense.

Critical Accounting Estimates

In preparing our consolidated financial statements in conformity with accounting principles generally accepted in 
the United States (“GAAP”), management must make judgments and use estimates and assumptions about the effects of 
matters that are uncertain. For estimates that involve a high degree of judgment and subjectivity, it is possible that 
different estimates could reasonably be derived for the same period. For estimates that are particularly sensitive to 
changes in economic or market conditions, significant changes to the estimated amount from period to period are also 
possible. Management believes the current assumptions and other considerations used to estimate amounts reflected in
our consolidated financial statements are appropriate. However, if actual experience differs from the assumptions and 
other considerations used in estimating amounts in our consolidated financial statements, the resulting changes could
have a material effect on our consolidated results of operations and, in certain cases, could have a material effect on 
our consolidated financial condition. Management has identified the estimates related to our allowance for loan losses,
the evaluation of goodwill for potential impairment and the accrual of income taxes as critical accounting estimates.

Allowance for Loan Losses 

We base our allowance for loan losses on several analyses that help us estimate incurred losses as of the balance 

sheet date. In deriving this estimate, we consider the collectibility of principal, interest and fees associated with our loan
receivables. While our estimation process includes historical data and analysis, there is a significant amount of 
judgment applied in selecting inputs and analyzing the results produced to determine the allowance. We use a 
migration analysis to estimate the likelihood that a loan will progress through the various stages of delinquency.
Management also estimates loss emergence by using other analyses to estimate losses incurred from non-delinquent 
accounts. The considerations in these analyses include past and current loan performance, loan seasoning and growth, 
current risk management practices, account collection strategies, economic conditions, bankruptcy filings, policy 
changes and forecasting uncertainties. Given the same information, others may reach different reasonable estimates.

If management used different assumptions in estimating incurred net loan losses, the impact to the allowance for 
loan losses could have a material effect on our consolidated financial condition and results of operations. For example, 
a 10% change in management’s estimate of incurred net loan losses could have resulted in a change of approximately 
$304 million in the allowance for loan losses at December 31, 2018, with a corresponding change in the provision for 
loan losses. See “— Loan Quality” and Note 2: Summary of Significant Accounting Policies to our consolidated 
financial statements for further details about our allowance for loan losses. 

Goodwill 

We recognize goodwill when the purchase price of an acquired business exceeds the total of the fair values of 

the acquired net assets. As required by GAAP, we test goodwill for impairment annually, or more often if indicators of 
impairment exist. In evaluating goodwill for impairment, management must estimate the fair value of the reporting
unit(s) to which the goodwill relates. Because market data concerning acquisitions of comparable businesses typically 
are not readily obtainable, other valuation techniques such as earnings multiples and cash flow models are used in
estimating the fair values of these reporting units. In applying these techniques, management considers historical results,
business forecasts, market and industry conditions and other factors. We may also consult independent valuation 
experts where needed in applying these valuation techniques. The valuation methodologies we use involve assumptions 
about business performance, revenue and expense growth, capital expenditures, discount rates and other assumptions
that are judgmental in nature.

-53-

At December 31, 2018, we reported goodwill of $255 million associated with our PULSE network. The estimated 
fair value of the PULSE reporting unit was more than four times its carrying value as of October 1, 2018, and there are
no present conditions that we believe would cause the fair value of this reporting unit to fall below its carrying value. 
However, competitive pressures leading to significant declines in revenue, significant increases in the cost of equity, 
deteriorating economic conditions, or other events adversely impacting the assumptions used by management in the
valuation, could cause the fair value of the reporting unit or the associated goodwill to decline in the future, which could 
result in an impairment loss. At December 31, 2018, based on the annual impairment testing performed, there was no 
impairment identified. See Note 7: Goodwill and Intangible Assets to our consolidated financial statements for further 
details about goodwill and the related impairment testing.

Income Taxes 

We are subject to the income tax laws of the jurisdictions where we have business operations, primarily the
United States, its states and municipalities. We must make judgments and interpretations about the application of these
inherently complex tax laws when determining the provision for income taxes and must also make estimates about when 
in the future certain items will affect taxable income in the various taxing jurisdictions. Disputes over interpretations of 
the tax laws may be settled with the taxing authority upon examination or audit. We regularly evaluate the likelihood of 
assessments in each of the taxing jurisdictions resulting from current and subsequent years’ examinations, and tax 
reserves are established as appropriate. 

Changes in the estimate of income taxes can occur due to tax rate changes, interpretations of tax laws, the status

and resolution of examinations by the taxing authorities, and newly enacted laws and regulations that impact the 
relative merits of tax positions taken. When such changes occur, such as the recent rate change enacted with the TCJA, 
the effect on our consolidated financial condition and results of operations can be significant. See Note 15: Income 
Taxes to our consolidated financial statements for additional information about income taxes.

Earnings Summary

The following table outlines changes in our consolidated statements of income (dollars in millions):

For the Years Ended December 31,

YY

2018 vs. 2017
Increase (Decrease)

2017 vs. 2016
Increase (Decrease)

2018

2017

2016

$

%

$

%

Interest income .............................................. $

10,893

$

9,648

$

8,616

$

1,245

13 % $

1,032

Interest expense .............................................

Net interest income ........................................

Provision for loan losses .................................

Net interest income after provision for loan

losses .........................................................

Other income ................................................

Other expense ..............................................

Income before income tax expense ..................

Income tax expense .......................................

2,139

8,754

3,035

5,719

1,955

4,077

3,597

855

1,648

8,000

2,579

5,421

1,897

3,781

3,537

1,438

1,398

7,218

1,859

5,359

1,881

3,584

3,656

1,263

Net income ................................................... $

2,742

$

2,099

$

2,393

$

491

754

456

298

58

296

60

(583)

643

30 %

9 %

18 %

5 %

3 %

8 %

2 %

(41)%

250

782

720

62

16

197

(119)

175

31 % $

(294)

12 %

18 %

11 %

39 %

1 %

1 %

5 %

(3)%

14 %

(12)%

Net Interest Income

The tables that follow this section have been provided to supplement the discussion below and provide further 

analysis of net interest income, net interest margin and the impact of rate and volume changes on net interest income. 
Net interest income represents the difference between interest income earned on our interest-earning assets and the 
interest expense incurred to finance those assets. We analyze net interest income in total by calculating net interest 
margin (net interest income as a percentage of average total loan receivables) and net yield on interest-earning assets 
(net interest income as a percentage of average total interest-earning assets). We also separately consider the impact of 
the level of loan receivables and the related interest yield and the impact of the cost of funds related to each of our 
funding sources, along with the income generated by our liquidity portfolio, on net interest income.

-54-

Our interest-earning assets consist of: (i) cash and cash equivalents primarily related to amounts on deposit with 
the Federal Reserve Bank of Philadelphia, (ii) restricted cash, (iii) other short-term investments, (iv) investment securities 
and (v) loan receivables. Our interest-bearing liabilities consist primarily of deposits, both direct-to-consumer and 
brokered, and long-term borrowings, including amounts owed to securitization investors. Net interest income is 
influenced by the following:

•

•

•

•

•

The level and composition of loan receivables, including the proportion of credit card loans to other loans, as
well as the proportion of loan receivables bearing interest at promotional rates as compared to standard
rates;

The credit performance of our loans, particularly with regard to charge-offs of finance charges, which reduce
interest income;

The terms of long-term borrowings and certificates of deposit upon initial offering, including maturity and
interest rate;

The interest rates necessary to attract and maintain direct-to-consumer deposits;

The level and composition of other interest-earning assets, including our liquidity portfolio and interest-
bearing liabilities;

• Changes in the interest rate environment, including the levels of interest rates and the relationships among
interest rate indices, such as the prime rate, the Federal Funds rate, interest rate on excess reserves and
London Interbank Offered Rate;

•

•

The effectiveness of interest rate swaps in our interest rate risk management program; and

The difference between the carrying amount and future cash flows expected to be collected on purchased
credit-impaired (“PCI”) loans.

For the Year Ended December 31, 2018 compared to the Year Ended December 31, 2017 

Net interest income increased for the year ended December 31, 2018 as compared to the year ended December 

31, 2017 primarily driven by loan growth and higher yields on credit card loans, partially offset by higher funding 
costs. Interest income increased over the prior year due to continued loan growth and yield expansion resulting from 
prime rate increases. Interest expense increased during the year primarily due to higher market rates and a larger 
funding base.

For the Year Ended December 31, 2017 compared to the Year Ended December 31, 2016 

Net interest income increased for the year ended December 31, 2017 as compared to the year ended December 

31, 2016 primarily driven by loan growth and higher yields on credit card loans, partially offset by higher funding 
costs. The increase in credit card yields was primarily due to prime rate increases and a higher portion of revolving 
card receivables, partially offset by the portfolio mix and higher interest charge-offs. Interest income increased during 
the year ended December 31, 2017 as compared to the year ended December 31, 2016 due to loan growth and 
higher yields. Interest expense increased during the year ended December 31, 2017 as compared to the year ended 
December 31, 2016 primarily due to increased borrowings to fund asset growth, higher market rates and a change in 
funding mix.

-55-

Average Balance Sheet Analysis
(dollars in millions)

Assets

Interest-earning assets

For the Years Ended December 31,

YY

2018

2017

2016

g
Average
Balance

Rate

Interest

g
Average  
 Balance

Rate

Interest

g
Average  
 Balance

Rate

Interest

Cash and cash equivalents ......................... $ 14,494

1.93% $

280

$ 13,300

1.11% $

148

$ 10,806

0.52% $

Restricted cash ..........................................

Other short-term investments ......................

633

—

1.85%

—%

Investment securities ..................................

1,910

2.08%

12

—

40

625

—

0.97%

—%

1,667

1.60%

6

—

27

540

518

2,445

0.37%

0.86%

1.55%

56

2

4

38

Loan receivables(1)

Credit card(2) ........................................

67,953

13.00%

8,835

62,079

12.74%

7,907

57,238

12.50%

7,155

Personal loans ......................................

Private student loans .............................

PCI student loans ..................................

Other ..................................................

7,423

7,441

1,846

593

12.60%

8.25%

7.54%

6.28%

936

614

139

37

7,020

6,764

2,326

336

12.25%

7.72%

6.84%

5.56%

Total loan receivables ................................

85,256

12.39%

10,561

78,525

12.06%

Total interest-earning assets ............................

102,293

10.65%

10,893

94,117

10.25%

860

522

159

19

5,895

6,042

2,841

264

12.19%

7.35%

6.51%

5.01%

9,467

9,648

72,280

11.78%

86,589

9.95%

719

444

185

13

8,516

8,616

Allowance for loan losses ...............................

(2,776)

Other assets ..................................................

4,324

Total assets ................................................... $ 103,841

(2,335)

4,189

$ 95,971

(1,938)

4,349

$ 89,000

Liabilities and Stockholders’ Equity

Interest-bearing liabilities

Interest-bearing deposits

Time deposits(3) ..................................... $ 31,236

Money market deposits(4) .......................

6,798

Other interest-bearing savings deposits ..

23,886

Total interest-bearing deposits(5) .................

61,920

Borrowings

Short-term borrowings ..........................

2

Securitized borrowings(3)(4) .....................

16,218

Other long-term borrowings(3) ................

10,231

Total borrowings .......................................

26,451

Total interest-bearing liabilities .......................

88,371

Other liabilities and stockholders’ equity ..........

15,470

Total liabilities and stockholders’ equity ........... $ 103,841

2.22%

1.81%

1.76%

2.00%

2.07%

2.67%

4.57%

3.41%

2.42%

695

$ 27,123

123

420

6,799

20,155

1,238

54,077

—

433

468

901

2

16,746

9,767

26,515

2,139

80,592

15,379

$ 95,971

1.91%

1.29%

1.18%

1.56%

1.10%

2.26%

4.33%

3.02%

2.04%

519

$ 24,833

88

239

846

—

379

423

802

6,939

16,725

48,497

2

16,784

8,430

25,216

1,648

73,713

15,287

$ 89,000

1.77%

1.08%

1.04%

1.42%

0.63%

2.06%

4.32%

2.82%

1.90%

439

75

173

687

—

346

365

711

1,398

Net interest income ........................................

$

8,754

$

8,000

$

7,218

Net interest margin(6) .....................................

Net yield on interest-earning assets(7) ...............

Interest rate spread(8) .....................................

10.27%

8.56%

8.23%

10.19%

8.50%

8.21%

9.99%

8.34%

8.05%

(1)

(2)

Average balances of loan receivables include non-accruing loans, which are included in the yield calculations. If the non-accruing loan balances were excluded,
there would not be a material impact on the amounts reported above.
Interest income on credit card loans includes $241 million, $218 million and $193 million of amortization of balance transfer fees for the years ended December 31,
2018, 2017 and 2016, respectively.
Includes the impact of interest rate swap agreements used to change a portion of fixed-rate funding to floating-rate funding.
Includes the impact of interest rate swap agreements used to change a portion of floating-rate funding to fixed-rate funding.
Includes the impact of FDIC insurance premiums and Large Institution Surcharge. As of October 2018, the FDIC no longer assesses a Large Institution Surcharge.

(3)
(4)
(5)
(6) Net interest margin represents net interest income as a percentage of average total loan receivables.
(7) Net yield on interest-earning assets represents net interest income as a percentage of average total interest-earning assets.
(8)

Interest rate spread represents the difference between the rate on total interest-earning assets and the rate on total interest-bearing liabilities.

-56-

Rate/Volume Variance Analysis(1)
(dollars in millions)

YY
Year Ended December 31, 2018 vs.
YY
Year Ended December 31, 2017

YY
Year Ended December 31, 2017 vs.
YY
Year Ended December 31, 2016

VV
Volume    

Rate   

TT
Total   

VV
Volume    

Rate   

TT
Total    

Increase/(decrease) in net interest income due to changes in

rr
Interest-earning assets

Cash and cash equivalents ........................ $

15

$

117

$

132

$

Restricted cash .........................................

Other short-term investments ......................

Investment securities ..................................

Loan receivables

Credit card ...........................................

Personal loans ......................................

Private student loans .............................

PCI student loans ..................................

Other ..................................................

Total loan receivables ...............................

Total interest income .................................

Interest-bearing liabilities

Interest-bearing deposits

Time deposits .......................................

Money market deposits .........................

Other interest-bearing savings deposits ...

Total interest-bearing deposits ...................

Borrowings

Securitized borrowings ..........................

Other long-term borrowings ...................

Total borrowings ......................................

Total interest expense ................................

—

—

4

763

51

54

(35)

15

848

867

85

—

49

134

(13)

21

8

142

6

—

9

165

25

38

15

3

246

378

91

35

132

258

67

24

91

349

6

—

13

928

76

92

(20)

18

1,094

1,245

176

35

181

392

54

45

99

491

16

—

(2)

(12)

613

138

55

(35)

4

775

777

43

(1)

40

82

—

58

58

140

$

76

$

4

(2)

1

139

3

23

9

2

176

255

37

14

26

77

33

—

33

110

Net interest income ................................... $

725

$

29

$

754

$

637

$

145

$

92

4

(4)

(11)

752

141

78

(26)

6

951

1,032

80

13

66

159

33

58

91

250

782

(1)

The rate/volume variance for each category has been allocated on a consistent basis between rate and volume variances between the years ended December 31,
2018, 2017 and 2016 based on the percentage of the rate or volume variance to the sum of the two absolute variances.

-57-

Loan Quality

Loan receivables consist of the following (dollars in millions):

2018

2017

2016

2015

2014

December 31,

Credit card loans ............................................................ $

72,876

$

67,291

$

61,522

$

57,896

$

56,128

Other loans

Personal loans .............................................................

Private student loans ....................................................

Mortgage loans held for sale(1) ......................................

Other .........................................................................

Total other loans .............................................................

PCI loans(2)

.....................................................................

Total loan receivables ......................................................

7,454

7,728

—

817

15,999

1,637

90,512

7,374

7,076

—

423

14,873

2,084

84,248

6,481

6,393

—

274

13,148

2,584

77,254

5,490

5,647

—

236

11,373

3,116

72,385

5,007

4,850

122

202

10,181

3,660

69,969

Allowance for loan losses .................................................

(3,041)

(2,621)

(2,167)

(1,869)

(1,746)

Net loan receivables ........................................................ $

87,471

$

81,627

$

75,087

$

70,516

$

68,223

(1) On June 16, 2015, we announced the closing of our mortgage origination business. Pursuant to that announcement, we sold all mortgage loans held for sale in our

portfolio and ceased originating new mortgages.
Represents PCI private student loans. See Note 4: Loan Receivables to our consolidated financial statements for more information regarding PCI loans.

(2)

Provision and Allowance for Loan Losses

Provision for loan losses is the expense related to maintaining the allowance for loan losses at an appropriate 

level to absorb the estimated probable losses in the loan portfolio at each period end date. While establishing the 
estimate for probable losses requires significant management judgment, the factors that influence the provision for loan
losses include:

•

The impact of general economic conditions on the consumer, including national and regional conditions,
unemployment levels, bankruptcy trends and interest rate movements;

• Changes in consumer spending, payment and credit utilization behaviors;

• Changes in our loan portfolio, including the overall mix of accounts, products and loan balances within the

portfolio and maturation of the loan portfolio;

•

•

•

The level and direction of historical and anticipated loan delinquencies and charge-offs;

The credit quality of the loan portfolio, which reflects, among other factors, our credit granting practices and
effectiveness of collection efforts; and

Regulatory changes or new regulatory guidance.

In determining the allowance for loan losses, we estimate probable losses separately for segments of the loan 
portfolio that have similar risk characteristics. We use a migration analysis to estimate the likelihood that a loan will
progress through the various stages of delinquency. We use other analyses to estimate losses incurred from non-
delinquent accounts, which adds to the identification of loss emergence. We use these analyses together as a basis for 
determining our allowance for loan losses.

The provision for loan losses is the amount of expense realized after considering the level of net charge-offs in the 

period and the required amount of allowance for loan losses at the balance sheet date. For the year ended December 
31, 2018, the provision for loan losses increased by $456 million, or 18%, as compared to the year ended December 
31, 2017 primarily due to higher levels of net charge-offs, partially offset by a lower reserve build. For the year ended 
December 31, 2017, the provision for loan losses increased by $720 million, or 39%, as compared to the year ended 
December 31, 2016 primarily due to higher levels of net charge-offs combined with a larger build of the allowance for 
loan losses.

The allowance for loan losses was $3.0 billion at December 31, 2018, which reflects a $420 million reserve 

build over the amount of the allowance for loan losses at December 31, 2017. The reserve build, which related 

-58-

primarily to credit card loans, was because of seasoning of continued loan growth and supply-driven credit 
normalization, due to increasing consumer leverage.

The allowance for loan losses was $2.6 billion at December 31, 2017, which reflected a $454 million reserve 

build over the amount of the allowance for loan losses at December 31, 2016. The reserve build, which related 
primarily to credit card loans along with builds in personal and student loan reserves, was due to was due to seasoning 
of continued loan growth and increasing consumer leverage.

The following tables provide changes in our allowance for loan losses (dollars in millions):

For the Year Ended December 31, 2018

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

2,147

$

301

$

162

$

11

$

2,621

Additions

Provision for loan losses .................................................

2,594

345

Deductions

Charge-offs ...................................................................

(2,734)

Recoveries .....................................................................

521

Net charge-offs .................................................................

(2,213)

Other(2) .............................................................................

—

(345)

37

(308)

—

95

(97)

12

(85)

(3)

1

(6)

—

(6)

—

3,035

(3,182)

570

(2,612)

(3)

Balance at end of period ................................................... $

2,528

$

338

$

169

$

6

$

3,041

For the Year Ended December 31, 2017

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,790

$

200

$

158

$

19

$

2,167

Additions

Provision for loan losses .................................................

2,159

332

Deductions

Charge-offs ...................................................................

(2,263)

Recoveries .....................................................................

461

Net charge-offs .................................................................

(1,802)

Other(2) .............................................................................

—

(258)

27

(231)

—

93

(94)

11

(83)

(6)

Balance at end of period ................................................... $

2,147

$

301

$

162

$

(5)

(3)

—

(3)

—

11

2,579

(2,618)

499

(2,119)

(6)

$

2,621

For the Year Ended December 31, 2016

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,554

$

155

$

143

$

17

$

1,869

Additions

Provision for loan losses .................................................

1,579

196

Deductions

Charge-offs ...................................................................

(1,786)

Recoveries .....................................................................

443

Net charge-offs .................................................................

(1,343)

(172)

21

(151)

82

(76)

9

(67)

2

—

—

—

1,859

(2,034)

473

(1,561)

Balance at end of period ................................................... $

1,790

$

200

$

158

$

19

$

2,167

(1)

Includes both PCI and non-PCI private student loans.

(2) Net change in reserves on PCI pools having no remaining non-accretable difference.

-59-

 
The following tables provide changes in our allowance for loan losses (dollars in millions):

For the Year Ended December 31, 2015

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,474

$

120

$

135

$

17

$

1,746

Additions

Provision for loan losses .................................................

1,300

147

Deductions

Charge-offs ...................................................................

Recoveries .....................................................................

Net charge-offs .................................................................

(1,660)

440

(1,220)

(129)

17

(112)

64

(65)

9

(56)

1

(1)

—

(1)

Balance at end of period ................................................... $

1,554

$

155

$

143

$

17

$

1,512

(1,855)

466

(1,389)

1,869

For the Year Ended December 31, 2014

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,406

$

112

$

113

$

17

$

1,648

Additions

Provision for loan losses .................................................

1,259

102

Deductions

Charge-offs ...................................................................

(1,636)

Recoveries .....................................................................

445

Net charge-offs .................................................................

(1,191)

(105)

11

(94)

79

(62)

5

(57)

3

(3)

—

(3)

1,443

(1,806)

461

(1,345)

Balance at end of period ................................................... $

1,474

$

120

$

135

$

17

$

1,746

(1)

Includes both PCI and non-PCI private student loans.

Net Charge-offs

Our net charge-offs include the principal amount of losses charged off less principal recoveries and exclude 

charged-off and recovered interest and fees and fraud losses. Charged-off and recovered interest and fees are 
recorded in interest income and loan fee income, respectively, which is effectively a reclassification of the provision for 
loan losses, while fraud losses are recorded in other expense. Credit card loan receivables are charged off at the end 
of the month during which an account becomes 180 days contractually past due. Personal loans and private student 
loans, which are closed-end consumer loan receivables, are generally charged off at the end of the month during which 
an account becomes 120 days contractually past due. Generally, customer bankruptcies and probate accounts are 
charged off at the end of the month 60 days following the receipt of notification of the bankruptcy or death but not later 
than the 180-day or 120-day contractual time frame.

The following table presents amounts and rates of net charge-offs of key loan products (dollars in millions):

For the Years Ended December 31,

2018

2017

2016

2015

2014

$

%

$

%

$

%

$

%

$

%

Credit card loans ....................................... $ 2,213

3.26% $ 1,802

2.91% $ 1,343

2.34% $ 1,220

2.22% $ 1,191

2.27%

Personal loans ............................................ $ 308

4.15% $ 231

3.30% $ 151

2.55% $ 112

2.15% $

Private student loans (excluding PCI(1)) .......... $

85

1.14% $

83

1.21% $

67

1.10% $

56

1.07% $

94

57

2.04%

1.29%

(1)

See Note 4: Loan Receivables to our consolidated financial statements for information regarding the accounting for charge-offs on PCI loans.

The net charge-off rates on our credit card and personal loans increased by 35 and 85 basis points, respectively,
for the year ended December 31, 2018 as compared to the year ended December 31, 2017 as a result of seasoning of 

-60-

 
 
 
 
 
continued loan growth and supply-driven credit normalization. Net charge-offs on our private student loans remained 
relatively flat for the year ended December 31, 2018 as compared to the year ended December 31, 2017.

The net charge-off rates on our credit card, personal and private student loans increased by 57, 75 and 11 basis 

points, respectively, for the year ended December 31, 2017 as compared to the year ended December 31, 2016 as a 
result of seasoning of continued loan growth and increasing consumer leverage.

Delinquencies

Delinquencies are an indicator of credit quality at a point in time. A loan balance is considered delinquent when 

contractual payments on the loan become 30 days past due.

The following table presents the amounts and delinquency rates of key loan products that are 30 and 90 days or 

more delinquent, loan receivables that are not accruing interest, regardless of delinquency and restructured loans 
(dollars in millions):

Years Ended December 31,

2018

2017

2016

2015

2014

$

%

$

%

$

%

$

%

$

%

Loans 30 or more days delinquent

Credit card loans ................................................ $1,772

2.43% $1,532

2.28% $1,252

2.04% $ 995

1.72% $ 971

1.73%

Personal loans .................................................... $ 119

1.60% $ 103

1.40% $

74

1.12% $

49

0.89% $

Private student loans (excluding PCI loans(1)) .......... $ 155

2.00% $ 167

2.35% $ 141

2.22% $ 108

1.91% $

40

87

0.79%

1.80%

Loans 90 or more days delinquent

Credit card loans ................................................ $ 887

1.22% $ 751

1.12% $ 597

0.97% $ 490

0.85% $ 480

0.85%

Personal loans .................................................... $

Private student loans (excluding PCI loans(1)) .......... $

35

38

0.47% $

0.49% $

30

33

0.41% $

0.47% $

19

35

0.29% $

0.55% $

15

24

0.27% $

0.43% $

11

25

0.22%

0.52%

Loans not accruing interest .................................. $ 302

0.34% $ 233

0.28% $ 216

0.29% $ 224

0.32% $ 183

0.28%

Restructured loans

Credit card loans(2) .............................................. $2,248

3.08% $1,316

1.96% $1,085

1.76% $1,019

1.76% $1,037

1.85%

Personal loans(3) .................................................. $ 152

2.04% $ 111

1.51% $

Private student loans (excluding PCI loans(1))(4) ........ $ 182

2.36% $ 137

1.94% $

81

86

1.25% $

1.35% $

68

48

1.24% $

0.85% $

55

38

1.10%

0.78%

(1)

(2)

(3)

(4)

Excludes PCI loans, 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 we are recognizing interest income
on a pool of loans, it is all considered to be performing.
Restructured credit card loans include $124 million, $74 million, $60 million, $44 million and $44 million at December 31, 2018, 2017, 2016, 2015 and 2014,
respectively, which are also included in loans 90 or more days delinquent.
Restructured personal loans include $6 million, $5 million, $2 million, $4 million and $3 million at December 31, 2018, 2017, 2016, 2015 and 2014, respectively,
which are also included in loans 90 or more days delinquent.
Restructured private student loans include $7 million, $5 million, $3 million, $3 million and $5 million at December 31, 2018, 2017, 2016, 2015 and 2014,
respectively, which are also included in loans 90 or more days delinquent.

The 30-day and 90-day delinquency rates for credit card and personal loans at December 31, 2018 increased 

as compared to December 31, 2017. For private student loans, the 30-day delinquency rate decreased and the 90-day 
delinquency rate was relatively flat at December 31, 2018 as compared to December 31, 2017. Delinquency rates 
were generally higher due to seasoning of continued loan growth and supply-driven credit normalization.

The 30-day delinquency rates for credit card, personal and private student loans along with the 90-day 
delinquency rates for credit card and personal loans at December 31, 2017 increased as compared to December 31, 
2016 primarily due to seasoning of continued loan growth and increasing consumer leverage. The amount of private 
student loans that were 90 or more days delinquent was relatively flat in December 31, 2017 as compared to 
December 31, 2016.

-61-

 
 
The restructured credit card, personal and private student loan balances increased at December 31, 2018 as 

compared to December 31, 2017 due to seasoning of continued loan growth and greater utilization of programs 
available to assist borrowers having difficulties meeting payment obligations.

The restructured credit card and personal loan balances increased at December 31, 2017 as compared to 

December 31, 2016 due to loan growth and seasoning. The restructured private student loan balance increased at 
December 31, 2017 as compared to December 31, 2016 as a result of greater utilization of programs available as 
more loans have entered into repayment.

Maturities and Sensitivities of Loan Receivables to Changes in Interest Rates 

Our loan portfolio had the following maturity distribution(1) (dollars in millions):

At December 31, 2018

Due One
Year or
YY
Less

Due After
One YearYY
Through
YY
Five Years

Due After
YY
Five Years

TT
Total

Credit card loans ........................................................................................ $

21,696

$

38,728

$

12,452

$

72,876

Personal loans ............................................................................................

2,077

Private student loans (excluding PCI) .............................................................

PCI loans ...................................................................................................

Other loans ................................................................................................

187

178

367

5,082

1,770

558

94

295

5,771

901

356

7,454

7,728

1,637

817

Total loan portfolio ...................................................................................... $

24,505

$

46,232

$

19,775

$

90,512

(1)

Because of the uncertainty regarding loan repayment patterns, the above amounts have been calculated using contractually required minimum payments.
Historically, actual loan repayments have been higher than such minimum payments and, therefore, the above amounts may not necessarily be indicative of our
actual loan repayments.

At December 31, 2018, approximately $42.7 billion of our loan portfolio due after one year had interest rates 

tied to an index and approximately $23.3 billion were fixed-rate loans.

Modified and Restructured Loans

For information regarding modified and restructured loans, see Note 4: Loan Receivables to our consolidated 

financial statements.

Other Income

The following table presents the components of other income (dollars in millions):

For the Years Ended December 31,

YY

2018 vs. 2017
Increase (Decrease)

2017 vs. 2016
(Decrease) Increase

2018

2017

2016

$

%

$

%

Discount and interchange revenue(1) ................ $

1,074

$

1,052

$

1,055

$

Protection products ........................................

Loan fee income ............................................

Transaction processing revenue ......................

Other income ................................................

204

402

178

97

223

363

167

92

239

343

155

89

Total other income ......................................... $

1,955

$

1,897

$

1,881

$

22

(19)

39

11

5

58

2 % $

(9)%

11 %

7 %

5 %

3 % $

(3)

(16)

20

12

3

16

— %

(7)%

6 %

8 %

3 %

1 %

(1) Net of rewards, including Cashback Bonus rewards, of $1.8 billion, $1.6 billion and $1.4 billion for the years ended December 31, 2018, 2017 and 2016,

respectively.

For a detailed description of our revenue recognition accounting policies for other income, see Note 2: Summary 

of Significant Accounting Policies to our consolidated financial statements.

Total other income increased $58 million for the year ended December 31, 2018 as compared to the year ended 
December 31, 2017, which was primarily driven by higher discount and interchange revenue and loan fee income. The 
increase in discount and interchange revenue is partially offset by higher rewards, both of which were primarily the 

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result of higher sales volume. Loan fee income increased primarily as the result of an increase in late fees due to a 
higher number of delinquent accounts. 

Total other income stayed relatively flat for the year ended December 31, 2017 as compared to the year ended 

December 31, 2016. Discount and interchange revenue remained flat for the year ended December 31, 2017 in 
comparison to the year ended December 31, 2016 with offsetting increases in gross discount and interchange revenue
and rewards, both of which were primarily the result of higher sales volume. Loan fee income increased for the year 
ended December 31, 2017 as compared to the previous year primarily due to an increase in late fees.

Other Expense

The following table represents the components of other expense (dollars in millions):

For the Years Ended December 31,

YY

2018 vs. 2017
Increase

2017 vs. 2016
Increase (Decrease)

2018

2017

2016

$

%

$

%

Employee compensation and benefits .............. $

1,627

$

1,512

$

1,379

$

115

8% $

133

10 %

Marketing and business development ..............

Information processing and communications ....

Professional fees ............................................

Premises and equipment ................................

Other expense ..............................................

857

350

672

102

469

776

315

655

99

424

731

339

605

95

435

81

35

17

3

45

10%

11%

3%

3%

11%

Total other expense ....................................... $

4,077

$

3,781

$

3,584

$

296

8% $

45

(24)

50

4

(11)

197

6 %

(7)%

8 %

4 %

(3)%

5 %

Total other expense increased $296 million for the year ended December 31, 2018 as compared to the year 

ended December 31, 2017. The increase was primarily driven by higher employee compensation and benefits,
marketing and business development costs, other expenses and information processing and communications. Employee 
compensation and benefits increased due to additional headcount for business growth and technological capabilities,
as well as higher average salaries. The increase in marketing and business development costs was primarily due to 
higher acquisition costs and brand advertising targeting loan and deposit growth. The increase in other expense was 
largely driven by an increase in incentives supporting global merchant acceptance. Information processing and
communications increased as the result of higher investments in infrastructure and analytic capabilities. 

Total other expense increased $197 million for the year ended December 31, 2017 as compared to the year 

ended December 31, 2016. The increase was primarily driven by an increase in employee compensation and benefits, 
professional fees, marketing and business development costs, offset by a decrease in information processing and 
communications. The increase in employee compensation and benefits was driven by the impact of additional
headcount for regulatory and compliance needs and business growth, higher average salaries and a one-time special 
bonus for eligible employees in response to the TCJA in 2017. The increase in professional fees was driven primarily by 
investments in technology and infrastructure, offset by the completion of a look back project related to anti-money 
laundering remediation in 2016. The increase in marketing and business development was primarily the result of higher 
brand advertising and loan acquisition costs that contributed to loan growth. The decrease in information processing 
and communications was primarily the result of infrastructure efficiencies.

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Income Tax Expense

The following table reconciles our effective tax rate to the U.S. federal statutory income tax rate:

For the Years Ended December 31,

YY

2018

2017

2016

U.S. federal statutory income tax rate .....................................................................................

21.0%

35.0%

35.0%

U.S. state, local and other income taxes, net of U.S. federal income tax benefits ........................

Revaluation of net deferred tax assets and other investments due to tax reform(1) ........................

Tax credits

..........................................................................................................................

Other ..................................................................................................................................

3.6

—

(1.3)

0.5

3.1

5.1

(1.3)

(1.2)

2.7

—

(1.8)

(1.4)

Effective income tax rate .......................................................................................................

23.8%

40.7%

34.5%

Income tax expense .............................................................................................................. $

855

$

1,438

$

1,263

(1)

See Note 3: Investments — Other Investments to our consolidated financial statements for a description of these investments.

For the year ended December 31, 2018, income tax expense decreased $583 million, or 40.5%, and the
effective income tax rate decreased 16.9 percentage points as compared to the year ended December 31, 2017. The 
decrease in both the effective tax rate and income tax expense is primarily due to a reduction in the U.S. federal
statutory income tax rate from 35% to 21% and other impacts of TCJA.

Income tax expense increased $175 million, or 13.9%, and the effective income tax rate increased 6.2 
percentage points for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The 
increase in both the effective tax rate and income tax expense is primarily due to the revaluation of net deferred tax 
assets and certain investments as a result of a reduction in the U.S. federal statutory income tax rate from 35% to 21%
under the TCJA.

Liquidity and Capital Resources

Funding and Liquidity

We seek to maintain stable, diversified and cost-effective funding sources and a strong liquidity profile in order 

to fund our business and repay or refinance our maturing obligations under both normal operating conditions and 
periods of economic or financial stress. In managing our liquidity risk, we seek to maintain a prudent liability maturity 
profile and ready access to an ample store of primary and contingent liquidity sources. Our primary funding sources 
include direct-to-consumer and brokered deposits, public term asset-backed securitizations and other short-term and 
long-term borrowings. Our primary liquidity sources include a liquidity portfolio comprised of highly liquid,
unencumbered assets, including cash and cash equivalents and investment securities, and borrowing capacity through 
private term asset-backed securitizations. In addition, we have unused borrowing capacity with the Federal Reserve
discount window, which provides another source of contingent liquidity.

Funding Sources

Deposits

We offer deposit products to customers through two channels: (i) through direct marketing, internet origination

and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements with 
securities brokerage firms (“brokered deposits”). Direct-to-consumer deposits include online savings accounts, 
certificates of deposit, money market accounts, IRA certificates of deposit and checking accounts, while brokered 
deposits include certificates of deposit and sweep accounts. At December 31, 2018, we had $44.7 billion of direct-to-
consumer deposits and $23.1 billion of brokered and other deposits.

Credit Card Securitization Financing

We securitize credit card receivables as a source of funding. We access the asset-backed securitization market 

using the Discover Card Master Trust I (“DCMT”) and the Discover Card Execution Note Trust (“DCENT”), through 
which we issue DCENT DiscoverSeries notes in both public and private transactions. From time to time, we may add 
credit card receivables to these trusts to create sufficient funding capacity for future securitizations while managing 

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seller’s interest. We retain significant exposure to the performance of trust assets through holdings of the seller’s interest 
and subordinated security classes of DCENT.

The securitization structures include certain features designed to protect investors. The primary feature relates to 
the availability and adequacy of cash flows in the securitized pool of receivables to meet contractual requirements, the 
insufficiency of which triggers early repayment of the securities. We refer to this as “economic early amortization”, 
which is based on excess spread levels. Excess spread is the amount by which income received by a trust during a 
collection period, including interest collections, fees and interchange, exceeds the fees and expenses of the trust during 
such collection period, including interest expense, servicing fees and charged-off receivables. In the event of an 
economic early amortization, which would occur if the excess spread fell below 0% on a three-month rolling average 
basis, we would be required to repay the affected outstanding securitized borrowings using available collections 
received by the trust; the period of ultimate repayment would be determined by the amount and timing of collections 
received. An early amortization event would impair our liquidity, and may require us to utilize our available non-
securitization related contingent liquidity or rely on alternative funding sources, which may or may not be available at 
the time. As of December 31, 2018, the DiscoverSeries three-month rolling average excess spread was 13.49%.

We may elect to add receivables to the restricted pool of receivables, subject to certain requirements. Through 

our wholly-owned indirect subsidiary, Discover Funding LLC, we are required to maintain a contractual minimum level 
of receivables in the trust in excess of the face value of outstanding investors’ interests. This excess is referred to as the 
minimum seller’s interest. The required minimum seller’s interest in the pool of trust receivables, which is included in 
credit card loan receivables restricted for securitization investors, is set at approximately 7% in excess of the total 
investors’ interests (which includes interests held by third parties as well as those interests held by us). If the level of 
receivables in the trust were to fall below the required minimum, we would be required to add receivables from the 
unrestricted pool of receivables, which would increase the amount of credit card loan receivables restricted for 
securitization investors. A decline in the amount of the excess seller’s interest could occur if balance repayments and 
charge-offs exceeded new lending on the securitized accounts or as a result of changes in total outstanding investors’ 
interests. Seller’s interest is impacted by seasonality as higher balance repayments tend to occur in the first calendar 
year quarter. If we could not add enough receivables to satisfy the minimum seller’s interest requirement, an early 
amortization (or repayment) of investors’ interests would be triggered. During 2018, we elected to add $3.0 billion of 
credit card loan receivables to the securitization trust, which increased seller’s interest. The addition increases capacity 
to issue notes to investors, including draws on commitments through privately placed securitizations, and results in a 
decrease in receivables pledged at the Federal Reserve discount window.

At December 31, 2018, we had $16.8 billion of outstanding public asset-backed securities and $5.2 billion of 

outstanding subordinated asset-backed securities that had been issued to our wholly-owned subsidiaries.

The following table summarizes expected contractual maturities of the investors’ interests in credit card 

securitizations, excluding those that have been issued to our wholly-owned subsidiaries (dollars in millions):

At December 31, 2018

Scheduled maturities of long-term borrowings - owed to

credit card securitization investors ..................................... $

Total

Less Than
One Year

One Year
Through
Three Years

Four Years
Through
Five Years

After Five
Years

16,720

$

6,233

$

5,588

$

3,578

$

1,321

The triple-A rating of DCENT Class A Notes issued to date has been based, in part, on an FDIC rule, which 

created a safe harbor that provides that the FDIC, as conservator or receiver, will not, using its power to disaffirm or 
repudiate contracts, seek to reclaim or recover assets transferred in connection with a securitization, or recharacterize 
them as assets of the insured depository institution, provided such transfer satisfies the conditions for sale accounting 
treatment under previous GAAP. Although the implementation of the Financial Accounting Standards Board Accounting 
Standards Codification Topic 860, Transfers and Servicing, no longer qualified certain transfers of assets for sale 
accounting treatment, the FDIC approved a final rule that preserved the safe-harbor treatment applicable to revolving 
trusts and master trusts, including DCMT, so long as those trusts would have satisfied the original FDIC safe harbor if 
evaluated under GAAP pertaining to transfers of financial assets in effect prior to December 1, 2009. Other legislative 
and regulatory developments may, however, impact our ability and/or desire to issue asset-backed securities in the 
future.

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Other Long-Term Borrowings—Student Loans

At December 31, 2018, $198 million of remaining principal balance was outstanding on securitized debt 
assumed as part of our acquisition of The Student Loan Corporation. Principal and interest payments on the underlying 
student loans will reduce the balance of these secured borrowings over time. 

Other Long-Term Borrowings—Corporate and Bank Debt

The following table provides a summary of Discover Financial Services (Parent Company) and Discover Bank 

outstanding fixed-rate debt (dollars in millions):

At December 31, 2018

Discover Financial Services (Parent Company) fixed-rate senior notes, maturing 2019-2027 ..................................................... $

Discover Financial Services (Parent Company) fixed-rate retail notes, maturing 2019-2031 ...................................................... $

Discover Bank fixed-rate senior bank notes, maturing 2020-2028 .......................................................................................... $

Discover Bank fixed-rate subordinated bank notes, maturing 2019-2028 ................................................................................ $

Principal
Amount
Outstanding

2,900

351

6,100

1,200

Certain Discover Financial Services senior notes require us to offer to repurchase the notes at a price equal to 

101% of their aggregate principal amount plus accrued and unpaid interest in the event of a change of control 
involving us and a corresponding ratings downgrade to below investment grade.

Short-Term Borrowings

As part of our regular funding strategy, we may from time to time borrow short-term funds in the federal funds 
market or the repurchase (“repo”) market through repurchase agreements. Federal funds are short-term, unsecured 
loans between banks or other financial entities with a Federal Reserve account. Funds borrowed in the repo market are 
short-term, collateralized loans, usually secured with highly-rated investment securities such as U.S. Treasury bills or 
notes, or federal agency mortgage bonds or debentures. At December 31, 2018, there were no outstanding balances 
in the federal funds market or repurchase agreements.

Additional Funding Sources

Private Asset-Backed Securitizations

We have access to committed borrowing capacity through privately placed asset-backed securitizations. At 

December 31, 2018, we had total committed capacity of $6.0 billion, $500 million of which was drawn. While we 
may utilize funding from these private securitizations from time to time for normal business operations, their committed 
nature also makes them a reliable contingency funding source. Therefore, we reserve some undrawn capacity, informed 
by our liquidity stress testing results, for potential contingency funding needs. We also seek to ensure the stability and 
reliability of these securitizations by staggering their maturity dates, renewing them approximately one year prior to 
their scheduled maturity dates and periodically drawing them for operational testing purposes and seasonal funding 
needs.

Federal Reserve

Discover Bank has access to the Federal Reserve Bank of Philadelphia’s discount window. As of December 31, 

2018, Discover Bank had $31.5 billion of available borrowing capacity through the discount window based on the 
amount and type of assets pledged, primarily consumer loans. We have no borrowings outstanding under the discount 
window and reserve this capacity as a source of contingent liquidity.

Funding Uses

Our primary uses of funds include the extensions of loans and credit, primarily through Discover Bank, the 

purchase of investment securities for our liquidity portfolio, working capital, and debt and capital service. We assess 
funding uses and liquidity needs under stressed and normal operating conditions, considering primary uses of funding, 
such as on-balance sheet loans, and contingent uses of funding, such as the need to post additional collateral for 
derivatives positions. In order to anticipate funding needs under stress, we conduct liquidity stress testing to assess the 

-66-

impact of idiosyncratic, systemic and hybrid (idiosyncratic and systemic) scenarios with varying levels of liquidity risk 
reflecting a range of stress severity.

Credit Ratings

Our borrowing costs and capacity in certain funding markets, including those for securitizations and unsecured 

senior and subordinated debt, may be affected by the credit ratings of DFS, Discover Bank and the securitization trusts. 
Downgrades in these credit ratings could result in higher interest expense on our unsecured debt and asset 
securitizations, as well as higher collateral enhancement requirements for both our public and private asset 
securitizations. In addition to increased funding costs, deterioration in credit ratings could reduce our borrowing 
capacity in the unsecured debt and asset securitization capital markets.

We also maintain agreements with certain of our derivative counterparties that contain provisions that require 
DFS and Discover Bank to maintain an investment grade credit rating from specified major credit rating agencies. At 
December 31, 2018, Discover Bank’s credit rating met specified thresholds set by its counterparties. However, if its 
credit ratings were to fall below investment grade, Discover Bank would be required to post additional collateral, 
which, as of December 31, 2018, would have been $20 million. DFS (Parent Company) had no outstanding derivatives 
as of December 31, 2018, and therefore, no collateral was required.

On October 30, 2018, Moody’s upgraded the credit ratings of DFS and Discover Bank by one notch; our senior 

unsecured debt ratings are now Baa3 for DFS and Baa2 for Discover Bank. The table below reflects our current credit 
ratings and outlooks, including the upgrade from Moody’s:

Discover Financial Services

Senior unsecured debt

..........................................................................................................

Outlook for Discover Financial Services senior unsecured debt .................................................

Discover Bank

Senior unsecured debt

..........................................................................................................

Outlook for Discover Bank senior unsecured debt ....................................................................

Subordinated debt

...............................................................................................................

Discover Card Execution Note Trust

Moody’s
Investors
Service

Standard &
Poor’s

Fitch Ratings

Baa3

Stable

Baa2

Stable

Baa3

BBB-

Stable

BBB

Stable

BBB-

BBB+

Stable

BBB+

Stable

BBB

Class A(1)

.............................................................................................................................

Aaa(sf)

AAA(sf)

AAA(sf)

(1)

An “sf” in the rating denotes rating agency identification for structured finance product ratings.

A credit rating is not a recommendation to buy, sell or hold securities, may be subject to revision or withdrawal

at any time by the assigning rating organization, and each rating should be evaluated independently of any other 
rating.

Liquidity

We seek to ensure that we have adequate liquidity to sustain business operations, fund asset growth and satisfy 

debt obligations under stressed and normal operating conditions. In addition to the funding sources discussed in the 
previous section, we also maintain highly liquid, unencumbered assets in our liquidity portfolio that we expect to be 
able to convert to cash quickly and with little loss of value using either the repo market or outright sales.

We maintain a liquidity risk and funding management policy, which outlines the overall framework and general 

principles we follow in managing liquidity risk across our business. The policy is approved by the Board of Directors 
with implementation responsibilities delegated to the Asset and Liability Management Committee (the “ALCO”). 
Additionally, we maintain a liquidity management framework document, which outlines the general strategies, 
objectives and principles we utilize to manage our liquidity position and the various liquidity risks inherent in our 
business model. We seek to balance the trade-offs between maintaining too much liquidity, which may be costly, with 
having too little liquidity, which could cause financial distress. Liquidity risk is centrally managed by the ALCO, which is 
chaired by our Treasurer and has cross-functional membership. The ALCO monitors the liquidity risk profiles of DFS and 
Discover Bank and oversees any actions Corporate Treasury may take to ensure that we maintain ready access to our 

-67-

funding sources and sufficient liquidity to meet current and projected needs. In addition, the ALCO and our Board of 
Directors regularly review our compliance with our liquidity limits at DFS and Discover Bank, which are established in 
accordance with the liquidity risk appetite set by our Board of Directors.

We employ a variety of metrics to monitor and manage liquidity. We utilize early warning indicators (“EWIs”) to 
detect the initial phases of liquidity stress events and a reporting and escalation process that is designed to be consistent 
with regulatory guidance. The EWIs include both idiosyncratic and systemic measures, and are monitored on a daily 
basis and reported to the ALCO regularly. A warning from one or more of these indicators triggers prompt review and 
decision-making by our senior management team, and in certain instances may lead to the convening of a senior-level 
response team and activation of our contingency funding plan.

In addition, we conduct liquidity stress testing regularly and ensure contingency funding is in place to address 
potential liquidity shortfalls. We evaluate a range of stress scenarios that are designed in accordance with regulatory 
requirements, including idiosyncratic, systemic and a combination of such events that could impact funding sources and 
our ability to meet liquidity needs. These scenarios measure the projected liquidity position at DFS and Discover Bank 
across a range of time horizons by comparing estimated contingency funding needs to available contingent liquidity. 

Our primary contingent liquidity sources include our liquidity portfolio and private securitizations with unused 

borrowing capacity. In addition, we have unused borrowing capacity with the Federal Reserve discount window, which 
provides an additional source of contingent liquidity. We seek to maintain sufficient liquidity to be able to satisfy all 
maturing obligations and fund business operations for at least 12 months in a severe stress environment. In such an 
environment, we may also take actions to curtail the size of our balance sheet, which would reduce the need for funding 
and liquidity.

At December 31, 2018, our liquidity portfolio is comprised of highly liquid, unencumbered assets, including cash 

and cash equivalents and investment securities. Cash and cash equivalents were primarily in the form of deposits with 
the Federal Reserve. Investment securities primarily included debt obligations of the U.S. Treasury and residential 
mortgage-backed securities issued by U.S. government housing agencies or government-sponsored enterprises. These 
investments are considered highly liquid, and we expect to have the ability to raise cash by selling them, utilizing 
repurchase agreements or pledging certain of these investments to access secured funding. The size and composition of 
our liquidity portfolio may fluctuate based upon the size of our balance sheet as well as operational requirements and 
market conditions.

At December 31, 2018, our liquidity portfolio and undrawn credit facilities were $52.9 billion, which was $4.2 

billion higher than the balance at December 31, 2017. During the year ended December 31, 2018, the average 
balance of our liquidity portfolio was $16.6 billion.

December 31,

2018

2017

(dollars in millions)

Liquidity portfolio

Cash and cash equivalents(1)

....................................................................................................................... $

12,832

$

12,213

Investment securities(2)

................................................................................................................................

Total liquidity portfolio ...................................................................................................................................

Private asset-backed securitizations(3)

..............................................................................................................

Primary liquidity sources ................................................................................................................................

Federal Reserve discount window(3)

.................................................................................................................

3,091

15,923

5,500

21,423

31,486

1,347

13,560

6,000

19,560

29,153

Total liquidity portfolio and undrawn credit facilities ......................................................................................... $

52,909

$

48,713

(1)
(2)

(3)

Cash in the process of settlement and restricted cash are excluded from cash and cash equivalents for liquidity purposes.
Excludes $42 million and $48 million of U.S. Treasury securities that have been pledged as swap collateral in lieu of cash as of December 31, 2018 and 2017,
respectively.
See “— Additional Funding Sources” for additional information.

Bank Holding Company Liquidity

The primary uses of funds at the unconsolidated DFS level include debt service obligations (interest payments and 

return of principal) and capital service and management activities, which include dividend payments on capital 

-68-

 
instruments and the periodic repurchase of shares of our common stock. Our primary sources of funds at the bank 
holding company level include the proceeds from the issuance of unsecured debt and capital securities, as well as 
dividends from our subsidiaries, particularly Discover Bank. Under periods of idiosyncratic or systemic stress, the bank 
holding company could lose or experience impaired access to the capital markets. In addition, our regulators have the 
discretion to restrict dividend payments from Discover Bank to the bank holding company.

We utilize a measure referred to as Number of Months of Pre-Funding to determine the length of time Discover 
Financial Services can meet upcoming funding obligations including common and preferred stock dividend payments 
and debt service obligations using existing cash resources. At December 31, 2018, Discover Financial Services had 
sufficient cash resources to fund the dividend and debt service payments for more than 18 months.

We structure our debt maturity schedule to minimize the amount of debt maturing within a short period of time. 
See Note 9: Long-Term Borrowings to our consolidated financial statements for further information regarding our debt. 

Capital

Our primary sources of capital are the earnings generated by our businesses and the proceeds from issuances of 

capital securities. We seek to manage capital to a level and composition sufficient to support the growth and risks of 
our businesses and to meet regulatory requirements, rating agency targets and debt investor expectations. Within these 
constraints, we are focused on deploying capital in a manner that provides attractive returns to our stockholders. The 
level, composition and utilization of capital are influenced by changes in the economic environment, strategic initiatives, 
and legislative and regulatory developments. 

Under regulatory capital requirements adopted by the Federal Reserve and the FDIC, DFS, along with Discover 

Bank, must maintain minimum levels of capital. Failure to meet minimum capital requirements can result in the initiation 
of certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could limit our 
business activities and have a direct material effect on our financial position and results. We must meet specific capital 
requirements that involve quantitative measures of assets, liabilities and certain off-balance sheet items, as calculated 
under regulatory guidance and regulations. Current or future legislative or regulatory initiatives may require us to hold 
more capital in the future, such as future implementation of the CECL methodology for loan loss reserves.

In 2013, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued the Basel III rules 

applicable to DFS and Discover Bank. Under those rules, DFS and Discover Bank are classified as “Standardized 
Approach” entities, defined as U.S. banking organizations with consolidated total assets over $50 billion but not 
exceeding $250 billion and consolidated total on-balance sheet foreign exposures less than $10 billion. Additional 
phase-in requirements related to components of the final capital rules will become effective through 2019. The Basel III 
rules revised minimum and “well-capitalized” risk-based capital and leverage ratios, effective January 1, 2015, and 
refined the definition of what constitutes “capital” for purposes of calculating those ratios of which certain requirements 
are subject to phase-in periods through the end of 2018 (the “transition period”). During the transition period, the 
effects of the changes to capital (i.e., certain deductions and adjustments) were recognized in 20% increments from 
2015 through 2018. For example, one of the deductions from CET1 capital, intangibles, was subject to a 40% of total 
deduction in 2015 that increased to 60% in 2016 and so on, until reaching 100% deduction of total in 2018. For 
additional information regarding the risk-based capital and leverage ratios, see Note 17: Capital Adequacy to our 
consolidated financial statements.

The Basel III rules also introduced a CCB on top of the minimum risk-weighted asset ratios. The buffer is designed 

to absorb losses during periods of economic stress. The calculation of the buffer started to phase in beginning on 
January 1, 2016 at the rate of 0.625% and increases by 0.625% on each subsequent January 1 until it reaches the 
maximum 2.5% on January 1, 2019. When the CCB is fully phased-in on January 1, 2019, this will effectively result in 
minimum ratios (including the CCB) of (i) CET1 to risk-weighted assets of at least 7.0%, (ii) Tier 1 capital to risk-
weighted assets of at least 8.5% and (iii) Total capital to risk-weighted assets of at least 10.5%. Banking institutions with 
a capital ratio below the required amount will face constraints on dividends, equity repurchases and compensation 
based on the amount of the shortfall. There is a proposal under regulatory review that is expected to replace the CCB 
with a Stress Capital Buffer (“SCB”).

Another main component of the Basel III rules is a prescribed “Standardized Approach” for calculating risk-

weighted assets that expands the risk-weight range from 0% to 1,250%. The new range is intended to be more risk-
sensitive and the risk weight assigned depends on the nature of the asset in question.

-69-

The Basel III rules provide for certain threshold based deductions from and adjustments to CET1, to the extent that 
any one such category exceeds 10% of CET1 or all such categories in the aggregate exceed 15%. In September 2017, 
federal banking regulators issued a notice of proposed rulemaking that would, among other things, revise certain 
capital requirements for Standardized Approach banks by raising the 10% of CET1 deduction threshold for certain 
items to 25% and eliminating the 15% combined deduction threshold applying to these items. These proposed changes 
are open for public comment and have not yet been implemented. 

Basel III also requires disclosures relating to market discipline. This series of disclosures is commonly referred to 

as “Pillar 3.” The objective is to increase transparency of capital requirements for banking organizations. We are 
required to make prescribed regulatory disclosures on a quarterly basis regarding our capital structure, capital 
adequacy, risk exposures and risk-weighted assets. The Pillar 3 disclosures are made publicly available on our website 
in a report called “Basel III Regulatory Capital Disclosures.”

At December 31, 2018, DFS and Discover Bank met the requirements for “well-capitalized” status under 

Regulation Y and the prompt corrective action rules, respectively, exceeding the regulatory minimums to which they 
were subject under the applicable rules. 

We disclose tangible common equity, which represents common equity less goodwill and intangibles. 
Management believes that common stockholders’ equity excluding goodwill and intangibles is a more meaningful 
measure to investors of our true net asset value. As of December 31, 2018, tangible common equity is not formally 
defined by U.S. GAAP or codified in the federal banking regulations and, as such, is considered to be a non-GAAP 
financial measure. Other financial services companies may also disclose this metric and definitions may vary, so we 
advise users of this information to exercise caution in comparing this metric for different companies. 

The following table provides a reconciliation of total common stockholders’ equity (a U.S. GAAP financial 

measure) to tangible common equity (dollars in millions):

December 31,

2018

2017

Total common stockholders’ equity(1)

............................................................................................................... $

10,567

$

10,329

Less: goodwill

...............................................................................................................................................

Less: intangible assets, net

..............................................................................................................................

(255)

(161)

(255)

(163)

Tangible common equity ................................................................................................................................ $

10,151

$

9,911

(1)

Total common stockholders’ equity is calculated as total stockholders’ equity less preferred stock.

Additionally, we are subject to regulatory requirements imposed by the Federal Reserve as part of its stress testing

framework and its CCAR program. In 2018, we were required to submit a capital plan to the Federal Reserve that 
included an assessment of our expected uses and sources of capital over a nine-quarter planning horizon. We 
submitted our capital plan to the Federal Reserve in April 2018 for the 2018 CCAR cycle and received notice in June 
2018 that the Federal Reserve does not object to our proposed capital plan, including planned quarterly capital 
distributions through June 30, 2019. Our ability to make capital distributions, including our ability to pay dividends on 
or repurchase shares of our common stock, will continue to be subject to regulatory limitations imposed by the Federal 
Reserve. We have been notified that we are not required to participate in CCAR or submit to supervisory stress tests for 
the 2019 stress test cycle. However, our capital distributions for the period between July 1, 2019 and June 30, 2020 
will be limited based on a formula that is largely based on results from the Federal Reserve’s 2018 supervisory stress 
test.

In June 2018, the Federal Reserve published the results of its annual supervisory stress tests for bank holding 

companies with $50 billion or more in total consolidated assets, including DFS. At that same time, we published 
company-run stress test results for DFS and Discover Bank. Under rules in effect in 2018, DFS was required to publish 
company-run stress tests results twice each year and Discover Bank was required to publish bank-run stress tests 
annually. Certain statutory changes under the EGRRCPA and proposed changes to regulatory rules, if adopted, would 
substantially change the stress testing and capital planning requirements applicable to us for 2020 and beyond.

We recently declared a quarterly cash dividend on our common stock of $0.40 per share, payable on March 7, 

2019 to holders of record on February 21, 2019, which is consistent with the amount paid in the third and fourth 
quarters of 2018. We also recently declared a semi-annual cash dividend on our preferred stock of $2,750 per share, 
equal to $27.50 per depositary share, payable on April 30, 2019 to holders of record on April 15, 2019, which is 

-70-

consistent with the amount paid in the second and fourth quarters of 2018.

On July 19, 2018, our Board of Directors approved a share repurchase program authorizing the repurchase of 
up to $3.0 billion of our outstanding shares of common stock. The program expires on January 31, 2020 and may be
terminated at any time. This program replaced the prior $2.8 billion share repurchase program, which had $611
million of remaining authorization. During the year ended December 31, 2018, we repurchased approximately 27 
million shares, or 8%, of our outstanding common stock for $2.0 billion. We expect to continue to repurchase shares 
under our program from time to time based on market conditions and other factors, subject to legal and regulatory 
requirements and restrictions, including non-objection from the Federal Reserve as described above. Share repurchases 
under the program may be made through a variety of methods, including open market purchases, privately negotiated 
transactions or other purchases, including block trades, accelerated share repurchase transactions, or any combination 
of such methods.

The amount and size of any future dividends and share repurchases will depend upon our results of operations,
financial condition, capital levels, cash requirements, future prospects and other factors. The declaration and payment 
of future dividends, as well as the amount thereof, are subject to the discretion of our Board of Directors. Holders of our 
shares of common stock are subject to the prior dividend rights of holders of our preferred stock or the depositary 
shares representing such preferred stock outstanding, and if full dividends have not been declared and paid on all 
outstanding shares of preferred stock in any dividend period, no dividend may be declared or paid or set aside for 
payment on our common stock. In addition, as noted above, banking laws and regulations and our banking regulators 
may limit our ability to pay dividends and make share repurchases, including limitations on the extent to which our 
banking subsidiaries can provide funds to us through dividends, loans or otherwise. Further, current or future regulatory 
initiatives may require us to hold more capital in the future. There can be no assurance that we will declare and pay 
any dividends or repurchase any shares of our common stock in the future. For more information, including conditions 
and limits on our ability to pay dividends and repurchase our stock, see “Business — Supervision and Regulation — 
Capital, Dividends and Share Repurchases,” “Risk Factors — Credit, Market and Liquidity Risk — We may be limited in
our ability to pay dividends on and repurchase our stock” and “— 
payments from our subsidiaries” and Note 17: Capital Adequacy to our consolidated financial statements.

We are a holding company and depend on 

kk

Certain Off-Balance Sheet Arrangements

Guarantees

Guarantees are contracts or indemnification agreements that contingently require us to make payments to a 

guaranteed party based on changes in an underlying asset, liability, or equity security of a guaranteed party, rate or 
index. Also included in guarantees are contracts that contingently require the guarantor to make payments to a
guaranteed party based on another entity’s failure to perform under an agreement. Our guarantees relate to 
transactions processed on the Discover Network and certain transactions processed by PULSE and Diners Club. See
Note 18: Commitments, Contingencies and Guarantees to our consolidated financial statements for further discussion
regarding our guarantees.

-71-

Contractual Obligations and Contingent Liabilities and Commitments

In the normal course of business, we enter into various contractual obligations that may require future cash 

payments. Contractual obligations include deposits, long-term borrowings, operating and capital lease obligations, 
interest payments on fixed-rate debt, purchase obligations and other liabilities. Our future cash payments associated 
with our contractual obligations are summarized below (dollars in millions):

At December 31, 2018

Payments Due By Period

TT
Total

Less Than
One YearYY

One YearYY
Through
gg
YY
ears
Three Y

YY
Four Years
Through Five
YY
Years

More Than
YY
Five Years

Deposits(1)(2) ....................................................................... $

67,759

$

48,273

$

12,418

$

4,717

$

Borrowings(3) .....................................................................

27,228

6,511

8,090

6,134

Operating leases ...............................................................

Interest payments on fixed-rate debt ....................................

Purchase obligations(4)  ........................................................

Other liabilities(5) ...............................................................

83

2,881

961

260

13

631

538

51

21

933

398

46

16

612

24

39

2,351

6,493

33

705

1

124

Total contractual obligations ............................................... $

99,172

$

56,017

$

21,906

$

11,542

$

9,707

(1)

(2)
(3)

(4)

Deposits do not include interest payments because payment amounts and timing cannot be reasonably estimated as certain deposit accounts have early withdrawal
rights and the option to roll interest payments into the balance.
Deposits due in less than one year include deposits with indeterminate maturities.
See Note 9: Long-Term Borrowings to our consolidated financial statements for further discussion. Total future payment of interest charges for the floating-rate notes
is estimated to be $636 million as of December 31, 2018, utilizing the current interest rates as of that date.
Purchase obligations for goods and services include payments under, among other things, consulting, outsourcing, data, advertising, sponsorship, software license,
telecommunications agreements and global acceptance contracts. Purchase obligations also include payments under rewards program agreements with merchants.
Purchase obligations at December 31, 2018 reflect the minimum purchase obligation under legally binding contracts with contract terms that are both fixed and
determinable. These amounts exclude obligations for goods and services that already have been incurred and are reflected on our consolidated statement of
financial condition.

(5) Other liabilities include our expected future contributions to our pension plan, the contingent liability associated with our other investments accounted for under the
equity method and a commitment to purchase certain when-issued mortgage-backed securities under an agreement with the Delaware State Housing Authority as
part of our community reinvestment initiatives.

As of December 31, 2018 our consolidated statement of financial condition reflects a liability for unrecognized

tax benefits of $83 million and approximately $18 million of accrued interest and penalties. Since the ultimate amount 
and timing of any future cash settlements cannot be predicted with reasonable certainty, the estimated income tax 
obligations about which there is uncertainty have been excluded from the contractual obligations table. See Note 15:
Income Taxes to our consolidated financial statements for further information concerning our tax obligations.

We extend credit for consumer loans, primarily arising from agreements with customers for unused lines of credit 

on certain credit cards and certain other loan products, provided there is no violation of conditions established in the
related agreement. At December 31, 2018, our unused credit arrangements were approximately $196.4 billion. These
arrangements, substantially all of which we can terminate at any time and which do not necessarily represent future 
cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan 
qualification. In addition, in the ordinary course of business, we guarantee payment on behalf of subsidiaries relating to 
contractual obligations with external parties. The activities of the subsidiaries covered by any such guarantees are 
included in our consolidated financial statements.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Market risk refers to the risk that a change in the level of one or more market prices, rates, indices, correlations or 

other market factors will result in losses for a position or portfolio. We are exposed to market risk primarily from 
changes in interest rates.

Interest Rate Risk

We borrow money from a variety of depositors and institutions in order to provide loans to our customers, as 

well as invest in other assets and our business. These loans and other assets earn interest, which we use to pay interest 
on the money borrowed. Our net interest income and, therefore, earnings, will be reduced if the interest rate earned on
assets increases at a slower pace than the interest rate on our borrowings. Changes in interest rates and our 

-72-

competitors’ responses to those changes may influence customer payment rates, loan balances or deposit account 
activity. As a result, we may incur higher funding costs, which has the potential to decrease earnings.

Our interest rate risk management policies are designed to measure and manage the potential volatility of 
earnings that may arise from changes in interest rates by having a financing portfolio that reflects our mix of variable- 
and fixed-rate assets. To the extent that the repricing characteristics of the assets and liabilities in a particular portfolio 
are not sufficiently matched, we may utilize interest rate derivative contracts, such as swap agreements, to achieve our 
objectives. Interest rate swap agreements effectively convert the underlying asset or liability from fixed- to floating-rate 
or from floating- to fixed-rate. See Note 21: Derivatives and Hedging Activities to our consolidated financial statements 
for information on our derivatives activity.

We use an interest rate sensitivity simulation to assess our interest rate risk exposure. For purposes of presenting 

the possible earnings effect of a hypothetical, adverse change in interest rates over the 12-month period from our 
reporting date, we assume that all interest rate sensitive assets and liabilities will be impacted by a hypothetical, 
immediate 100 basis point change in interest rates relative to market consensus expectations as of the beginning of the 
period. The sensitivity is based upon the hypothetical assumption that all relevant types of interest rates would change 
instantaneously, simultaneously and to the same degree.

Our interest rate sensitive assets include our variable rate loan receivables and the assets that make up our 
liquidity portfolio. We have limitations on our ability to mitigate interest rate risk by adjusting rates on existing balances 
and competitive actions may limit our ability to increase the rates that we charge to customers for new loans. At 
December 31, 2018, the majority of our credit card and student loans charge variable rates. Assets with rates that are 
fixed at period end but will mature, or otherwise contractually reset to a market-based indexed rate or other fixed rate 
prior to the end of the 12-month period, are considered to be rate sensitive. The latter category includes certain 
revolving credit card loans that may be offered at below-market rates for an introductory period, such as balance 
transfers and special promotional programs, after which the loans will contractually reprice in accordance with our 
normal market-based pricing structure. For purposes of measuring rate sensitivity for such loans, only the effect of the 
hypothetical 100 basis point increase in the underlying market-based indexed rate has been considered. For assets that 
have a fixed interest rate but contractually will, or are assumed to, reset to a market-based indexed rate or other fixed 
rate during the next 12 months, earnings sensitivity is measured from the expected repricing date. In addition, for all 
interest rate sensitive assets, earnings sensitivity is calculated net of expected loan losses, which for purposes of this 
analysis, are assumed to remain unchanged relative to our baseline expectations over the analysis horizon.

Interest rate sensitive liabilities are assumed to be those for which the stated interest rate is not contractually fixed 
for the next 12-month period. Thus, liabilities that vary with changes in a market-based index, such as the federal funds 
rate or London Interbank Offered Rate, which will reset before the end of the 12-month period, or liabilities whose rates 
are fixed at the fiscal period end but will mature and are assumed to be replaced with a market-based indexed rate 
prior to the end of the 12-month period, are also considered to be rate sensitive. For these fixed-rate liabilities, earnings 
sensitivity is measured from the expected maturity date.

Net interest income sensitivity requires assumptions to be made regarding market conditions, consumer behavior, 

and the overall growth and composition of the balance sheet. These assumptions are inherently uncertain and, as a 
result, actual earnings may differ from the simulated earnings presented above. Our actual earnings depend on multiple 
factors including, but not limited to, the direction and timing of changes in interest rates, the movement of short-term 
versus long-term rates, balance sheet composition, competitor actions affecting pricing decisions in our loans and 
deposits, and strategic actions undertaken by management.

The following table shows the impacts to net interest income over the following 12-month period that we estimate 

would result from an immediate and parallel change in interest rates affecting all interest rate sensitive assets and 
liabilities (dollars in millions).

Basis point change

At December 31, 2018

At December 31, 2017

$

%

$

%

+100 .................................................................................................................. $

-100 ................................................................................................................... $

192

(194)

2.01 % $

(2.03)% $

179

(190)

2.03 %

(2.15)%

-73-

Item 8. 

Financial Statements and Supplementary Data

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 

To the Board of Directors and Stockholders of
Discover Financial Services
Riverwoods, IL

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of Discover Financial Services (the “Company”) as of 
December 31, 2018, based on the criteria established in Internal Control — Integrated Framework (2013) issued by the 
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company 
maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018, based 
on criteria established in Internal Control - Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (“PCAOB”), the consolidated statement of financial condition, and the related consolidated statements of income, 
comprehensive income, changes in stockholders’ equity, and cash flows as of and for the year ended December 31, 
2018 of the Company and our report dated February 20, 2019 expressed an unqualified opinion on those financial 
statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its 
assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s 
Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the 
Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered 
with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal 
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was 
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial 
reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating 
effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered 
necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding 
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with 
generally accepted accounting principles. A company’s internal control over financial reporting includes those policies 
and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the 
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are 
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting 
principles, and that receipts and expenditures of the company are being made only in accordance with authorizations 
of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely 
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on 
the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. 
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become 
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may 
deteriorate.

/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 2019

-74-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of
Discover Financial Services
Riverwoods, IL

Opinion on the Financial Statements

We have audited the accompanying consolidated statements of financial condition of Discover Financial Services (the 
“Company”) as of December 31, 2018 and 2017, the related consolidated statements of income, comprehensive 
income, stockholders’ equity, and cash flows, for each of the three years in the period ended December 31, 2018, and 
the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present 
fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the 
results of its operations and its cash flows for each of the three years in the period ended December 31, 2018, in 
conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United 
States) (“PCAOB”), the Company’s internal control over financial reporting as of December 31, 2018, based on the 
criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring 
Organizations of the Treadway Commission and our report dated February 20, 2019 expressed an unqualified opinion 
on the Company’s internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an 
opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with 
the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal 
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and 
perform the audit to obtain reasonable assurance about whether the financial statements are free of material 
misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material 
misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to 
those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in 
the financial statements. Our audits also included evaluating the accounting principles used and significant estimates 
made by management, as well as evaluating the overall presentation of the financial statements. We believe that our 
audits provide a reasonable basis for our opinion.

/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 2019

We have served as the Company’s auditor since the spin-off from its former parent company in 2007 and as Discover 
Bank’s (a wholly-owned subsidiary of the Company) auditor since 1985.

-75-

DISCOVER FINANCIAL SERVICES
Consolidated Statements of Financial Condition

December 31,

2018

2017

(dollars in millions,
except share amounts)

Assets
Cash and cash equivalents ............................................................................................................................. $
Restricted cash ..............................................................................................................................................
Investment securities (includes $3,133 and $1,395 at fair value at December 31, 2018 and 2017, respectively)....

$

13,299
1,846
3,370

13,306
81
1,568

Loan receivables

Loan receivables
.......................................................................................................................................
Allowance for loan losses ...........................................................................................................................
Net loan receivables ......................................................................................................................................
Premises and equipment, net
..........................................................................................................................
......................................................................................................................................................
Goodwill
.....................................................................................................................................
Intangible assets, net
.................................................................................................................................................
Other assets
Total assets
................................................................................................................................................... $$
Liabilities and Stockholders’ Equity
Liabilities
Deposits

Interest-bearing deposit accounts ................................................................................................................ $
Non-interest bearing deposit accounts

........................................................................................................
...............................................................................................................................................
Total deposits
Long-term borrowings ....................................................................................................................................
Accrued expenses and other liabilities .............................................................................................................
Total liabilities
..............................................................................................................................................
Commitments, contingencies and guarantees (Notes 15, 18 and 19)

Stockholders’ Equity

,
Common stock, par value $0.01 per share; 2,000,000,000 shares authorized; 564,851,848 and 563,497,702
,

, p
, p

p
p

;
;

,
,

,
,

shares issued at December 31, 2018 and 2017, respectively

..........................................................................

Preferred stock, par value $0.01 per share; 200,000,000 shares authorized; 5,700 shares issued and

p
, p

p
p

,
,

,
,

;

;
;

,
,

outstanding and aggregate liquidatio

n preference of $570 at December 31, 2018 and 2017

............................

$$

$

))

90,512
(3,041
( ,
87,471
936
255
161
2,215,
09,553
109,553

67,084
675
67,759
27,228
3,436
,
98,423

6

563

..............................................................................................................................
Additional paid-in capital
.........................................................................................................................................
Retained earnings
Accumulated other comprehensive loss
...........................................................................................................
Treasury stock, at cost; 233,406,005 and 205,577,507 shares at December 31, 2018 and 2017, respectively .....
Total stockholders’ equity ...............................................................................................................................
Total liabilities and stockholders’ equity ........................................................................................................... $$

4,130
18,906
(156)
))
,
(
(12,319
11,130,
09,553
109,553

$$

))

84,248
(2,621
( ,
81,627
825
255
163
2,262,
00,087
100,087

58,165
599
58,764
26,326
4,105
,
89,195

6

563

4,042
16,687
(152)
))
,
(
(10,254
10,892
,
00,087
100,087

The table below presents the carrying amounts of certain assets and liabilities of Discover Financial Services’ consolidated variable interest entities (“VIEs”), which are
included in the consolidated statements of financial condition above. The assets in the table below include those assets that can only be used to settle obligations of the 
consolidated VIEs. The liabilities in the table below include third-party liabilities of consolidated VIEs only and exclude intercompany balances that eliminate in 
consolidation. The liabilities also exclude amounts for which creditors have recourse to the general credit of Discover Financial Services.

Assets
Restricted cash .............................................................................................................................................. $
........................................................................................................................................... $
Loan receivables
Allowance for loan losses allocated to securitized loan receivables .................................................................... $
Other assets
................................................................................................................................................. $
Liabilities
Long-term borrowings .................................................................................................................................... $
Accrued expenses and other liabilities ............................................................................................................. $

December 31,

2018

2017

(dollars in millions)

1,846
$
$
33,424
(1,150) $
$
7

81
31,781
(998)
5

16,917
18

$
$

16,536
16

See Notes to the Consolidated Financial Statements.

-76-

DISCOVER FINANCIAL SERVICES
Consolidated Statements of Income

For the Years Ended December 31,

YY

2018

2017

2016

 (dollars in millions, except per share amounts)

Interest income

Credit card loans ................................................................................................................. $

8,835

$

7,907

$

Other loans .........................................................................................................................

Investment securities .............................................................................................................

Other interest income ...........................................................................................................

Total interest income .............................................................................................................

Interest expense

Deposits ..............................................................................................................................

Long-term borrowings ..........................................................................................................

Total interest expense ...........................................................................................................

Net interest income ..............................................................................................................

Provision for loan losses .......................................................................................................

Net interest income after provision for loan losses ...................................................................

Other income

1,726

40

292

10,893

1,238

901

2,139

8,754

3,035

5,719

1,560

27

154

9,648

846

802

1,648

8,000

2,579

5,421

7,155

1,361

38

62

8,616

687

711

1,398

7,218

1,859

5,359

Discount and interchange revenue, net ...................................................................................

1,074

1,052

1,055

Protection products revenue ..................................................................................................

Loan fee income ..................................................................................................................

Transaction processing revenue .............................................................................................

Other income ......................................................................................................................

204

402

178

97

223

363

167

92

239

343

155

89

Total other income ...............................................................................................................

1,955

1,897

1,881

Other expense

Employee compensation and benefits .....................................................................................

1,627

1,512

1,379

Marketing and business development .....................................................................................

Information processing and communications ...........................................................................

Professional fees ..................................................................................................................

Premises and equipment

.......................................................................................................

Other expense .....................................................................................................................

Total other expense ..............................................................................................................

Income before income tax expense ........................................................................................

Income tax expense ..............................................................................................................

Net income ......................................................................................................................... $

Net income allocated to common stockholders ........................................................................ $

Basic earnings per common share ......................................................................................... $

Diluted earnings per common share ....................................................................................... $

857

350

672

102

469

4,077

3,597

855

2,742

2,689

7.81

7.79

$

$

$

$

776

315

655

99

424

3,781

3,537

1,438

2,099

2,031

5.43

5.42

$

$

$

$

731

339

605

95

435

3,584

3,656

1,263

2,393

2,339

5.77

5.77

See Notes to the Consolidated Financial Statements.

-77-

DISCOVER FINANCIAL SERVICES
Consolidated Statements of Comprehensive Income

For the Years Ended December 31,

YY

2018

2017

2016

(dollars in millions)

Net income ....................................................................................................................... $

2,742

$

2,099

$

2,393

Other comprehensive income (loss), net of taxes

Unrealized gains (losses) on available-for-sale investment securities, net of tax .....................

Unrealized gains on cash flow hedges, net of tax ..............................................................

Unrealized pension and post-retirement plan gains (losses), net of tax .................................

Other comprehensive income (loss) ......................................................................................

16

9

—

25

(2)

23

(12)

9

(3)

7

(5)

(1)

Comprehensive income ...................................................................................................... $

2,767

$

2,108

$

2,392

See Notes to the Consolidated Financial Statements.

-78-

DISCOVER FINANCIAL SERVICES
Consolidated Statements of Changes in Stockholders’ Equity

Preferred Stock

Common Stock

Shares

Amount

Shares

Amount

Additional
Paid-in
Capital

Retained
Earnings

Accumulated
Other
pp
Comprehensive
Loss

Treasur
TT
Stock

y

Total
TT
Stockholders’
Equity

(dollars in millions, shares in thousands)

Balance at December 31, 2015 ..

575

$ 560

560,679

$

5

$ 3,885

$ 13,250

$

(160) $ (6,265) $

11,275

Net income ................................

Other comprehensive loss ...........

Purchases of treasury stock..........

Common stock issued under

employee benefit plans .............

Common stock issued and stock-

based compensation expense ....

Dividends — common stock 

($1.16 per share) .....................

Dividends — Series B preferred

pp

stock ($65.00 per share)

...........

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

—

81

1,654

—

—

Balance at December 31, 2016 ..

575

560

562,414

Net income ................................

Other comprehensive income ......

Purchases of treasury stock..........

Common stock issued under
employee benefit plans ...............

Common stock issued and stock-

based compensation expense ....

Dividends — common stock 

($1.30 per share) .....................

Dividends — Series B preferred

pp

stock ($65.00 per share)

...........

Redemption of Series B preferred
stock .......................................

Issuance of Series C preferred

p

stock, net of issuance co

sts ........

Balance at December 31, 2017 ..

Cumulative effect of ASU No.

2018-02 adoption ...................

Net income ................................

Other comprehensive income ......

Purchases of treasury stock..........

Common stock issued under

employee benefit plans .............

Common stock issued and stock-

based compensation expense ....

Dividends — common stock 

($1.50 per share) .....................

Dividends — Series C preferred

pp

stock ($5,500 per share)

...........

—

—

—

—

—

—

—

—

—

—

—

—

—

—

(575)

(560)

6

6

—

—

—

—

—

—

—

—

563

563

—

—

—

—

—

—

—

—

—

—

—

79

1,005

—

—

—

—

563,498

—

—

—

—

96

1,258

—

—

—

—

—

—

—

—

—

5

—

—

—

—

1

—

—

—

—

6

—

—

—

—

—

—

—

—

—

—

—

4

73

—

—

2,393

—

—

—

—

(476)

(37)

—

(1)

—

—

—

—

—

—

—

2,393

(1)

(1,908)

(1,908)

—

—

—

—

4

73

(476)

(37)

3,962

15,130

(161)

(8,173)

11,323

—

—

—

5

75

—

—

—

—

2,099

—

—

—

—

(490)

(37)

(15)

—

—

9

—

—

—

—

—

—

—

—

—

2,099

9

(2,081)

(2,081)

—

—

—

—

—

—

5

76

(490)

(37)

(575)

563

4,042

16,687

(152)

(10,254)

10,892

—

—

—

—

6

82

—

—

29

2,742

—

—

—

—

(521)

(31)

(29)

—

25

—

—

—

—

—

—

—

—

—

2,742

25

(2,065)

(2,065)

—

—

—

—

6

82

(521)

(31)

Balance at December 31, 2018 ..

6

$ 563

564,852

$

6

$ 4,130

$ 18,906

$

(156) $ (12,319) $

11,130

See Notes to the Consolidated Financial Statements.

-79-

DISCOVER FINANCIAL SERVICES
Consolidated Statements of Cash Flows

For the Years Ended December 31,

YY

2018

2017

2016

(dollars in millions)

Cash flows from operating activities

Net income ......................................................................................................................... $

2,742

$

2,099

$

2,393

Adjustments to reconcile net income to net cash provided by operating activities

Provision for loan losses ....................................................................................................

3,035

2,579

1,859

Depreciation and amortization ..........................................................................................

Amortization of deferred revenues and accretion of accretable yield on acquired loans ..........

Net loss on investments and other assets .............................................................................
.......................................................................................................................
Other, net

Changes in assets and liabilities

Increase in other assets .................................................................................................

(Decrease) increase in accrued expenses and other liabilities ............................................
Net cash provided by operating activities ...............................................................................

Cash flows from investing activities

Maturities of available-for-sale investment securities ................................................................
Purchases of available-for-sale investment securities ................................................................

Maturities of held-to-maturity investment securities ...................................................................

Purchases of held-to-maturity investment securities ...................................................................

435

(403)

45
(107)

(7)

(549)
5,191

838

(2,554)

18

(82)

393

(399)

55
361

(502)

622
5,208

200

—

16

(40)

351

(395)

57
113

(187)

234
4,425

1,342

—

24

(56)

Net principal disbursed on loans originated for investment .......................................................

(8,480)

(8,701)

(5,978)

Proceeds from returns of investment

.......................................................................................

Purchases of other investments ..............................................................................................

Purchases of premises and equipment ....................................................................................

—

(65)

(254)

Net cash used for investing activities ......................................................................................

(10,579)

Cash flows from financing activities

Proceeds from issuance of securitized debt .............................................................................

Maturities and repayment of securitized debt ..........................................................................

Proceeds from issuance of other long-term borrowings ............................................................

Maturities and repayment of other long-term borrowings .........................................................

Proceeds from issuance of common stock ...............................................................................

Purchases of treasury stock ...................................................................................................

Net increase in deposits

.......................................................................................................

Proceeds from issuance of preferred stock ..............................................................................
Payments on redemption of preferred stock .............................................................................

Dividends paid on common and preferred stock ......................................................................

Net cash provided by financing activities ...............................................................................

Net increase in cash, cash equivalents and restricted cash .......................................................

4,766

(4,447)

2,233

(1,756)

6

(2,065)

8,961

—
—

(552)

7,146

1,758

Cash, cash equivalents and restricted cash, at beginning of period ...........................................

13,387

17

(65)

(218)

(8,791)

5,059

(4,959)

1,127

(404)

5

(2,081)

6,753

563
(575)

(527)

4,961

1,378

12,009

—

(51)

(179)

(4,898)

3,070

(3,419)

1,122

—

7

(1,908)

4,453

—
—

(514)

2,811

2,338

9,671

Cash, cash equivalents and restricted cash, at end of period .................................................... $

,
15,145

$

,
13,387

$

,
12,009

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents .................................................................................................... $

Restricted cash .....................................................................................................................

Cash, cash equivalents and restricted cash, at end of period .................................................... $

13,299

1,846

,
15,145

Supplemental disclosures of cash flow information

Cash paid during the period for

Interest expense ............................................................................................................... $
Income taxes, net of income tax refunds ............................................................................. $

1,847

650

$

$

$

$

13,306

81

,
13,387

1,396

1,424

$

$

$

$

11,914

95

,
12,009

1,211

1,300

See Notes to the Consolidated Financial Statements.

-80-

Notes to the Consolidated Financial Statements

1.(cid:1)

Background and Basis of Presentation

Description of Business

Discover Financial Services (“DFS” or the “Company”) is a direct banking and payment services company. The

Company is a bank holding company under the Bank Holding Company Act of 1956 as well as a financial holding
company under the Gramm-Leach-Bliley Act and therefore is subject to oversight, regulation and examination by the
Board of Governors of the Federal Reserve System (the “Federal Reserve”). The Company provides direct banking 
products and services and payment services through its subsidiaries. The Company offers its customers credit card 
loans, private student loans, personal loans, home equity loans and deposit products. The Company also operates the 
Discover Network, the PULSE network (“PULSE”) and Diners Club International (“Diners Club”). The Discover Network 
processes transactions for Discover-branded credit and debit cards and provides payment transaction processing and 
settlement services. PULSE operates an electronic funds transfer network, providing financial institutions issuing debit 
cards on the PULSE network with access to ATMs domestically and internationally, as well as point-of-sale (“POS”) 
terminals at retail locations throughout the U.S. for debit card transactions. Diners Club is a global payments network of 
licensees, which are generally financial institutions, that issue Diners Club branded charge cards and/or provide card 
acceptance services.

The Company’s business activities are managed in two segments, Direct Banking and Payment Services, based on 

the products and services provided. For a detailed description of the operations of each segment, as well as the 
allocation conventions used in business segment reporting, see Note 22: Segment Disclosures.

Basis of Presentation

The accompanying consolidated financial statements have been prepared in accordance with accounting 
principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with 
GAAP requires the Company to make estimates and assumptions that affect the amounts reported in the consolidated 
financial statements and related disclosures. These estimates are based on information available as of the date of the 
consolidated financial statements. The Company believes that the estimates used in the preparation of the consolidated
financial statements are reasonable. Actual results could differ from these estimates.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries.

The Company’s policy is to consolidate all entities in which it owns more than 50% of the outstanding voting stock 
unless it does not control the entity. However, the Company did not have a controlling voting interest in any entity other 
than its wholly-owned subsidiaries in the periods presented in the accompanying consolidated financial statements.

It is also the Company’s policy to consolidate any VIE for which the Company is the primary beneficiary, as 

defined by GAAP. On this basis, the Company consolidates the Discover Card Master Trust I (“DCMT”) and the 
Discover Card Execution Note Trust (“DCENT”) as well as two student loan securitization trusts. The Company is 
deemed to be the primary beneficiary of each of these trusts since it is, for each, the trust servicer and the holder of both
the residual interest and the majority of the most subordinated interests. Because of those involvements, the Company 
has, for each trust, (i) the power to direct the activities that most significantly impact the economic performance of the 
trust, and (ii) the obligation (or right) to absorb losses (or receive benefits) of the trust that could potentially be
significant. The Company has determined that it was not the primary beneficiary of any other VIE during the years 
ended December 31, 2018, 2017 and 2016.

For investments in any entities in which the Company owns 50% or less of the outstanding voting stock but in 

which the Company has significant influence over operating and financial decisions, the Company applies the equity 
method of accounting. The Company also applies the equity method to its investments in qualified affordable housing
projects and similar tax credit partnerships. In cases where the Company’s equity investment is less than 20% and 
significant influence does not exist, such investments are carried at cost, adjusted for any impairment in value.

Recently Issued Accounting Pronouncements

In February 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update 
(“ASU”) No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. The
ASU permits, but does not require, issuers to reclassify into retained earnings any tax effects that are stranded in 

-81-

accumulated other comprehensive income (“AOCI”) as a result of the change in the statutory federal tax rate enacted 
by the Tax Cuts and Jobs Act of 2017 (“TCJA”). Tax effects that are stranded in AOCI for other reasons, such as prior 
changes in tax law or changes in a valuation allowance, may not be reclassified directly through retained earnings. The 
guidance is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company 
early adopted the ASU as of April 1, 2018, resulting in a reclassification from AOCI to retained earnings that did not 
have a material impact to the Company's consolidated financial statements. See Note 13: Accumulated Other 
Comprehensive Income for additional details on adoption of this standard. The Company's policy is to adjust the tax 
effects of a component of AOCI in the same period in which the item is sold or otherwise derecognized, or when the 
carrying value of the item is remeasured.

In January 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other (Topic 350): Simplifying 
the Test for Goodwill Impairment. The purpose of this ASU is to simplify the test for goodwill impairment by eliminating 
Step 2 of the current impairment test. Under the current rules, if the reporting unit’s carrying value exceeds its fair value 
(Step 1), goodwill impairment is measured as the difference between the carrying value of goodwill and its implied fair 
value. To compute the implied fair value of goodwill under Step 2, an entity has to perform procedures to determine the 
fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) 
following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed 
in a business combination. Under the new standard, the Company will perform its annual goodwill impairment test by 
comparing the fair value of a reporting unit with its carrying amount. The Company should recognize an impairment 
charge, if any, for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the loss 
recognized should not exceed the total amount of goodwill allocated to that reporting unit. The amendments in this ASU 
apply to the Company’s annual or any interim goodwill impairment tests in fiscal years beginning after December 15, 
2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after 
January 1, 2017. The amendments in this ASU apply on a prospective basis. All of the Company’s recorded goodwill is 
associated with its PULSE debit business. The Company elected to early adopt this ASU effective with its goodwill 
impairment test as of October 1, 2018. This ASU has no impact on cash flows and its adoption did not have any 
impact on the Company’s consolidated financial condition or results of operations because the estimated fair value of 
the PULSE reporting unit is well in excess of its carrying value.

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement 
of Credit Losses on Financial Instruments. This ASU replaces the incurred loss model with the current expected credit loss 
(“CECL”) approach. For loans carried at amortized cost, the allowance for loan losses will be based on management’s 
current estimate of all expected credit losses over the remaining contractual term of the loans. Upon the origination of a 
loan, the Company will have to record its estimate of all expected credit losses on that loan through an immediate 
charge to earnings. Updates to that estimate each period will be recorded through provision expense. The CECL 
estimate is to be based on historical experience, current conditions and reasonable and supportable forecasts. 

The CECL approach is expected to increase the Company’s allowance for loan losses as a result of: (1) 

encompassing expected losses, not simply those deemed to be already incurred, (2) extending the loss estimate period 
over the entire life of the loan and (3) reclassification of the credit loss component of the purchased credit-impaired 
(“PCI”) loan portfolio out of loan carrying value and into the allowance for loan losses. The allowance for loan losses on 
all loans carried at amortized cost, including PCI loans and loans modified in a troubled debt restructuring (“TDR”) will 
be measured under the CECL approach. Existing specialized measurement guidance for PCI loans, which the ASU 
refers to as purchased credit-deteriorated (“PCD”), and TDRs will be eliminated, although certain separate disclosure 
guidance will be retained. Measurement of credit impairment of available-for-sale debt securities will generally remain 
unchanged under the new rules, but any such impairment will be recorded through an allowance, rather than a direct 
write-down of the security.

The ASU is effective for the Company on January 1, 2020. A cross-functional governance structure is in place to 

oversee the implementation of the standard. The Company is finalizing the development of loss forecasting models, 
technological solutions and processes to satisfy the requirements of the new standard. Management is evaluating key 
accounting interpretations and the time period over which losses can be reasonably estimated. Upon adoption, the 
allowance for loan losses is expected to increase with an offsetting adjustment to retained earnings. Additionally, the 
carrying value of PCD loans will be increased through an offsetting addition to the allowance for loan losses. Adoption 
of the standard has the potential to materially impact stockholders’ equity and regulatory capital as well as the 
Company’s consolidated financial condition and results of operations. The extent of the impact upon adoption will likely 
depend on the characteristics of the Company's loan portfolio and economic conditions at that date, as well as 
forecasted conditions thereafter.

-82-

In March 2016, the FASB issued ASU No. 2016-08, Principal versus Agent Considerations (Reporting Revenue
Gross versus Net). This guidance became effective for the Company on January 1, 2018, along with ASU 2014-09, 
Revenue from Contracts with Customers (Topic 606), discussed below. This ASU did not result in a change to the 
accounting or reporting of the Company's revenue arrangements that involve a principal-agent relationship. Therefore,
its adoption has had no impact on the Company's consolidated financial condition, results of operations or cash flows.
The guidance in this ASU provides clarification on the principal versus agent concept in relation to revenue recognition 
guidance issued as part of ASU 2014-09. Topic 606 requires a company to determine whether it is a principal or an 
agent in a transaction in which another party is involved in providing goods or services to a customer by evaluating the
nature of its promise to the customer. ASU 2016-08 provides clarification for identifying the good, service or right 
being transferred in a revenue transaction and identifies the principal as the party that controls the good, service or 
right prior to its transfer to the customer. The ASU provides further clarity on how to evaluate control in this context.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842). The guidance will require lessees to
capitalize most leases on their balance sheet whereas under current GAAP only capital leases are recognized on the 
lessee’s balance sheet. Leases which today are identified as capital leases will generally be identified as financing 
leases under the new guidance but otherwise their accounting treatment will remain relatively unchanged. Leases 
identified today as operating leases will generally remain in that category under the new standard, but both a right-of-
use asset and a liability for remaining lease payments will now be required to be recognized on the balance sheet for 
this type of lease. The manner in which expenses associated with all leases are reported on the income statement will 
remain mostly unchanged. Lessor accounting also remains substantially unchanged by the new standard. The new 
guidance is effective on January 1, 2019 and the Company is prepared to implement the standard. The Company will 
recognize a cumulative-effect adjustment to the opening balance of retained earnings as of the effective date without 
adjusting comparative periods. Management has determined that the standard will not have a material impact on the 
Company’s consolidated financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The 

guidance in this ASU supersedes existing revenue recognition requirements in Topic 605, Revenue Recognition, 
including an assortment of transaction-specific and industry-specific rules. The new revenue recognition model became 
effective for the Company on January 1, 2018. The model generally results in the same revenue recognition patterns as 
have historically been applied to the Company’s revenues that are subject to this guidance. The timing and 
measurement of fee revenues associated with the Company’s credit card arrangements and costs associated with the 
Company’s credit card reward programs have not been affected as a result of the adoption of Accounting Standards
Codification ("ASC") Topic 606. Accounting and reporting for the Company’s transaction processing services, including
discount and interchange revenue and other transaction processing fees, remains substantially unchanged from
treatments under GAAP in effect prior to 2018. As permitted by the ASU, management elected to adopt this standard 
using a modified retrospective approach, which means that the cumulative effect of initially applying the standard was
recognized at the date of initial application through an adjustment to beginning retained earnings, but no restatement 
of prior periods was made. Based on its evaluations, management concluded that no adjustment to beginning retained 
earnings was required as of January 1, 2018, the date of adoption. See Note 23: Revenue from Contracts with 
Customers for additional information resulting from this standard.

2.(cid:1)

Summary of Significant Accounting Policies

Cash and Cash Equivalents

Cash and cash equivalents is defined by the Company as cash on deposit with banks, including time deposits
and other highly liquid investments, with maturities of 90 days or less when purchased. Cash and cash equivalents 
included $728 million and $1.3 billion of cash and due from banks and $12.6 billion and $12.0 billion of interest-
earning deposits at other banks at December 31, 2018 and 2017, respectively. 

Restricted Cash

Restricted cash includes cash for which the Company’s ability to withdraw funds at any time is contractually 

limited. Restricted cash is generally designated for specific purposes arising out of certain contractual or other 
obligations. 

Investment Securities

At December 31, 2018, investment securities consisted of U.S. Treasury obligations and mortgage-backed
securities issued by government agencies. Investment securities that the Company has the positive intent and ability to

-83-

hold to maturity are classified as held-to-maturity and are reported at amortized cost. All other investment securities are 
classified as available-for-sale, as the Company does not hold investment securities for trading purposes. Available-for-
sale investment securities are reported at fair value with unrealized gains and losses, net of tax, reported as a 
component of AOCI included in stockholders’ equity. The Company estimates the fair value of available-for-sale 
investment securities as more fully discussed in Note 20: Fair Value Measurements. The amortized cost for each held-to-
maturity and available-for-sale investment security is adjusted for amortization of premiums or accretion of discounts, as 
appropriate. Such amortization or accretion is included in interest income. The Company evaluates its unrealized loss 
positions for other-than-temporary impairment in accordance with GAAP applicable for investments in debt securities. 
Realized gains and losses and the credit loss portion of other-than-temporary impairments related to investment 
securities are determined at the individual security level and are reported in other income.

Loan Receivables

Loan receivables consist of credit card receivables, other loans and PCI loans. Loan receivables also include 
unamortized net deferred loan origination fees and costs (also see “— Significant Revenue Recognition Accounting 
Policies — Loan Interest and Fee Income”). Credit card loan receivables are reported at their principal amounts 
outstanding and include uncollected billed interest and fees and are reduced for unearned revenue related to balance 
transfer fees (also see “— Significant Revenue Recognition Accounting Policies — Loan Interest and Fee Income”). Other 
loans consist of student loans, personal loans and other loans and are reported at their principal amounts outstanding. 
For student loans, principal amounts outstanding also include accrued interest that has been capitalized. The 
Company’s loan receivables are deemed to be held for investment at origination or acquisition because management 
has the intent and ability to hold them for the foreseeable future. Cash flows associated with loans originated or 
acquired for investment are classified as cash flows from investing activities, regardless of a subsequent change in 
intent.

Purchased Credit-Impaired Loans

PCI loans are loans acquired at prices that reflected a discount related to deterioration in individual loan credit 

quality since origination. The Company’s PCI loans are comprised entirely of acquired private student loans. 

The PCI student loans were aggregated into pools based on common risk characteristics at the time of their 

acquisition. Loans were grouped primarily on the basis of origination date as loans originated in a particular year 
generally reflect the application of common origination strategies and/or underwriting criteria. Each pool is accounted 
for as a single asset and each has a single composite interest rate, total contractual cash flows and total expected cash 
flows.

Interest income on PCI loans is recognized on the basis of expected cash flows rather than contractual cash flows. 

The total amount of interest income recognizable on a pool of PCI loans (i.e., its accretable yield) is the difference 
between the carrying amount of the loan pool and the future cash flows expected to be collected without regard to 
whether the expected cash flows represent principal or interest collections. Interest is recognized on an effective yield 
basis over the life of the loan pool. 

The initial estimates of the fair value of the PCI student loans included the impact of expected credit losses, and 
therefore, no allowance for loan losses was recorded as of the purchase dates. The difference between contractually 
required cash flows and cash flows expected to be collected, as measured at the acquisition dates, is not permitted to be 
accreted. Charge-offs are absorbed by this non-accretable difference and do not result in a charge to earnings. 
However, as noted below, a charge to provision expense may be necessary to the extent that expected credit losses 
increase after the acquisition date. 

The estimate of cash flows expected to be collected is evaluated each reporting period to ensure it reflects 
management’s latest expectations of future credit losses and borrower prepayments, and interest rates in effect in the 
current period. To the extent expected credit losses increase after the acquisition dates, the Company will record an 
allowance for loan losses through the provision for loan losses, which will reduce net income. Changes in expected 
cash flows related to changes in prepayments or interest rate indices for variable rate loans generally are recorded 
prospectively as adjustments to interest income.

To the extent that a significant increase in cash flows due to lower expected losses is deemed probable, the 
Company will first reverse any previously established allowance for loan losses and then increase the amount of 
remaining accretable yield. The increase to yield would be recognized prospectively over the remaining life of the loan 
pool. An increase in the accretable yield would reduce the remaining non-accretable difference available to absorb 

-84-

subsequent charge-offs. Disposals of loans, which may include sales of loans or receipt of payments in full from the 
borrower or charge-offs, result in removal of the loans from their respective pools.

Delinquent Loans and Charge-Offs

The entire balance of an account is contractually past due if the minimum payment is not received by the 
specified date on the customer’s billing statement. Delinquency is reported on loans that are 30 days or more past due.

Credit card loans are charged off at the end of the month during which an account becomes 180 days past due. 
Closed-end consumer loan receivables are charged off at the end of the month during which an account becomes 120 
days contractually past due. Customer bankruptcies and probate accounts are charged off at the end of the month 60 
days following the receipt of notification of the bankruptcy or death, but not later than the 180-day or 120-day time 
frame described above. Receivables associated with alleged or potential fraudulent transactions are adjusted to their 
net realizable value upon receipt of notification of such fraud through a charge to other expense and are subsequently 
written off at the end of the month 90 days following notification, but not later than the contractual 180-day or 120-day 
time frame described above. The Company’s charge-off policies are designed to comply with guidelines established by 
the Federal Financial Institutions Examination Council (“FFIEC”). 

The Company’s net charge-offs include the principal amount of loans charged off less principal recoveries and 

exclude charged-off interest and fees, recoveries of interest and fees and fraud losses.

The practice of re-aging an account also may affect loan delinquencies and charge-offs. A re-age is intended to 

assist delinquent customers who have experienced financial difficulties but who demonstrate both an ability and 
willingness to repay. Accounts meeting specific criteria are re-aged when the Company and the customer agree on a 
temporary repayment schedule that may include concessionary terms. With re-aging, the outstanding balance of a 
delinquent account is returned to a current status. Customers may also qualify for a workout re-age when either a 
longer term or permanent hardship exists. The Company’s re-age practices are designed to comply with FFIEC 
guidelines. 

Allowance for Loan Losses

The Company maintains an allowance for loan losses at a level that is appropriate to absorb probable losses 
inherent in the loan portfolio. The estimate of probable incurred losses considers uncollectible principal, interest and 
fees associated with the Company’s loan receivables. The allowance is evaluated quarterly for appropriateness and is 
maintained through an adjustment to the provision for loan losses. Charge-offs of principal amounts of loans 
outstanding are deducted from the allowance and subsequent recoveries of such amounts increase the allowance. 
Charge-offs of loan balances representing unpaid interest and fees result in a reversal of interest and fee income, 
respectively, which is effectively a reclassification of provision of loan losses (also see “— Significant Revenue 
Recognition Accounting Policies — Loan Interest and Fee Income”).

The Company calculates its allowance for loan losses by estimating probable losses separately for classes of the 
loan portfolio with similar loan characteristics, which generally results in segmenting the portfolio by loan product type. 

The Company bases its allowance for loan losses on several analyses that help estimate incurred losses as of the 
balance sheet date. While the Company’s estimation process includes historical data and analysis, there is a significant 
amount of judgment applied in selecting inputs and analyzing the results produced by the models to determine the 
allowance. For substantially all of its loan receivables, the Company uses a migration analysis to estimate the likelihood 
that a loan will progress through the various stages of delinquency. The Company uses other analyses to estimate losses 
incurred on non-delinquent and bankrupt accounts. The considerations in these analyses include past and current loan 
performance, loan growth and seasoning, current risk management practices, account collection strategies, economic 
conditions, bankruptcy filings, policy changes and forecasting uncertainties. Consideration of past and current loan 
performance includes the post-modification performance of loans modified in a troubled debt restructuring. For the 
majority of its portfolio, the Company estimates its allowance for loan losses on a pooled basis, which includes loans 
that are delinquent and/or no longer accruing interest and/or certain loans that have defaulted from a loan 
modification program.

As part of certain collection strategies, the Company may modify the terms of loans to customers experiencing 
financial hardship. Temporary and permanent modifications on credit card and personal loans, as well as temporary 
modifications on student loans and certain grants of student loan forbearance are accounted for as troubled debt 

-85-

restructurings. The Company considers a modified loan in which a concession has been granted to the borrower to be a 
troubled debt restructuring based on the cumulative length of the concession period and credit quality of the borrower.

Loan receivables, other than PCI loans, that have been modified under a troubled debt restructuring are 
evaluated separately from the pools of receivables that are subject to the collective analyses described above. Loan 
receivables modified in a troubled debt restructuring are recorded at their present values with impairment measured as 
the difference between the recorded investment in the loan and the discounted present value of cash flows expected to 
be collected. Consistent with the Company’s measurement of impairment of modified loans on a pooled basis, the 
discount rate used for credit card loans in internal programs is the average current annual percentage rate applied to 
non-impaired credit card loans, which approximates what would have applied to the pool of modified loans prior to 
modification. The discount rate used for credit card loans in external programs reflects a rate that is consistent with rates 
offered to cardmembers not in a program that have similar risk characteristics. For student and personal loans, the 
discount rate used is the average contractual rate prior to modification. Changes in the present value are recorded in 
the provision for loan losses. All of the Company’s troubled debt restructurings, which are evaluated collectively on an 
aggregated (by loan type) basis, have a related allowance for loan losses. 

Premises and Equipment, net

Premises and equipment, net, are stated at cost less accumulated depreciation and amortization, which is 
computed using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over a 
period of 39 years. The costs of improvements are capitalized and depreciated either over the asset’s estimated useful 
life, typically ten to fifteen years, or over the remaining term of the lease, when applicable. Furniture and fixtures are 
depreciated over a period of five to ten years. Equipment is depreciated over three to ten years. Maintenance and 
repairs are immediately expensed, while the costs of improvements are capitalized. 

Purchased software and capitalized costs related to internally developed software are amortized over their useful 

lives of three to ten years. Costs incurred during the application development stage related to internally developed 
software are capitalized. Costs are expensed as incurred during the preliminary project stage and post implementation 
stage. Once the capitalization criteria as defined in GAAP have been met, external direct costs incurred for materials 
and services used in developing or obtaining internal-use computer software and payroll and payroll-related costs for 
employees who are directly associated with the internal-use computer software project (to the extent those employees 
devoted time directly to the project) are capitalized. Amortization of capitalized costs begins when the software is ready 
for its intended use. Capitalized software is included in premises and equipment, net in the Company’s consolidated 
statements of financial condition. See Note 6: Premises and Equipment for further information about the Company’s 
premises and equipment. 

Cloud computing arrangements involving the licensing of software that meet certain criteria are recognized as the 

acquisition of software. Such assets are measured at the present value of the license obligation, if the license is to be 
paid over time, in addition to any capitalized upfront costs and amortized over the life of the arrangement. Cloud 
computing arrangements that do not meet the criteria to be recognized as acquired software are accounted for as 
service contracts. To date, none of the Company’s cloud computing arrangements have met the criteria to be 
recognized as acquired software.

Premises and equipment are subject to impairment testing when events or conditions indicate that the carrying 

value of the asset may not be fully recoverable from future cash flows. See “— Intangible Assets” for additional details 
on impairment testing.

Goodwill

Goodwill is recorded as part of the Company’s acquisitions of businesses when the purchase price exceeds the 

fair value of the net tangible and separately identifiable intangible assets acquired. The Company’s goodwill is not 
amortized, but rather is subject to an impairment test at the reporting unit level annually as of October 1, or between 
annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of a 
reporting unit below its carrying amount. The Company’s reported goodwill relates to PULSE, which it acquired in 
2005. The Company’s goodwill is tested for impairment by comparing the fair value of the reporting unit to its carrying 
value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired. If the carrying value 
exceeds its fair value, an impairment loss must be recognized in an amount equal to that excess, limited to the total 
amount of goodwill allocated to that reporting unit. No impairment was identified during the impairment test conducted 
as of October 1, 2018.

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Intangible Assets

The Company’s identifiable intangible assets consist of both amortizable and non-amortizable intangible assets. 

The Company’s amortizable intangible assets consist primarily of acquired customer relationships and certain trade 
name intangibles. All of the Company’s amortizable intangible assets are carried at net book value and are amortized 
over their estimated useful lives. The amortization periods approximate the periods over which the Company expects to 
generate future net cash inflows from the use of these assets. The Company’s policy is to amortize intangibles in a 
manner that reflects the pattern in which the projected net cash inflows to the Company are expected to occur, where 
such pattern can be reasonably determined, as opposed to the straight-line basis. This method of amortization typically 
results in a greater portion of the intangible asset being amortized in the earlier years of its useful life. 

All of the Company’s amortizable intangible assets, as well as other amortizable or depreciable long-lived assets 
such as premises and equipment, are subject to impairment testing when events or conditions indicate that the carrying 
value of the asset may not be fully recoverable from future cash flows. A test for recoverability is done by comparing 
the asset’s carrying value to the sum of the undiscounted future net cash inflows expected to be generated from the use 
of the asset over its remaining useful life. Impairment exists if the sum of the undiscounted expected future net cash 
inflows is less than the carrying amount of the asset. Impairment would result in a write-down of the asset to its 
estimated fair value. The estimated fair values of these assets are based on the discounted present value of the stream of 
future net cash inflows expected to be derived over the remaining useful lives of the assets. If an impairment write-down 
is recorded, the remaining useful life of the asset will be evaluated to determine whether revision of the remaining 
amortization or depreciation period is appropriate. 

The Company’s non-amortizable intangible assets consist primarily of the brand-related intangibles and 
international transaction processing rights included in the acquisition of Diners Club. These assets are deemed to have 
indefinite useful lives and are therefore not subject to amortization. All of the Company’s non-amortizable intangible 
assets are subject to a test for impairment annually as of October 1, or more frequently if events or changes in 
circumstances indicate that the asset might be impaired. As required by GAAP, if the carrying value of a non-
amortizable intangible asset is in excess of its fair value, the asset must be written down to its fair value through the 
recognition of an impairment charge to earnings. In contrast to amortizable intangibles, there is no test for 
recoverability associated with the impairment test for non-amortizable intangible assets. No impairment was identified 
during the impairment test conducted as of October 1, 2018.

Stock-based Compensation

The Company measures the cost of employee services received in exchange for an award of stock-based 
compensation based on the grant-date fair value of the award. The cost, net of estimated forfeitures, is recognized over 
the requisite service period. Awards to employees who are retirement-eligible at any point during the year are 
amortized over 12 months in accordance with the vesting terms that apply under those circumstances. No 
compensation cost is recognized for awards that are subsequently forfeited. 

Advertising Costs

The Company expenses television and radio advertising costs in the period in which the advertising is first aired 
and all other advertising costs as incurred. Advertising costs are recorded in marketing and business development and 
were $258 million, $219 million and $196 million for the years ended December 31, 2018, 2017 and 2016, 
respectively. 

Income Taxes

Income tax expense is provided for using the asset and liability method, under which deferred tax assets and 

liabilities are determined based on the temporary differences between the financial statement and income tax bases of 
assets and liabilities using currently enacted tax rates. Deferred tax assets are recognized when their realization is 
determined to be more likely than not. Uncertain tax positions are measured at the highest amount of tax benefit for 
which realization is judged to be more likely than not. Tax benefits that do not meet these criteria are unrecognized tax 
benefits. See Note 15: Income Taxes for more information about the Company’s income taxes. 

Financial Instruments Used for Asset and Liability Management

The Company utilizes derivative financial instruments to manage its various exposures to changes in fair value of 

certain assets and liabilities, variability in future cash flows arising from changes in interest rates or other types of 

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forecasted transactions, and changes in foreign exchange rates. All derivatives are carried at their estimated fair values 
on the Company’s consolidated statements of financial condition. Derivatives having gross positive fair values, inclusive 
of net accrued interest receipts or payments, are recorded in other assets. Derivatives with gross negative fair values, 
inclusive of net accrued interest payments or receipts, are recorded in accrued expenses and other liabilities. The 
methodologies used to estimate the fair values of these derivative financial instruments are described in Note 20: Fair 
Value Measurements. Collateral receivable or payable amounts associated with derivatives are not offset against the 
fair value of these derivatives, but are recorded separately in other assets or deposits, respectively. Variation margin 
payments associated with derivative positions that are cleared through an exchange are legally characterized as 
settlements of the derivative positions. Such settlement payments are reflected as offsets to the associated derivatives 
balances recorded in other assets or in accrued expenses and other liabilities, instead of as collateral in other assets or 
deposits. The impact of settlement payments on the consolidated statements of financial condition is discussed in more 
detail in Note 21: Derivatives and Hedging Activities.

Certain of these instruments are designated and qualify for hedge accounting. A hedge is deemed effective to the 

extent that the change in fair value, cash flow, or net investment of the hedged item is offset by changes in the hedging 
instrument. Under cash flow hedge accounting, changes in the fair values of the derivative instruments are recognized 
in other comprehensive income (“OCI”) and subsequently reclassified to earnings in the period the hedged forecasted 
cash flows affect earnings. In a net investment hedge, amounts accumulated in OCI are reclassified into earnings when 
a hedged net investment is either sold or substantially liquidated. Under fair value hedge accounting, changes in both 
(i)(cid:1)the fair values of the derivative instruments and (ii) the fair values of the hedged items relating to the risks being(cid:1)
hedged, including net differences, if any, are recorded in interest expense. Certain other derivatives are not designated(cid:1)
as hedges or do not qualify for hedge accounting; changes in the fair value of these derivatives are recorded in other(cid:1)
income. These transactions are discussed in more detail in Note 21: Derivatives and Hedging Activities.

Accumulated Other Comprehensive Income

The Company records unrealized gains and losses on available-for-sale securities, changes in the fair value of 

cash flow hedges, and certain pension and foreign currency translation adjustments in OCI on an after-tax basis where 
applicable. The Company’s policy is to adjust the tax effects of a component of AOCI in the same period in which the 
item is sold or otherwise derecognized, or when the carrying value of the item is remeasured. Details of OCI, net of tax, 
are presented in the statement of comprehensive income, and a rollforward of AOCI is presented in the statement of 
changes in stockholders’ equity and Note 13: Accumulated Other Comprehensive Income. 

Significant Revenue Recognition Accounting Policies 

Loan Interest and Fee Income

Interest on loans is comprised largely of interest on credit card loans and is recognized based on the amount of 
loans outstanding and their contractual interest rate. Interest on credit card loans is included in loan receivables when 
billed to the customer. The Company accrues unbilled interest revenue each month from a customer’s billing cycle date 
to the end of the month. The Company applies an estimate of the percentage of loans that will revolve in the next cycle 
in the estimation of the accrued unbilled portion of interest revenue that is included in accrued interest receivable on the 
consolidated statements of financial condition. Interest on other loan receivables is accrued monthly in accordance with 
their contractual terms and recorded in accrued interest receivable, which is included in other assets, in the consolidated 
statements of financial condition. Interest related to PCI loans is discussed in Note 4: Loan Receivables.

The Company recognizes fees (except balance transfer fees and certain product fees) on loan receivables in 

interest income or loan fee income as the fees are assessed. Balance transfer fees and certain product fees are 
recognized in interest income or loan fee income ratably over the periods to which they relate. Balance transfer fees are 
accreted to interest income over the life of the related balance. As of December 31, 2018 and 2017, deferred revenues 
related to balance transfer fees, recorded as a reduction of loan receivables, were $52 million and $47 million, 
respectively. Loan fee income consists of fees on credit card loans and includes late, cash advance, returned check and 
other miscellaneous fees and is reflected net of waivers and charge-offs.

Direct loan origination costs on credit card loans are deferred and amortized on a straight-line basis over a one 

year period and recorded in interest income from credit card loans. Direct loan origination costs on other loan 
receivables are deferred and amortized over the life of the loan using the interest method and are recorded in interest 
income from other loans. As of December 31, 2018 and 2017, the remaining unamortized deferred costs related to 
loan origination were $138 million and $125 million, respectively, and were recorded in loan receivables. 

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The Company accrues interest and fees on loan receivables until the loans are paid or charged off, except in 

instances of customer bankruptcy, death or fraud, where no further interest and fee accruals occur following 
notification. Credit card and closed-end consumer loan receivables are placed on non-accrual status upon receipt of 
notification of the bankruptcy or death of a customer or suspected fraudulent activity on an account. Upon completion 
of the fraud investigation, non-fraudulent credit card and closed-end consumer loan receivables may resume accruing 
interest. Payments received on non-accrual loans are allocated according to the same payment hierarchy methodology 
applied to loans that are accruing interest. When loan receivables are charged off, unpaid accrued interest and fees 
are reversed against the income line items in which they were originally recorded in the consolidated statements of 
income. Charge-offs and recoveries of amounts that relate to capitalized interest on student loans are treated as 
principal charge-offs and recoveries, affecting the provision for loan losses rather than interest income. The Company 
considers uncollectible interest and fee revenues in assessing the adequacy of the allowance for loan losses. 

Interest income from loans individually evaluated for impairment, including loans accounted for as troubled debt 

restructurings, is accounted for in the same manner as other accruing loans. Cash collections on these loans are 
allocated according to the same payment hierarchy methodology applied to loans that are not in such programs.

Discount and Interchange Revenue

The Company earns discount revenue from fees charged to merchants with whom it has entered into card 

acceptance agreements for processing credit card purchase transactions. The Company earns acquirer interchange 
revenue primarily from merchant acquirers on all Discover Network, Diners Club and PULSE transactions made by 
credit and debit card customers at merchants with whom merchant acquirers have entered into card acceptance 
agreements for processing payment card transactions. These card acceptance arrangements generally renew 
automatically and do not have fixed durations. Under these agreements, the Company stands ready to process payment 
transactions as and when each is presented. The Company earns discount, interchange and similar fees only when 
transactions are processed. Contractually defined per-transaction fee amounts typically apply to each type of 
transaction processed and are recognized as revenue at the time each transaction is captured for settlement. These fees 
are typically collected by the Company as part of the process of settling transactions daily with merchants and acquirers 
and are fully earned at the time settlement is made. 

The Company pays issuer interchange to card-issuing entities that have entered into contractual arrangements to 

issue cards on the Discover Network and on certain transactions on the Diners Club and PULSE networks. This cost is 
contractually established and is based on the card-issuing organization’s transaction volume. The Company classifies 
this cost as a reduction of discount and interchange revenue. Costs of cardholder reward arrangements, including the 
Cashback Bonus reward program, are classified as reductions of discount and interchange revenue pursuant to 
guidance under ASC Topic 606 governing consideration payable to a customer. For both issuer interchange and 
cardholder rewards, the Company accrues the cost at the time each underlying card transaction is captured for 
settlement.

Customer Rewards

The Company offers its customers various reward programs, including the Cashback Bonus reward program, 

pursuant to which the Company pays certain customers a reward equal to a percentage of their credit card purchase 
amounts based on the type and volume of the customer’s purchases. The liability for customer rewards, which is 
included in accrued expenses and other liabilities on the consolidated statements of financial condition, is recorded on 
an individual customer basis and is accumulated as qualified customers earn rewards through their ongoing credit card 
purchase activity or other defined actions. The Company recognizes customer rewards costs as a reduction of the 
related revenue, if any. In instances where a reward is not associated with a revenue-generating transaction, such as 
when a reward is given for opening an account, the reward cost is recorded as an operating expense. For the years 
ended December 31, 2018, 2017 and 2016, rewards costs amounted to $1.8 billion, $1.6 billion and $1.4 billion, 
respectively. The liability for customer rewards was $1.6 billion and $1.5 billion at December 31, 2018 and 2017, 
respectively, and is included in accrued expenses and other liabilities on the consolidated statements of financial 
condition. 

Protection Products Revenue

The Company earns revenue related to fees received for ancillary products and services, including payment 

protection and identity theft protection services, to its credit card customers. A portion of this revenue comprises 
amounts earned for arranging for the delivery of products offered by third-party service providers. The amount of 

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revenue recorded is generally based on either a percentage of a customer’s outstanding balance or a flat fee, in either 
case assessed monthly, and is recognized as earned. These contracts are month-to-month arrangements that are 
cancellable at any time. The Company recognizes each monthly fee in the period to which the service or coverage 
relates.

Transaction Processing Revenue

Transaction processing revenue represents switch fees charged to financial institutions and merchants under 
network participation agreements for processing ATM, debit and point-of-sale transactions over the PULSE network, as 
well as various participation and membership fees. Network participation agreements generally renew automatically 
and do not have fixed durations, although the Company does enter into fixed-term pricing or incentive arrangements 
with certain network participants. The impact of such incentives is not material to the Company’s consolidated 
statements of income. Similar to discount and interchange fees, switch fees are contractually defined per-transaction fee 
amounts and are assessed and recognized as revenue at the time each transaction is captured for settlement. These fees 
are typically collected by the Company as part of the process of settling transactions with network participants. 
Membership and other participation fees are recognized over the periods to which each fee relates.

Other Income

Other income includes sales-based royalty revenues earned by Diners Club, merchant fees, certain payments 

from merchants related to reward programs, revenues from network partners and other miscellaneous revenue items. 
Sales-based royalty revenues are recognized as the related sales are reported by Diners franchisees. All remaining 
items of other income are recognized as the related performance obligations are satisfied.

Future Revenue Associated with Customer Contracts

For contracts under which the Company processes payment card transactions, the Company has the right to 
assess fees for services performed and to collect those fees through the settlement process. The Company generates 
essentially all of its discount and interchange revenue and transaction processing revenue, as well as some revenue 
reported as other income, through such contracts. There is no specified quantity of service promised in these contracts 
as the number of payment transactions is dependent upon cardholder behavior, which is outside the control of the 
Company and its network customers (i.e., merchants, acquirers, issuers and other network participants). As noted 
above, these contracts are typically without fixed durations and renew automatically. For these reasons, the Company 
does not make or disclose an estimate of revenue associated with performance obligations attributable to the remaining 
terms of these contracts. Future revenue associated with the Company’s sales-based royalty revenues earned from 
Diners Club licensees is similarly variable and open-ended, and therefore the Company does not make or disclose an 
estimate of royalties associated with performance obligations attributable to the remaining terms of the licensing and 
royalty arrangements. Because of the nature of the services and the manner of collection associated with the majority of 
the Company's revenue from contracts with customers, material receivables or deferred revenues are not generated.

Incentive Payments

The Company makes certain incentive payments under contractual arrangements with financial institutions, Diners 

Club licensees, merchants, acquirers and certain other customers. These payments are generally classified as contra-
revenue unless a specifically identifiable benefit is received by the Company in consideration for the payment and the 
fair value of such benefit can be reasonably estimated. If no such benefit is identified, then the entire payment is 
classified as contra-revenue and included in the consolidated statements of income in the line item where the related 
revenues are recorded. If the payment gives rise to an asset because it is expected to directly or indirectly contribute to 
future net cash inflows, it is deferred and recognized over the expected benefit period. The unamortized portion of the 
deferred incentive payments included in other assets on the consolidated statements of financial condition was $23 
million and $32 million at December 31, 2018 and 2017, respectively. 

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3.

Investments

The Company’s investment securities consist of the following (dollars in millions):

December 31,

2018

2017

U.S. Treasury securities(1)

................................................................................................................................ $

2,586

$

States and political subdivisions of states .........................................................................................................

Residential mortgage-backed securities - Agency(2) ...........................................................................................

—

784

672

1

895

Total investment securities

.............................................................................................................................. $

3,370

$

1,568

(1)
(2)

Includes $42 million and $48 million of U.S. Treasury securities pledged as swap collateral as of December 31, 2018 and 2017, respectively.
Consists of residential mortgage-backed securities issued by Fannie Mae, Freddie Mac and Ginnie Mae.

The amortized cost, gross unrealized gains and losses, and fair value of available-for-sale and held-to-maturity

investment securities are as follows (dollars in millions):

Amortized
Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Fair Value

At December 31, 2018

,

Available-for-Sale Investment Securities(1)

U.S. Treasury securities ................................................................................ $

2,559

$

Residential mortgage-backed securities - Agency ...........................................

559

Total available-for-sale investment securities .................................................. $

3,118

$

Held-to-Maturity Investment Securities(2)

Residential mortgage-backed securities - Agency(3)  ......................................... $

Total held-to-maturity investment securities .................................................... $

237

237

$

$

At December 31, 2017

,

Available-for-Sale Investment Securities(1)

U.S. Treasury securities ................................................................................ $

675

$

Residential mortgage-backed securities - Agency ...........................................

728

Total available-for-sale investment securities .................................................. $

1,403

$

Held-to-Maturity Investment Securities(2)

States and political subdivisions of states ....................................................... $

1

$

Residential mortgage-backed securities - Agency(3) .........................................

172

Total held-to-maturity investment securities .................................................... $

173

$

27

—

27

$

$

— $

— $

— $

1

1

$

— $

1

1

$

— $

2,586

(12)

547

(12) $

3,133

(4) $

(4) $

(3) $

(6)

233

233

672

723

(9) $

1,395

— $

(1)

(1) $

1

172

173

(1)
(2)
(3)

Available-for-sale investment securities are reported at fair value.
Held-to-maturity investment securities are reported at amortized cost.
Amounts represent residential mortgage-backed securities that were classified as held-to-maturity as they were entered into as a part of the Company’s community
reinvestment initiatives.

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The following table provides information about investment securities with aggregate gross unrealized losses and 

the length of time that individual investment securities have been in a continuous unrealized loss position (dollars in 
millions):

Number of
Securities in a
Loss Position

Less than 12 months

More than 12 months

Fair
Value

Unrealized
Losses

Fair
Value

Unrealized
Losses

At December 31, 2018

Available-for-Sale Investment Securities

Residential mortgage-backed securities - Agency ..................

31

$

110

$

(1) $

437

$

(11)

Held-to-Maturity Investment Securities

Residential mortgage-backed securities - Agency ..................

90

$

101

$

(1) $

83

$

(3)

At December 31, 2017

Available-for-Sale Investment Securities

U.S. Treasury securities .......................................................

Residential mortgage-backed securities - Agency ..................

1

27

$

$

— $

457

$

— $

(3) $

672

132

$

$

Held-to-Maturity Investment Securities

Residential mortgage-backed securities - Agency ..................

45

$

56

$

— $

38

$

(3)

(3)

(1)

There were no losses related to other-than-temporary impairments and no proceeds from sales or recognized 
gains and losses on available-for-sale securities during the years ended December 31, 2018, 2017 and 2016. See 
Note 13: Accumulated Other Comprehensive Income for unrealized gains and losses on available-for-sale securities 
during the years ended December 31, 2018, 2017 and 2016.

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Maturities and weighted-average yields of available-for-sale debt securities and held-to-maturity debt securities 

are provided in the tables below (dollars in millions):

At December 31, 2018

Available-for-Sale Investment Securities—Amortized Cost

One Year
or
Less

After One
Year
Through
Five Years

After Five
Years
Through
Ten Years

After Ten
Years

Total

U.S. Treasury securities ................................................................... $

— $

2,196

$

363

$

— $

2,559

Residential mortgage-backed securities - Agency(1) ............................

—

90

469

—

559

Total available-for-sale investment securities ...................................... $

— $

2,286

$

832

$

— $

3,118

Held-to-Maturity Investment Securities—Amortized Cost

Residential mortgage-backed securities - Agency(1) ............................ $

Total held-to-maturity investment securities ........................................ $

— $

— $

— $

— $

— $

— $

237

237

$

$

237

237

Available-for-Sale Investment Securities—Fair Values

U.S. Treasury securities ................................................................... $

— $

2,219

$

367

$

— $

2,586

Residential mortgage-backed securities - Agency(1) ............................

—

89

458

—

547

Total available-for-sale investment securities ...................................... $

— $

2,308

$

825

$

— $

3,133

Held-to-Maturity Investment Securities—Fair Values

Residential mortgage-backed securities - Agency(1) ............................ $

Total held-to-maturity investment securities ........................................ $

— $

— $

— $

— $

— $

— $

233

233

$

$

233

233

(1) Maturities of residential mortgage-backed securities are reflective of the contractual maturities of the investment.

At December 31, 2018

Available-for-Sale Investment Securities—Weighted-Average Yields(1)

U.S Treasury securities ....................................................................

Residential mortgage-backed securities - Agency ...............................

Total available-for-sale investment securities ......................................

Held-to-Maturity Investment Securities—Weighted-Average Yields

Residential mortgage-backed securities .............................................

Total held-to-maturity investment securities ........................................

One Year
or
Less

After One
Year
Through
Five Years

After Five
Years
Through
Ten Years

After Ten
Years

Total

— %

— %

— %

— %

— %

2.82%

1.50%

2.76%

—%

—%

2.77%

2.04%

2.36%

—%

—%

—%

—%

—%

2.94%

2.94%

2.81%

1.95%

2.66%

2.94%

2.94%

(1)

The weighted-average yield for available-for-sale investment securities is calculated based on the amortized cost.

Taxable interest on investment securities was $40 million, $27 million and $38 million for the years ended
December 31, 2018, 2017 and 2016, respectively. There was no tax exempt interest on investment securities for the 
years ended December 31, 2018, 2017 and 2016.

Other Investments

As a part of the Company’s community reinvestment initiatives, the Company has made equity investments in 

certain limited partnerships and limited liability companies that finance the construction and rehabilitation of affordable 
rental housing, as well as stimulate economic development in low to moderate income communities. These investments 
are accounted for using the equity method of accounting and are recorded within other assets. The related commitment 
for future investments is recorded in accrued expenses and other liabilities within the consolidated statements of 
financial condition. The portion of each investment’s operating results allocable to the Company reduces the carrying 
value of the investments and is recorded in other expense within the consolidated statements of income. The Company 
further reduces the carrying value of the investments by recognizing any amounts that are in excess of future net tax 
benefits in other expense. The Company earns a return primarily through the receipt of tax credits allocated to the 
affordable housing projects and the community revitalization projects. These investments are not consolidated as the 
Company does not have a controlling financial interest in the entities. As of December 31, 2018 and 2017, the 
Company had outstanding investments in these entities of $295 million and $297 million, respectively, and related 

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contingent liabilities of $49 million and $66 million, respectively. Of the above outstanding equity investments, the
Company had $271 million and $288 million of investments related to affordable housing projects as of December 31, 
2018 and 2017, respectively, which had $30 million and $66 million related contingent liabilities, respectively.

4.

Loan Receivables

The Company has three loan portfolio segments: credit card loans, other loans and PCI loans.

The Company’s classes of receivables within the three portfolio segments are depicted in the following table

(dollars in millions):

December 31,

2018

2017

Credit card loans(1)

........................................................................................................................................ $

72,876

$

67,291

Other loans

Personal loans

..........................................................................................................................................

Private student loans ..................................................................................................................................

Other

.......................................................................................................................................................

Total other loans

...........................................................................................................................................

PCI loans(2)

...................................................................................................................................................

Total loan receivables ....................................................................................................................................

7,454

7,728

817

15,999

1,637

90,512

7,374

7,076

423

14,873

2,084

84,248

Allowance for loan losses

..............................................................................................................................

(3,041)

(2,621)

Net loan receivables ...................................................................................................................................... $

87,471

$

81,627

(1)

(2)

Amounts include carrying values of $22.0 billion and $21.2 billion in underlying investors’ interest in trust debt at December 31, 2018 and 2017, respectively, and
$11.1 billion and $9.9 billion in seller’s interest at December 31, 2018 and 2017, respectively. See Note 5: Credit Card and Student Loan Securitization Activities
for additional information.
Amounts include carrying values of $363 million and $762 million in loans pledged as collateral against the notes issued from The Student Loan Corporation (“SLC”)
securitization trusts at December 31, 2018 and 2017, respectively. See Note 5: Credit Card and Student Loan Securitization Activities for additional information.

-94-

Credit Quality Indicators

The Company regularly reviews its collection experience (including delinquencies and net charge-offs) in 

determining its allowance for loan losses. 

Information related to the delinquent and non-accruing loans in the Company’s loan portfolio is shown below by 

each class of loan receivables except for PCI student loans, which is shown under the heading “— Purchased Credit-
Impaired Loans” (dollars in millions): 

30-89 Days
Delinquent

90 or
More Days
Delinquent

Total Past
Due

90 or
More Days
Delinquent
and
Accruing

Total
Non-accruing(1)

At December 31, 2018

Credit card loans(2) .......................................................... $

885

$

887

$

1,772

$

781

$

266

Other loans

Personal loans(3) ...........................................................

Private student loans (excluding PCI)(4) ............................

Other .........................................................................

Total other loans (excluding PCI) .......................................

84

117

2

203

35

38

1

74

119

155

3

277

33

37

—

70

11

8

17

36

Total loan receivables (excluding PCI) ................................ $

1,088

$

961

$

2,049

$

851

$

302

At December 31, 2017

Credit card loans(2) .......................................................... $

781

$

751

$

1,532

$

693

$

203

Other loans

Personal loans(3) ...........................................................

Private student loans (excluding PCI)(4) ............................

Other .........................................................................

Total other loans (excluding PCI) .......................................

73

134

3

210

30

33

1

64

103

167

4

274

28

33

—

61

10

2

18

30

Total loan receivables (excluding PCI) ................................ $

991

$

815

$

1,806

$

754

$

233

(1)

(2)

(3)
(4)

The Company estimates that the gross interest income that would have been recorded in accordance with the original terms of non-accruing credit card loans was
$41 million, $35 million and $31 million for the years ended December 31, 2018, 2017 and 2016, respectively. The Company does not separately track the
amount of gross interest income that would have been recorded in accordance with the original terms of loans. This amount was estimated based on customers’
current balances and most recent interest rates.
Credit card loans that are 90 or more days delinquent and accruing interest include $116 million and $72 million of loans accounted for as TDRs at December 31,
2018 and 2017, respectively.
Personal loans that are 90 or more days delinquent and accruing interest include $5 million of loans accounted for as TDRs at December 31, 2018 and 2017.
Private student loans that are 90 or more days delinquent and accruing interest include $7 million and $5 million of loans accounted for as TDRs at December 31,
2018 and 2017, respectively.

-95-

Information related to the net charge-offs in the Company’s loan portfolio is shown below by each class of loan 

receivables except for PCI student loans, which is shown under the heading “— Purchased Credit-Impaired 
Loans” (dollars in millions): 

For the Years Ended December 31,

2018

2017

2016

Net
Charge-
offs

Net
Charge-off 
Rate(1)

Net
Charge-
offs

Net
Charge-off 
Rate(1)

Net
Charge-
offs

Net
Charge-off 
Rate(1)

Credit card loans ............................................................... $

2,213

3.26% $

1,802

2.91% $

1,343

2.34%

Other loans

Personal loans ................................................................

Private student loans (excluding PCI) .................................

Other ............................................................................

Total other loans ................................................................

308

85

6

399

4.15%

1.14%

0.98%

2.58%

231

83

3

317

3.30%

1.21%

0.75%

2.24%

151

67

—

218

Net charge-offs (excluding PCI) ........................................... $

2,612

3.13% $

2,119

2.78% $

1,561

Net charge-offs (including PCI) ............................................ $

2,612

3.06% $

2,119

2.70% $

1,561

2.55%

1.10%

—%

1.78%

2.24%

2.16%

(1) Net charge-off rate represents net charge-off dollars (annualized) divided by average loans for the reporting period.

As part of credit risk management activities, on an ongoing basis the Company reviews information related to the

performance of a customer’s account with the Company as well as information from credit bureaus, such as FICO or 
other credit scores, relating to the customer’s broader credit performance. FICO scores are generally obtained at 
origination of the account and are refreshed monthly or quarterly thereafter to assist in predicting customer 
behavior. Historically, the Company has noted that a significant portion of delinquent accounts have FICO scores below 
660. 

The following table provides the most recent FICO scores available for the Company’s customers as a percentage 

of each class of loan receivables: 

At December 31, 2018

Credit card loans

............................................................................................................................................

Personal loans

................................................................................................................................................

Private student loans (excluding PCI)(1)

...............................................................................................................

At December 31, 2017

Credit card loans

............................................................................................................................................

Personal loans

................................................................................................................................................

Private student loans (excluding PCI)(1)

...............................................................................................................

Credit Risk Profile by FICO
Score

660 and 
Above

Less than 660
or No Score

81%

94%

94%

82%

95%

95%

19%

6%

6%

18%

5%

5%

(1)

PCI loans are discussed under the heading “— Purchased Credit-Impaired Loans.”

For private student loans, additional credit risk management activities include monitoring the amount of loans in

forbearance. Forbearance allows borrowers experiencing temporary financial difficulties and willing to make payments 
the ability to temporarily suspend payments. Eligible borrowers have a lifetime cap on forbearance of 12 months. At 
December 31, 2018 and 2017, there were $37 million and $29 million, respectively, of private student loans, including 
those classified as PCI, in forbearance, representing 0.7% and 0.5%, respectively of total student loans in repayment 
and forbearance.

-96-

Allowance for Loan Losses

The following tables provide changes in the Company’s allowance for loan losses (dollars in millions):

For the Year Ended December 31, 2018

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

2,147

$

301

$

162

$

11

$

2,621

Additions

Provision for loan losses .................................................

2,594

345

Deductions

Charge-offs ...................................................................

(2,734)

Recoveries .....................................................................

521

Net charge-offs .................................................................

(2,213)

Other(2) .............................................................................

—

(345)

37

(308)

—

95

(97)

12

(85)

(3)

1

(6)

—

(6)

—

3,035

(3,182)

570

(2,612)

(3)

Balance at end of period ................................................... $

2,528

$

338

$

169

$

6

$

3,041

For the Year Ended December 31, 2017

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,790

$

200

$

158

$

19

$

2,167

Additions

Provision for loan losses .................................................

2,159

332

Deductions

Charge-offs ...................................................................

(2,263)

Recoveries .....................................................................

461

Net charge-offs .................................................................

(1,802)

Other(2) .............................................................................

—

(258)

27

(231)

—

93

(94)

11

(83)

(6)

Balance at end of period ................................................... $

2,147

$

301

$

162

$

(5)

(3)

—

(3)

—

11

2,579

(2,618)

499

(2,119)

(6)

$

2,621

For the Year Ended December 31, 2016

Credit Card

Personal
Loans

Student
Loans(1)

Other

Total

Balance at beginning of period .......................................... $

1,554

$

155

$

143

$

17

$

1,869

Additions

Provision for loan losses .................................................

1,579

196

Deductions

Charge-offs ...................................................................

(1,786)

Recoveries .....................................................................

443

Net charge-offs .................................................................

(1,343)

(172)

21

(151)

82

(76)

9

(67)

2

—

—

—

1,859

(2,034)

473

(1,561)

Balance at end of period ................................................... $

1,790

$

200

$

158

$

19

$

2,167

Includes both PCI and non-PCI private student loans.

(1)
(2) Net change in reserves on PCI pools having no remaining non-accretable difference.

-97-

Net charge-offs of principal are recorded against the allowance for loan losses, as shown in the preceding table. 

Information regarding net charge-offs of interest and fee revenues on credit card and other loans is as follows (dollars 
in millions): 

Interest and fees accrued subsequently charged off, net of recoveries (recorded as a reduction of

interest income) .................................................................................................................. $

Fees accrued subsequently charged off, net of recoveries

(recorded as a reduction to other income)

............................................................................ $

442

109

$

$

353

89

$

$

275

69

For the Years Ended December 31,

2018

2017

2016

The following tables provide additional detail of the Company’s allowance for loan losses and recorded 

investment in its loan portfolio by impairment methodology (dollars in millions): 

Credit
Card

Personal
Loans

Student
Loans(1)

Other
Loans

Total

At December 31, 2018

Allowance for loans evaluated for impairment as

Collectively evaluated for impairment in accordance with ASC 450-20 ........ $

2,229

$

292

$

121

$

Evaluated for impairment in accordance with ASC 310-10-35(2)(3) ...............

Acquired with deteriorated credit quality, evaluated in accordance with

ASC 310-30 .........................................................................................

299

—

46

—

23

25

4

2

—

$

2,646

370

25

Total allowance for loan losses ................................................................. $

2,528

$

338

$

169

$

6

$

3,041

Recorded investment in loans evaluated for impairment as

Collectively evaluated for impairment in accordance with ASC 450-20 ........ $

70,628

$

7,302

$

7,546

$

761

$

86,237

Evaluated for impairment in accordance with ASC 310-10-35(2)(3) ...............

2,248

152

182

Acquired with deteriorated credit quality, evaluated in accordance with

ASC 310-30 .........................................................................................

—

—

1,637

56

—

2,638

1,637

Total recorded investment

........................................................................ $

72,876

$

7,454

$

9,365

$

817

$

90,512

At December 31, 2017

Allowance for loans evaluated for impairment as

Collectively evaluated for impairment in accordance with ASC 450-20 ........ $

1,921

$

269

$

112

$

Evaluated for impairment in accordance with ASC 310-10-35(2)(3) ...............

Acquired with deteriorated credit quality, evaluated in accordance with

ASC 310-30 .........................................................................................

226

—

32

—

21

29

Total allowance for loan losses ................................................................. $

2,147

$

301

$

162

$

4

7

—

11

$

2,306

286

29

$

2,621

Recorded investment in loans evaluated for impairment as

Collectively evaluated for impairment in accordance with ASC 450-20 ........ $

65,975

$

7,263

$

6,939

$

370

$

80,547

Evaluated for impairment in accordance with ASC 310-10-35(2)(3) ...............

1,316

111

137

Acquired with deteriorated credit quality, evaluated in accordance with

ASC 310-30 .........................................................................................

—

—

2,084

53

—

1,617

2,084

Total recorded investment ........................................................................ $

67,291

$

7,374

$

9,160

$

423

$

84,248

(1)
(2)

(3)

Includes both PCI and non-PCI private student loans.
Loan receivables evaluated for impairment in accordance with ASC 310-10-35 include credit card loans, personal loans and student loans collectively evaluated for
impairment in accordance with ASC Subtopic 310-40, Receivables, which consists of modified loans accounted for as TDRs. Other loans are individually evaluated
for impairment and generally do not represent TDRs.
The unpaid principal balance of credit card loans was $2.0 billion and $1.1 billion at December 31, 2018 and 2017, respectively. The unpaid principal balance of
personal loans was $152 million and $109 million at December 31, 2018 and 2017, respectively. The unpaid principal balance of student loans was $182 million
and $135 million at December 31, 2018 and 2017, respectively. All loans accounted for as TDRs have a related allowance for loan losses.

-98-

Troubled Debt Restructurings

The Company has internal loan modification programs that provide relief to credit card, personal loan and 

student loan borrowers who may be experiencing financial hardship. The Company continually evaluates new 
programs to determine which of them meet the definition of a TDR. The internal loan modification programs include 
both temporary and permanent programs, which vary by product. External loan modification programs are also 
available for credit card and personal loans. Temporary and permanent modifications on credit card and personal 
loans, as well as temporary modifications on student loans and certain grants of student loan forbearance, result in the 
loans being considered individually impaired. In addition, loans that defaulted or graduated from modification 
programs or forbearance are considered to be individually impaired.

For credit card customers, the Company offers temporary hardship programs consisting of an interest rate 

reduction and in some cases a reduced minimum payment, both lasting for a period no longer than 12 months. The 
permanent modification program involves changing the structure of the loan to a fixed payment loan with a maturity no 
longer than 60 months and reducing the interest rate on the loan. The permanent modification program does not 
normally provide for the forgiveness of unpaid principal, but may allow for the reversal of certain unpaid interest or fee 
assessments. The Company also makes permanent loan modifications for customers who request financial assistance 
through external sources, such as a consumer credit counseling agency program. These loans typically receive a 
reduced interest rate but continue to be subject to the original minimum payment terms and do not normally include 
waiver of unpaid principal, interest or fees. Modified credit card loans that are deemed to meet the definition of TDRs 
include loans in both temporary and permanent programs.

For personal loan customers, in certain situations the Company offers various payment programs, including 
temporary and permanent programs. The temporary programs normally consist of a reduction of the minimum payment 
for a period of no longer than 12 months with the option of a final balloon payment required at the end of the loan term 
or an extension of the maturity date with the total term not exceeding nine years. Further, in certain circumstances, the 
interest rate on the loan is reduced. The permanent programs involve changing the terms of the loan in order to pay off 
the outstanding balance over a longer term and also in certain circumstances reducing the interest rate on the loan. 
Similar to the temporary programs, the total term may not exceed nine years. The Company also allows permanent 
loan modifications for customers who request financial assistance through external sources, similar to the credit card 
customers discussed above. Payments are modified based on the new terms agreed upon with the credit counseling 
agency. Personal loans included in temporary and permanent programs are accounted for as TDRs.

At December 31, 2018, there was $5.6 billion of private student loans in repayment, which includes both PCI 

and non-PCI loans. To assist student loan borrowers who are experiencing temporary financial difficulties but are 
willing to resume making payments, the Company may offer hardship forbearance or programs that include payment 
deferral, temporary payment reduction, temporary interest rate reduction or extended terms. A non-PCI modified loan 
typically meets the definition of a TDR based on the cumulative length of the concession period and an evaluation of the 
credit quality of the borrower based on FICO scores.

Borrower performance after using payment programs or forbearance is monitored and the Company believes the 
programs help to prevent defaults and are useful in assisting customers experiencing financial difficulties. The Company 
plans to continue to use payment programs and forbearance and, as a result, expects to have additional loans classified 
as TDRs in the future.

-99-

Additional information about modified loans classified as TDRs is shown below (dollars in millions): 

Average
recorded
investment in
loans

Interest income 
recognized 
during period 
loans were 
impaired(1)

Gross interest 
income that 
would have 
been recorded 
with original 
terms(2)

For the Year Ended December 31, 2018

Credit card loans(3)

........................................................................................................ $

1,737

Personal loans ............................................................................................................... $

Private student loans ...................................................................................................... $

130

158

For the Year Ended December 31, 2017

Credit card loans(3)

........................................................................................................ $

1,159

Personal loans ............................................................................................................... $

Private student loans ...................................................................................................... $

94

113

For the Year Ended December 31, 2016

Credit card loans(3)

........................................................................................................ $

1,035

Personal loans ............................................................................................................... $

Private student loans ...................................................................................................... $

73

63

$

$

$

$

$

$

$

$

$

180

14

13

107

10

8

88

8

4

$

$

$

$

$

$

$

$

$

137

6

—

86

4

—

77

3

—

(1)

(2)

(3)

The Company does not separately track interest income on loans in modification programs. Amounts shown are estimated by applying an average interest rate to the
average loans in the various modification programs.
The Company does not separately track the amount of additional gross interest income that would have been recorded if the loans in modification programs had not
been restructured and interest had instead been recorded in accordance with the original terms. Amounts shown are estimated by applying the difference between
the average interest rate earned on non-impaired loans and the average interest rate earned on loans in the modification programs to the average loans in the
modification programs.
Includes credit card loans that were modified in TDRs, but are no longer enrolled in a TDR program due to noncompliance with the terms of the modification or due
to successful completion of a program after which charging privileges may be reinstated based on customer-level evaluation. The average balance of credit card
loans that were no longer enrolled in a TDR program was $430 million, $339 million and $282 million, respectively, for the years ended December 31, 2018, 2017
and 2016.

In order to evaluate the primary financial effects that resulted from credit card loans entering into a loan 

modification program during the years ended December 31, 2018, 2017 and 2016, the Company quantified the 
amount by which interest and fees were reduced during the periods. During the years ended December 31, 2018, 
2017 and 2016, the Company forgave approximately $48 million, $40 million and $34 million, respectively, of interest 
and fees as a result of accounts entering into a credit card loan modification program.

The following table provides information on loans that entered a loan modification program during the period 

(dollars in millions):

For the Years Ended December 31,

2018

2017

2016

Number of
Accounts

Balances

Number of
Accounts

Balances

Number of
Accounts

Balances

Accounts that entered a loan modification program during

the period

Credit card loans ...............................................................

268,817

Personal loans ...................................................................

Private student loans ...........................................................

8,260

4,057

$

$

$

1,713

133,139

111

74

6,567

3,942

$

$

$

776

95,881

82

69

4,606

2,792

$

$

$

565

52

49

-100-

The following table presents the carrying value of loans that experienced a payment default during the period 

that had been modified in a TDR during the 15 months preceding the end of each period (dollars in millions):

For the Years Ended December 31,

2018

2017

2016

Aggregated
Outstanding
Balances
Upon
Default

Number
of
Accounts

Aggregated
Outstanding
Balances
Upon
Default

Number
of
Accounts

Aggregated
Outstanding
Balances
Upon
Default

Number
of
Accounts

Troubled debt restructurings that subsequently defaulted

Credit card loans(1)(2) ...........................................................

42,659

Personal loans(2) .................................................................

Private student loans(3) ........................................................

2,955

1,041

$

$

$

239

34,210

40

19

1,915

939

$

$

$

183

23,388

25

16

940

777

$

$

$

123

11

12

(1)
(2)

(3)

Terms revert back to the pre-modification terms for customers who default from a temporary program and charging privileges remain revoked in most cases.
For credit card loans and personal loans, a customer defaults from a modification program after two consecutive missed payments. The outstanding balance upon
default is generally the loan balance at the end of the month prior to default.
For student loans, defaults have been defined as loans that are 60 or more days delinquent. The outstanding balance upon default is generally the loan balance at
the end of the month prior to default.

Of the account balances that defaulted as shown above for the years ended December 31, 2018, 2017 and 

2016, approximately 36%, 37% and 37%, respectively, of the total balances were charged off at the end of the month 
in which they defaulted. For accounts that have defaulted from a loan modification program and have not been 
subsequently charged off, the balances are included in the allowance for loan loss analysis discussed above under “— 
Allowance for Loan Losses.”

Purchased Credit-Impaired Loans

Purchased loans with evidence of credit deterioration since origination for which it is probable that not all 
contractually required payments will be collected are considered impaired at acquisition and are reported as PCI loans. 
The private student loans acquired in the SLC transaction as well as the additional acquired private student loan 
portfolio comprise the Company’s only PCI loans at December 31, 2018 and 2017. Total PCI student loans had an 
outstanding balance of $1.7 billion and $2.2 billion, including accrued interest, and a related carrying amount of $1.6 
billion and $2.1 billion, as of December 31, 2018 and 2017, respectively.

The following table provides changes in accretable yield for the acquired loans during each period (dollars in 

millions): 

Balance at beginning of period ............................................................................................ $

669

$

796

$

Accretion into interest income ................................................................................................

Other changes in expected cash flows ....................................................................................

(139)

18

(159)

32

Balance at end of period ...................................................................................................... $

548

$

669

$

965

(185)

16

796

For the Years Ended December 31,

2018

2017

2016

Periodically, the Company updates the estimate of cash flows expected to be collected based on management’s 

latest expectations of future net credit losses, borrower prepayments and certain other assumptions that affect cash 
flows. No provision expense was recorded during the years ended December 31, 2018, 2017 and 2016. The 
allowance for PCI loan losses at December 31, 2018 and 2017 was $25 million and $29 million, respectively. For the 
years ended December 31, 2018, 2017 and 2016, the increase in accretable yield was primarily driven by increases 
in rates on variable rate loans. Changes to accretable yield are recognized prospectively as an adjustment to yield over 
the remaining life of the pools.

At December 31, 2018, the 30 or more days delinquency and 90 or more days delinquency rates on PCI student 
loans (which include loans not yet in repayment) were 2.93% and 0.78%, respectively. At December 31, 2017, the 30 
or more days delinquency and 90 or more days delinquency rates on PCI student loans (which include loans not yet in 
repayment) were 3.24% and 0.93%, respectively. These rates include private student loans that are greater than 120 

-101-

days delinquent that are covered by an indemnification agreement or insurance arrangements through which the 
Company expects to recover a substantial portion of the loan. The net charge-off rate on PCI student loans for the years 
ended December 31, 2018, 2017 and 2016 was 0.63%, 0.71% and 0.52%, respectively.

Geographical Distribution of Loans

The Company originates credit card loans throughout the United States. The geographic distribution of the 

Company’s credit card loan receivables was as follows (dollars in millions): 

December 31,

2018

2017

$

%

$

%

California .................................................................................................. $

Texas .........................................................................................................

New York ..................................................................................................

Florida .......................................................................................................

Illinois ........................................................................................................

Pennsylvania ..............................................................................................

Ohio .........................................................................................................

New Jersey ................................................................................................

Georgia .....................................................................................................

Michigan ...................................................................................................

6,620

6,155

5,040

4,815

3,878

3,712

3,039

2,661

2,160

2,042

9.1% $

8.4

6.9

6.6

5.3

5.1

4.2

3.7

3.0

2.8

6,006

5,664

4,701

4,262

3,624

3,481

2,838

2,486

1,967

1,893

Other

........................................................................................................

32,754

44.9

30,369

Total credit card loans ................................................................................. $

72,876

100% $

67,291

8.9%

8.4

7.0

6.3

5.4

5.2

4.2

3.7

2.9

2.8

45.2

100%

The Company originates personal loans, student loans and other loans, and has PCI loans throughout the United 

States. The geographic distribution of personal, student, other and PCI loan receivables was as follows (dollars in
millions): 

December 31,

2018

2017

$

%

$

%

New York .................................................................................................. $

California ..................................................................................................

Pennsylvania ..............................................................................................

Illinois ........................................................................................................

Texas .........................................................................................................

New Jersey ................................................................................................

Florida .......................................................................................................

Ohio .........................................................................................................

Massachusetts ............................................................................................

Michigan ...................................................................................................

1,834

1,656

1,221

1,098

1,071

925

838

698

584

560

10.4% $

9.4

6.9

6.2

6.1

5.2

4.8

4.0

3.3

3.2

1,838

1,579

1,183

1,048

1,031

878

766

673

579

555

Other

........................................................................................................

7,151

40.5

6,827

Total other loans (including PCI loans) .......................................................... $

17,636

100% $

16,957

10.8%

9.3

7.0

6.2

6.1

5.2

4.5

4.0

3.4

3.3

40.2

100%

5.

Credit Card and Student Loan Securitization Activities

The Company’s securitizations are accounted for as secured borrowings and the related trusts are treated as

consolidated subsidiaries of the Company. For a description of the Company’s principles of consolidation with respect 
to VIEs, see Note 1: Background and Basis of Presentation.

-102-

Credit Card Securitization Activities

The Company accesses the term asset securitization market through DCMT and DCENT. Credit card loan 
receivables are transferred into DCMT and beneficial interests in DCMT are transferred into DCENT. DCENT issues debt 
securities to investors that are reported in long-term borrowings.

The DCENT debt structure consists of four classes of securities (DiscoverSeries Class A, B, C and D notes), with 
the most senior class generally receiving a triple-A rating. In order to issue senior, higher rated classes of notes, it is 
necessary to obtain the appropriate amount of credit enhancement, generally through the issuance of junior, lower 
rated or more highly subordinated classes of notes. The subordinated classes are held by wholly-owned subsidiaries of 
Discover Bank. The Company is exposed to credit-related risk of loss associated with trust assets as of the balance sheet 
date through the retention of these subordinated interests. The estimated probable incurred loss is included in the 
allowance for loan losses estimate.

The Company’s retained interests in the assets of the trusts, consisting of investments in DCENT notes held by 

subsidiaries of Discover Bank, constitute intercompany positions, which are eliminated in the preparation of the 
Company’s consolidated statements of financial condition.

Upon transfer of credit card loan receivables to the trust, the receivables and certain cash flows derived from 
them become restricted for use in meeting obligations to the trusts’ creditors. Further, the transferred credit card loan 
receivables are owned by the trust and are not available to third-party creditors of the Company. The trusts have 
ownership of cash balances, the amounts of which are reported in restricted cash. With the exception of the seller’s 
interest in trust receivables, the Company’s interests in trust assets are generally subordinate to the interests of third-
party investors and, as such, may not be realized by the Company if needed to absorb deficiencies in cash flows that 
are allocated to the investors in the trusts’ debt. Apart from the restricted assets related to securitization activities, the 
investors and the securitization trusts have no recourse to the Company’s other assets or the Company’s general credit 
for a shortage in cash flows.

The carrying values of these restricted assets, which are presented on the Company’s consolidated statements of 

financial condition as relating to securitization activities, are shown in the following table (dollars in millions): 

December 31,

2018

2017

Restricted cash .............................................................................................................................................. $

1,834

$

26

Investors’ interests held by third-party investors ................................................................................................

Investors’ interests held by wholly-owned subsidiaries of Discover Bank ..............................................................

Seller’s interest

..............................................................................................................................................

Loan receivables(1)

.........................................................................................................................................

Allowance for loan losses allocated to securitized loan receivables(1) ..................................................................

Net loan receivables ......................................................................................................................................

Other

...........................................................................................................................................................

16,800

5,211

11,050

33,061

(1,150)

31,911

7

16,025

5,133

9,861

31,019

(998)

30,021

5

Carrying value of assets of consolidated variable interest entities ....................................................................... $

33,752

$

30,052

(1)

The Company maintains its allowance for loan losses at an amount sufficient to absorb probable losses inherent in all loan receivables, which includes all loan
receivables in the trusts. Therefore, credit risk associated with the transferred receivables is fully reflected on the Company’s balance sheet in accordance with GAAP.

The debt securities issued by the consolidated trusts are subject to credit, payment and interest rate risks on the 
transferred credit card loan receivables. To protect investors in the securities, there are certain features or triggering 
events that could cause an early amortization of the debt securities, including triggers related to the impact of the 
performance of the trust receivables on the availability and adequacy of cash flows to meet contractual requirements. As 
of December 31, 2018, no economic or other early amortization events have occurred.

The Company continues to own and service the accounts that generate the loan receivables held by the trusts. 
Discover Bank receives servicing fees from the trusts based on a percentage of the monthly investor principal balance 
outstanding. Although the fee income to Discover Bank offsets the fee expense to the trusts and thus is eliminated in 
consolidation, failure to service the transferred loan receivables in accordance with contractual requirements could lead 
to a termination of the servicing rights and the loss of future servicing income, net of related expenses.

-103-

Student Loan Securitization Activities

Student loan trust receivables underlying third-party investors’ interests are recorded in PCI loans and the related 

debt issued by the trusts is reported in long-term borrowings. The assets of the trusts are restricted from being sold or 
pledged as collateral for other borrowings and the cash flows from these restricted assets may be used only to pay 
obligations of the trusts. With the exception of the trusts’ restricted assets, the trusts and investors have no recourse to
the Company’s other assets or the Company’s general credit for a shortage in cash flows.

During 2018, the Company exercised its option to accelerate the repayment of remaining outstanding securities,
fully repaying the debt on one of the trusts. Currently there is one trust from which issued securities remain outstanding
to investors. Principal payments on the long-term secured borrowings are made as cash is collected on the underlying
loans that are used as collateral on the secured borrowings. The Company does not have access to cash collected by 
the securitization trust until cash is released in accordance with the trust indenture agreement. Similar to the credit card
securitizations, the Company continues to own and service the accounts that generate the student loan receivables held
by the trust and receives servicing fees from the trust based on a percentage of the principal balance outstanding. 
Although the servicing fee income offsets the fee expense related to the trust and thus is eliminated in consolidation,
failure to service the transferred loan receivables in accordance with contractual requirements could lead to a 
termination of the servicing rights and the loss of future servicing income, net of related expenses. 

Under terms of the trust arrangement, the Company has the option, but not the obligation, to provide financial 

support to the trust, but has never provided such support. A substantial portion of the credit risk associated with the 
securitized loans has been transferred to a third party under an indemnification arrangement.

The carrying values of these restricted assets, which are presented on the Company’s consolidated statements of 

financial condition as relating to securitization activities, are shown in the following table (dollars in millions):

Restricted cash .............................................................................................................................................. $

12

$

Student loan receivables(1)

..............................................................................................................................

363

Carrying value of assets of consolidated variable interest entities ....................................................................... $

375

$

55

762

817

(1)

The decrease in student loan receivables from December 31, 2017 to 7
trust.

December 31, 2018 is due in part to the repayment of remaining debt associated with one

December 31,

2018

2017

6.

Premises and Equipment

A summary of premises and equipment, net is as follows (dollars in millions):

December 31,

2018

2017

Land ............................................................................................................................................................ $

42

$

Buildings and improvements ...........................................................................................................................

Furniture, fixtures and equipment

....................................................................................................................

Software ......................................................................................................................................................

Premises and equipment

................................................................................................................................

Less: accumulated depreciation ......................................................................................................................

Less: accumulated amortization of software .....................................................................................................

671

989

696

2,398

(1,193)

(269)

Premises and equipment, net

.......................................................................................................................... $

936

$

42

641

916

560

2,159

(1,121)

(213)

825

Depreciation expense was $75 million, $76 million and $77 million for the years ended December 31, 2018, 
2017 and 2016, respectively. Amortization expense on capitalized software was $67 million, $52 million and $57 
million for the years ended December 31, 2018, 2017 and 2016, respectively. 

-104-

7.(cid:1)

Goodwill and Intangible Assets

Goodwill

As of December 31, 2018 and 2017, the Company had goodwill of $255 million related to PULSE, part of the
Payment Services segment. The Company conducted its annual goodwill impairment test as of October 1, 2018 and 
2017 and no impairment charges were identified.

Intangible Assets

The Company’s amortizable intangible assets consisting of customer relationships and trade names resulted from 

various acquisitions and are primarily included in the Payment Services segment.  

Non-amortizable intangible assets consist of trade name intangibles recognized in the acquisition of SLC, along

with international transaction processing rights and trade name intangibles, which are primarily included in the
Payment Services segment. The Company conducted its annual impairment test of intangible assets as of October 1, 
2018 and 2017 and no impairment charges were identified.

The following table summarizes the Company’s intangible assets (dollars in millions):

2018

2017

Gross
y g
Carrying
Amount

Accumulated
Amortization

Net 
Book ValueVV

Gross
y g
Carrying
Amount

Accumulated
Amortization

Net 
Book ValueVV

Amortizable intangible assets

Customer relationships .............................. $

69

$

67

$

Trade name and other ...............................

Total amortizable intangible assets .............

Non-amortizable intangible assets

Trade names ............................................

International transaction processing rights ...

Total non-amortizable intangible assets.......

8

77

132

23

155

4

71

—

—

—

2

4

6

132

23

155

$

69

$

65

$

8

77

132

23

155

4

69

—

—

—

Total intangible assets ............................... $

232

$

71

$

161

$

232

$

69

$

4

4

8

132

23

155

163

Amortization expense related to the Company’s intangible assets was not material for the years ended December 
31, 2018, 2017 and 2016 and the expected amortization expense for the next five years based on intangible assets at 
the end of the current period is not material, either individually or in the aggregate. 

-105-

8.

Deposits

The Company offers its deposit products to customers through two channels: (i) through direct marketing, internet

origination and affinity relationships (“direct-to-consumer deposits”); and (ii) indirectly through contractual arrangements
with securities brokerage firms (“brokered deposits”). Direct-to-consumer deposits include online savings accounts, 
certificates of deposit, money market accounts, IRA certificates of deposit and checking accounts, while brokered 
deposits include certificates of deposit and sweep accounts.

The following table provides a summary of interest-bearing deposit accounts (dollars in millions):

Certificates of deposit in amounts less than $100,000 ........................................................................................ $

27,947

$

23,768

Certificates of deposit in amounts $100,000 or greater(1) ....................................................................................

Savings deposits, including money market deposit accounts ................................................................................

6,841

32,296

5,984

28,413

Total interest-bearing deposits .......................................................................................................................... $

67,084

$

58,165

2018

2017

(1)

Includes $1.7 billion and $1.4 billion in certificates of deposit equal to or greater than $250,000, the Federal Deposit Insurance Corporation (“FDIC”) insurance limit,
as of December 31, 2018 and 2017, respectively.

The following table summarizes certificates of deposit in amounts of $100,000 or greater by contractual maturity 

(dollars in millions):

Three months or less

............................................................................................................................................................... $

Over three months through six months ......................................................................................................................................

Over six months through twelve months ....................................................................................................................................

Over twelve months

................................................................................................................................................................

Total

..................................................................................................................................................................................... $

994

1,025

2,459

2,363

6,841

December 31,
2018

The following table summarizes certificates of deposit maturing over each of the next five years and thereafter 

(dollars in millions):

2019 .................................................................................................................................................................................... $

15,302

2020 ....................................................................................................................................................................................

2021 ....................................................................................................................................................................................

2022 ....................................................................................................................................................................................

2023 ....................................................................................................................................................................................

Thereafter

..............................................................................................................................................................................

7,216

5,202

2,877

1,840

2,351

Total

..................................................................................................................................................................................... $

34,788

December 31,
2018

-106-

9.

Long-Term Borrowings

Long-term borrowings consist of borrowings having original maturities of one year or more. The following table

provides a summary of the Company’s long-term borrowings and weighted-average interest rates on outstanding 
balances (dollars in millions):

December 31, 2018

December 31,
2017

Maturity

Interest
Rate

g
WW
Weighted-
Average
Interest Rate

gg

Outstanding
Amount

Outstanding
Amount

Securitized Debt

Fixed-rate asset-backed securities(1) ......................................

2019-2024

1.39%-3.32%

Floating-rate asset-backed securities(2)(3) ................................

2019-2024

2.69%-3.11%

2.17%

2.90%

$

10,657

$

6,063

8,888

7,038

Total Discover Card Master Trust I and Discover Card
Execution Note Trust ...........................................................

Floating-rate asset-backed securities(4)(5) ................................

2031

6.50%

6.50%

Total SLC Private Student Loan Trust .....................................

Total long-term borrowings - owed to securitization investors..

Discover Financial Services (Parent Company)

Fixed-rate senior notes .......................................................

2019-2027

3.75%-10.25%

Fixed-rate retail notes .........................................................

2019-2031

2.85%-4.60%

Discover Bank

Fixed-rate senior bank notes(1) .............................................

2020-2028

3.10%-4.65%

Fixed-rate subordinated bank notes .....................................

2019-2028

4.68%-8.70%

4.25%

3.73%

3.69%

6.32%

16,720

15,926

197

197

610

610

16,917

16,536

2,743

346

6,027

1,195

2,710

302

6,080

698

Total long-term borrowings .................................................

$

27,228

$

26,326

(1)

(2)

(3)

(4)

(5)

The Company uses interest rate swaps to hedge portions of these long-term borrowings against changes in fair value attributable to changes in London Interbank
Offered Rate (“LIBOR”). Use of these interest rate swaps impacts carrying value of the debt. See Note 21: Derivatives and Hedging Activities.
Discover Card Execution Note Trust floating-rate asset-backed securities include issuances with the following interest rate terms: 1-month LIBOR + 23 to 60 basis
points and Commercial paper rate + 49 basis points as of December 31, 2018.
The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash flows resulting from interest payments on a portion of
these long-term borrowings. There is no impact on debt carrying value from use of these interest rate swaps. See Note 21: Derivatives and Hedging Activities.
SLC Private Student Loan Trust floating-rate asset-backed securities include an issuance with the following interest rate term: Prime rate + 100 basis points as of
December 31, 2018.
Repayment of this debt is dependent upon the timing of principal and interest payments on the underlying student loans. The date shown represents final maturity
date.

The following table summarizes long-term borrowings maturing over each of the next five years and thereafter 

(dollars in millions):

2019 .................................................................................................................................................................................... $

2020 ....................................................................................................................................................................................

2021 ....................................................................................................................................................................................

2022 ....................................................................................................................................................................................

2023 ....................................................................................................................................................................................

Thereafter

..............................................................................................................................................................................

Amount

6,511

4,707

3,383

2,806

3,328

6,493

Total

..................................................................................................................................................................................... $

27,228

The Company has access to committed borrowing capacity through private securitizations to support the funding 

of its credit card loan receivables. As of December 31, 2018, the total commitment of secured credit facilities through 
private providers was $6.0 billion, $500 million of which was drawn at December 31, 2018. Access to the unused 

-107-

portions of the secured credit facilities is subject to the terms of the agreements with each of the providers, which have 
various expirations in calendar years 2019 through 2020. Borrowings outstanding under each facility bear interest at a
margin above LIBOR or the asset-backed commercial paper costs of each individual conduit provider. The terms of 
each agreement provide for a commitment fee to be paid on the unused capacity and include various affirmative and
negative covenants, including performance metrics and legal requirements similar to those required to issue any term 
securitization transaction.

10.

Stock-Based Compensation Plans

The Company has two stock-based compensation plans: the Discover Financial Services Omnibus Incentive Plan
(“Omnibus Plan”) and the Discover Financial Services Directors’ Compensation Plan (“Directors’ Compensation Plan”). 

Omnibus Plan

The Omnibus Plan, which is stockholder approved, provides for the award of stock options, stock appreciation 
rights, restricted stock, restricted stock units (“RSUs”), performance stock units (“PSUs”) and other stock-based and/or 
cash awards (collectively, “awards”). Currently, the Company does not have any stock options, stock appreciation rights 
or restricted stock outstanding. The total number of shares that may be granted is 45 million shares, subject to 
adjustments for certain transactions as described in the Omnibus Plan document. Shares granted under the Omnibus 
Plan may be the following: (i) authorized but unissued shares and (ii) treasury shares that the Company acquires in the
open market, in private transactions or otherwise. 

Directors’ Compensation Plan

The Directors’ Compensation Plan, which is stockholder approved, permits the grant of RSUs to non-employee 
directors. Under the Directors’ Compensation Plan, the Company may issue awards of up to a total of 1,000,000 shares 
of common stock to non-employee directors. Shares of stock that are issuable pursuant to the awards granted under the 
Directors’ Compensation Plan may be authorized but unissued shares, treasury shares or shares that the Company 
acquires in the open market. Annual awards for eligible directors are calculated by dividing $150,000 by the fair 
market value of a share of stock on the date of grant and are subject to a restriction period whereby 100% of such units 
shall vest in full on the earlier of the one year anniversary of the date of grant or immediately prior to the first annual 
meeting of shareholders following the date of grant. RSUs include the right to receive dividend equivalents in the same 
amount and at the same time as dividends paid to all Company common shareholders.

Stock-Based Compensation

The following table details the compensation cost, net of forfeitures (dollars in millions): 

RSUs ................................................................................................................................... $

PSUs ...................................................................................................................................

Total stock-based compensation expense ................................................................................ $

49

32

81

$

$

44

31

75

$

$

Income tax benefit

................................................................................................................ $

15

$

28

$

41

23

64

24

For the Years Ended December 31,

YY

2018

2017

2016

-108-

RSUs

The following table sets forth the activity related to vested and unvested RSUs:

Weighted-
Average
Remaining
Contractual
Term (in years)

Number of Units

RSUs at December 31, 2017 ........................................................................................

2,902,390

Granted .....................................................................................................................

649,203

Conversions to common stock .......................................................................................

(889,201)

Forfeited .....................................................................................................................

(55,898)

Aggregate 
Intrinsic Value 
(in millions)

$

223

RSUs at December 31, 2018 ........................................................................................

2,606,494

Vested and convertible RSUs at December 31, 2018 .......................................................

1,263,694

0.83

$

— $

154

75

The following table sets forth the activity related to unvested RSUs:

Number of
Units

Weighted-
Average
Grant-Date
Fair Value

Unvested RSUs at December 31, 2017(1) .........................................................................................................

1,331,170

Granted .......................................................................................................................................................

649,203

$

$

Vested .........................................................................................................................................................

(883,317) $

Forfeited ......................................................................................................................................................

(55,898) $

Unvested RSUs at December 31, 2018(1) .........................................................................................................

1,041,158

$

58.74

77.53

60.85

68.17

68.16

(1) Unvested RSUs represent awards where recipients have yet to satisfy either explicit vesting terms or retirement-eligibility requirements.

Compensation cost associated with RSUs is determined based on the number of units granted and the fair value on 
the date of grant. The fair value is amortized on a straight-line basis, net of estimated forfeitures over the requisite service 
period for each separately vesting tranche of the award. The requisite service period is generally the vesting period.

The following table summarizes the total intrinsic value of the RSUs converted to common stock and the total grant-

date fair value of RSUs vested (dollars in millions, except weighted-average grant-date fair value amounts):

Intrinsic value of RSUs converted to common stock .................................................................... $

Grant-date fair value of RSUs vested ....................................................................................... $

67

54

Weighted-average grant-date fair value of RSUs granted .......................................................... $

77.53

$

$

$

41

37

70.62

$

$

$

38

38

48.86

For the Years Ended December 31,

2018

2017

2016

As of December 31, 2018, there was $22 million of total unrecognized compensation cost related to non-vested 

RSUs. The cost is expected to be recognized over a weighted-average period of 0.83 years.

RSUs provide for accelerated vesting if there is a change in control or upon certain terminations (as defined in the 
Omnibus Plan or the award certificate). RSUs include the right to receive dividend equivalents in the same amount and at 
the same time as dividends paid to all Company common shareholders.

-109-

PSUs

The following table sets forth the activity related to vested and unvested PSUs:

Number of Units

Weighted-
Average Grant-
Date Fair Value

PSUs at December 31, 2017(1) .........................................................

Granted .........................................................................................

999,999

251,579

$

$

Conversions to common stock ...........................................................

(303,492) $

Forfeited ........................................................................................

(14,444) $

PSUs at December 31, 2018(1)(2)(3)(4) ..................................................

933,642

$

56.82

77.75

57.32

59.87

62.25

Weighted-
Average
Remaining
Contractual
Term (in years)

Aggregate
Intrinsic Value
(in millions)

$

77

0.88

$

55

(1)
(2)

(3)

(4)

All PSUs outstanding at December 31, 2018 and December 31, 2017 are unvested PSUs.
Includes 441,370 PSUs granted in 2016 that are earned based on the Company’s achievement of earnings per share (“EPS”) during the three-year performance
period which ends December 31, 2018 and are subject to the requisite service period which ended February 1, 2019.
Includes 243,100 PSUs granted in 2017 that are earned based on the Company’s achievement of EPS during the three-year performance period which ends
December 31, 2019 and are subject to the requisite service period which ends February 1, 2020.
Includes 249,172 PSUs granted in 2018 that may be earned based on the Company’s achievement of EPS during the three-year performance period which ends
December 31, 2020 and are subject to the requisite service period which ends February 1, 2021.

Compensation cost associated with PSUs is determined based on the number of instruments granted, the fair value 
on the date of grant and the performance factor. The fair value is amortized on a straight-line basis, net of estimated 
forfeitures, over the requisite service period. Each PSU outstanding at December 31, 2018 is a restricted stock instrument 
that is subject to additional conditions and constitutes a contingent and unsecured promise by the Company to pay up to 
1.5 shares per unit of the Company’s common stock on the conversion date for the PSU, contingent on the number of PSUs 
to be issued. PSUs have a performance period of three years and a vesting period of three years. The requisite service 
period of an award, having both performance and service conditions, is the longest of the explicit, implicit and derived 
service periods.

The following table summarizes the total intrinsic value of the PSUs converted to common stock and the total grant-

date fair value of PSUs vested (dollars in millions, except weighted-average grant-date fair value amounts):

Intrinsic value of PSUs converted to common stock ..................................................................... $

Grant-date fair value of PSUs vested ........................................................................................ $

30

17

Weighted-average grant-date fair value of PSUs granted .......................................................... $

77.75

$

$

$

27

18

71.17

$

$

$

36

20

48.95

For the Years Ended December 31,

2018

2017

2016

As of December 31, 2018, there was $8 million of total unrecognized compensation cost related to non-vested 

PSUs. The cost is expected to be recognized over a weighted-average period of 0.5 years.

PSUs provide for accelerated vesting if there is a change in control or upon certain terminations (as defined in the 

Omnibus Plan or the award certificate). PSUs include the right to receive dividend equivalents, which will accumulate 
and pay out in cash if and when the underlying shares are issued.

-110-

11.

Employee Benefit Plans

The Company sponsors the Discover Financial Services Pension Plan (the “Discover Pension Plan”), which is a

non-contributory defined benefit plan that is qualified under Section 401(a) of the Internal Revenue Code, for eligible 
employees in the U.S. Effective December 31, 2008, the Discover Pension Plan was amended to discontinue the accrual 
of future benefits. The Company also sponsors the Discover Financial Services 401(k) Plan (the “Discover 401(k) Plan”),
which is a defined contribution plan that is qualified under Section 401(a) of the Internal Revenue Code, for its eligible 
U.S. employees. 

Discover Pension Plan

The Discover Pension Plan generally provides retirement benefits that are based on each participant’s years of 

credited service prior to 2009 and on compensation specified in the Discover Pension Plan. The Company’s policy is to
fund at least the amounts sufficient to meet minimum funding requirements under the Employee Retirement Income 
Security Act of 1974, as amended. 

Net Periodic Benefit Cost

Net periodic benefit cost expensed by the Company included the following components (dollars in millions):

Service cost, benefits earned during the period ....................................................................... $

— $

— $

Interest cost on projected benefit obligation ............................................................................

Expected return on plan assets ..............................................................................................

Net amortization ..................................................................................................................

Net periodic benefit cost ....................................................................................................... $

22

(26)

5

1

$

23

(25)

4

2

$

—

23

(25)

4

2

For the Years Ended December 31,

YY

2018

2017

2016

Accumulated Other Comprehensive Income

Pretax amounts recognized in AOCI that have not yet been recognized as components of net periodic benefit 

cost consist of (dollars in millions):

Prior service credit

.................................................................................................................................................................. $

Net loss

.................................................................................................................................................................................

Total

..................................................................................................................................................................................... $

2

(263)

(261)

December 31,
2018

-111-

Benefit Obligations and Funded Status

The following table provides a reconciliation of the changes in the benefit obligation and fair value of plan assets 

as well as a summary of the Discover Pension Plan’s funded status (dollars in millions): 

For the Years Ended December 31,

2018

2017

Reconciliation of benefit obligation

Benefit obligation at beginning of year .................................................................................................. $

603

$

Interest cost

..........................................................................................................................................

Actuarial (gain) loss ..............................................................................................................................

Benefits paid ........................................................................................................................................

Benefit obligation at end of year ...........................................................................................................

Reconciliation of fair value of plan assets

Fair value of plan assets at beginning of year ........................................................................................

Actual return on plan assets ...................................................................................................................

Employer contributions ..........................................................................................................................

Benefits paid ........................................................................................................................................

Fair value of plan assets at end of year .................................................................................................

22

(57)

(18)

550

424

(36)

85

(18)

455

546

23

54

(20)

603

381

63

—

(20)

424

Unfunded status (recorded in accrued expenses and other liabilities) ......................................................... $

(95) $

(179)

Assumptions

 The following table presents the assumptions used to determine the benefit obligation:

Discount rate ................................................................................................................................................

4.27%

3.68%

December 31,

2018

2017

The following table presents the assumptions used to determine net periodic benefit cost:

Discount rate .......................................................................................................................

Expected long-term rate of return on plan assets ......................................................................

For the Years Ended December 31,

2018

2017

2016

3.68%

6.15%

4.29%

6.50%

4.50%

6.50%

The expected long-term rate of return on plan assets was estimated by computing a weighted-average return of 

the underlying long-term expected returns on the different asset classes, based on the target asset allocations. Asset 
class return assumptions are created by integrating information on past capital market performance, current levels of 
key economic indicators and the market insights of investment professionals. Individual asset classes are analyzed as 
part of a larger system, acknowledging both the interaction between asset classes and the influence of larger 
macroeconomic variables such as inflation and economic growth on the entire structure of capital markets. Medium and 
long-term economic outlooks for the U.S. and other major industrial economies are forecast in order to understand the 
range of possible economic scenarios and evaluate their likelihood. Historical relationships between key economic 
variables and asset class performance patterns are analyzed using empirical models. Finally, comprehensive asset class 
performance projections are created by blending descriptive asset class characteristics with capital market insight and 
the initial economic analyses. The expected long-term return on plan assets is a long-term assumption that generally is 
expected to remain the same from one year to the next but is adjusted if there is a material change in the target asset 
allocation and/or significant changes in fees and expenses paid by the Discover Pension Plan.

-112-

Discover Pension Plan Assets

The targeted asset allocation for 2019 by asset class is 66% and 34% for fixed income securities and equity 

securities, respectively. The Discover Financial Services Retirement Plan Investment Committee (the “Investment 
Committee”) determined the asset allocation targets for the Discover Pension Plan based on its assessment of business 
and financial conditions, demographic and actuarial data, funding characteristics and related risk factors. Other 
relevant factors, including industry practices and long-term historical and prospective capital market returns were 
considered as well. 

The Discover Pension Plan return objectives provide long-term measures for monitoring the investment 

performance against growth in the pension obligations. The overall allocation is expected to help protect the Discover 
Pension Plan’s funded status while generating sufficiently stable real returns (net of inflation) to help cover current and 
future benefit payments and to improve the Discover Pension Plan’s funded status. Total Discover Pension Plan portfolio 
performance is assessed by comparing actual returns with relevant benchmarks, such as the S&P 500 Index, the S&P 
500 Total Return Index, the Russell 2000 Index and the MSCI All Country World Index.

Both the equity and fixed income portions of the asset allocation use a combination of active and passive 
investment strategies and different investment styles. The fixed income asset allocation consists of longer duration fixed 
income securities in order to help reduce plan exposure to interest rate variation and to better correlate assets with 
obligations. The longer duration fixed income allocation is expected to help stabilize the funding status ratio over the 
long term. 

The asset mix of the Discover Pension Plan is reviewed by the Investment Committee on a regular basis. The asset 

allocation strategy will change over time in response to changes in the Discover Pension Plan’s funded status.

-113-

Fair Value Measurements

The Discover Pension Plan’s assets are stated at fair value. Quoted market prices in active markets are the best 

evidence of fair value and are used as the basis for the measurement, if available. If a quoted market price is not 
available, the estimate of the fair value is based on the best information available in the circumstances. The table below 
presents information about the Discover Pension Plan assets and indicates the level within the fair value hierarchy, as 
defined by ASC Topic 820, with which each item is associated as of the end of the current period. For a description of 
the fair value hierarchy, see Note 20: Fair Value Measurements. (dollars in millions):

Level 1

Level 2

Level 3

Net Asset
Value

Total

Net Asset
Allocation

Balance at December 31, 2018

Assets

Domestic small/mid cap equity fund .................. $

— $

Emerging markets equity fund ...........................

Global equity fund ...........................................

Domestic large cap equity fund .........................

Long duration credit fund ..................................

Futures contracts ..............................................

Non-core fixed income fund ..............................

U.S. Treasury securities .....................................

Stable value fund .............................................

Temporary investment fund ...............................

—

—

—

—

—

—

59

—

—

6

—

82

7

125

6

—

—

1

45

$

— $

— $

—

—

—

—

—

65

—

—

—

17

42

—

—

—

—

—

—

—

6

17

124

7

125

6

65

59

1

45

1%

4

27

2

28

1

14

13

—

10

Total assets ...................................................... $

59

$

272

$

65

$

59

$

455

100%

Balance at December 31, 2017

Assets

Domestic small/mid cap equity fund .................. $

— $

Emerging markets equity fund ...........................

Global low volatility equity fund ........................

International core equity fund ............................

Domestic large cap equity fund .........................

Long duration fixed income fund .......................

Stable value fund .............................................

Temporary investment fund ...............................

—

—

—

—

—

—

—

34

34

22

51

57

219

1

6

$

— $

— $

—

—

—

—

—

—

—

—

—

—

—

—

—

—

34

34

22

51

57

219

1

6

8%

8

5

12

13

52

—

2

Total assets ...................................................... $

— $

424

$

— $

— $

424

100%

There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended December 31, 

2018 and 2017.

-114-

Cash Flows

The Company does not expect to make any contributions to the Discover Pension Plan in 2019.

Expected benefit payments associated with the Discover Pension Plan for each of the next five years and in 

aggregate for the years thereafter are as follows (dollars in millions): 

2019 .................................................................................................................................................................................... $

2020 .................................................................................................................................................................................... $

2021 .................................................................................................................................................................................... $

2022 .................................................................................................................................................................................... $

2023 .................................................................................................................................................................................... $

15

16

17

19

20

Following five years thereafter

................................................................................................................................................. $

124

December 31,
2018

Discover 401(k) Plan

Under the Discover 401(k) Plan, eligible U.S. employees receive 401(k) matching contributions. Eligible 

employees also receive fixed employer contributions. The pretax expense associated with the Company contributions for 
the years ended December 31, 2018, 2017 and 2016 was $69 million, $64 million and $59 million, respectively.

12.

Common and Preferred Stock

Preferred Stock

The Company has 5,700 shares of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C 

(the “preferred stock”), outstanding with a par value of $0.01 per share that were issued on October 31, 2017. Each 
share of preferred stock has a liquidation preference of $100,000 and is represented by 100 depositary shares. 
Proceeds, net of underwriting discount, received from the preferred stock issuance totaled approximately $563 million. 
The preferred stock is redeemable at the Company’s option, subject to regulatory approval, either (1) in whole or in 
part on any dividend payment date on or after October 30, 2027 or (2) in whole but not in part, at any time within 90 
days following a regulatory capital event (as defined in the certificate of designations for the preferred stock), in each
case at a redemption price equal to $100,000 per share of preferred stock plus declared and unpaid dividends. Any 
dividends declared on the preferred stock will be payable semi-annually in arrears at a rate of 5.50% per annum
through October 30, 2027. Thereafter, dividends declared on preferred stock will be payable quarterly in arrears at a
floating rate equal to three-month LIBOR plus a spread of 3.076% per annum. On December 1, 2017, the Company 
redeemed all outstanding shares of the Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B, for an
aggregate price of $575 million and charged to retained earnings $15 million of original issuance costs.

Stock Repurchase Program

On July 19, 2018, the Company’s Board of Directors approved a share repurchase program authorizing the 

repurchase of up to $3.0 billion of its outstanding shares of common stock. The program expires on January 31, 2020
and may be terminated at any time. During the year ended December 31, 2018, the Company repurchased
27,371,072 shares for $2.0 billion.

-115-

13. Accumulated Other Comprehensive Income

Changes in each component of AOCI were as follows (dollars in millions):

Unrealized
)
(
(Losses) Gains
on Available-
for-Sale
Investment
Securities, Net
of TaxTT

)
Gains (Losses)
(
on Cash Flow
Hedges, Net of
TaxTT

Losses on
Pension Plan,
Net of TaxTT

AOCI

For the Year Ended December 31, 2018

YY

,

Balance at December 31, 2017 .......................................................... $

(5) $

10

$

(157) $

Cumulative effect of ASU No. 2018-02 adoption(1) ................................

Net change ........................................................................................

Balance at December 31, 2018 .......................................................... $

(1)

16

10

3

9

(31)

—

$

22

$

(188) $

For the Year Ended December 31, 2017

YY

,

Balance at December 31, 2016 .......................................................... $

Net change ........................................................................................

Balance at December 31, 2017 .......................................................... $

For the Year Ended December 31, 2016

YY

,

Balance at December 31, 2015 .......................................................... $

Net change ........................................................................................

Balance at December 31, 2016 .......................................................... $

(3) $

(2)

(5) $

— $

(3)

(3) $

(13) $

(145) $

23

10

(12)

$

(157) $

(20) $

(140) $

7

(5)

(13) $

(145) $

(152)

(29)

25

(156)

(161)

9

(152)

(160)

(1)

(161)

(1)

Represents the adjustment to AOCI as a result of adoption of ASU No. 2018-02, Reclassification of Certain Tax Effects from Accumulated Other Comprehensive
Income, in the second quarter of 2018.

-116-

The following table presents each component of OCI before reclassifications and amounts reclassified from AOCI 

for each component of OCI before- and after-tax (dollars in millions):

Before Tax

Tax
(Expense)
Benefit

Net of Tax

For the Year Ended December 31, 2018

Available-for-Sale Investment Securities

Net unrealized holding gains arising during the period .................................................................. $

Net change ................................................................................................................................ $

23

23

$

$

(7) $

(7) $

Cash Flow Hedges

Net unrealized gains arising during the period ............................................................................. $

17

$

(4) $

Amounts reclassified from AOCI

..................................................................................................

(6)

2

Net change ................................................................................................................................ $

11

$

(2) $

For the Year Ended December 31, 2017

Available-for-Sale Investment Securities

Net unrealized holding losses arising during the period ................................................................. $

Net change ................................................................................................................................ $

Cash Flow Hedges

Net unrealized gains arising during the period ............................................................................. $

Amounts reclassified from AOCI

..................................................................................................

Net change ................................................................................................................................ $

Pension Plan

Unrealized losses arising during the period ................................................................................... $

Net change ................................................................................................................................ $

(3) $

(3) $

23

15

38

$

$

(15) $

(15) $

1

1

$

$

(9) $

(6)

(15) $

3

3

$

$

For the Year Ended December 31, 2016

Available-for-Sale Investment Securities

Net unrealized holding losses arising during the period ................................................................. $

Net change ................................................................................................................................ $

(4) $

(4) $

1

1

$

$

Cash Flow Hedges

Net unrealized losses arising during the period ............................................................................. $

(23) $

8

$

Amounts reclassified from AOCI

..................................................................................................

Net change ................................................................................................................................ $

Pension Plan

Unrealized losses arising during the period ................................................................................... $

Net change ................................................................................................................................ $

35

12

(13)

$

(5) $

(9) $

(9) $

4

4

$

$

16

16

13

(4)

9

(2)

(2)

14

9

23

(12)

(12)

(3)

(3)

(15)

22

7

(5)

(5)

-117-

14. Other Expense

Total other expense includes the following components (dollars in millions):

For the Years Ended December 31,

YY

2018

2017

2016

Postage ............................................................................................................................... $

Fraud losses and other charges .............................................................................................

Supplies ..............................................................................................................................

Credit-related inquiry fees .....................................................................................................

Incentive expense .................................................................................................................

$

86

83

29

18

85

$

78

89

39

17

37

Other expense .....................................................................................................................

168

164

Total other expense .............................................................................................................. $

469

$

424

$

81

98

41

18

24

173

435

15.

Income Taxes

Income tax expense consisted of the following (dollars in millions):

For the Years Ended December 31,

YY

2018

2017

2016

Current

U.S. federal

......................................................................................................................... $

839

$

1,056

$

1,066

U.S. state and local

..............................................................................................................

Total

...................................................................................................................................

Deferred

U.S. federal

.........................................................................................................................

U.S. state and local

..............................................................................................................

Total

...................................................................................................................................

206

1,045

(163)

(27)

(190)

96

1,152

288

(2)

286

149

1,215

45

3

48

Income tax expense .............................................................................................................. $

855

$

1,438

$

1,263

The following table reconciles the Company’s effective tax rate to the U.S. federal statutory income tax rate:

For the Years Ended December 31,

YY

2018

2017

2016

U.S. federal statutory income tax rate .....................................................................................

21.0%

35.0%

35.0%

U.S. state, local and other income taxes, net of U.S. federal income tax benefits ........................

Revaluation of net deferred tax assets and other investments due to tax reform(1) ........................

Tax credits

..........................................................................................................................

Other ..................................................................................................................................

3.6

—

(1.3)

0.5

3.1

5.1

(1.3)

(1.2)

2.7

—

(1.8)

(1.4)

Effective income tax rate .......................................................................................................

23.8%

40.7%

34.5%

(1)

See Note 3: Investments — Other Investments for a description of these investments.

For the year ended December 31, 2018, income tax expense decreased $583 million, or 40.5%, and the
effective income tax rate decreased 16.9 percentage points as compared to the year ended December 31, 2017. The 
decrease in both the effective tax rate and income tax expense is primarily due to a reduction in the U.S. federal
statutory income tax rate from 35% to 21% and other impacts of TCJA.

Income tax expense increased $175 million, or 13.9%, and the effective tax rate increased 6.2 percentage points

for the year ended December 31, 2017 as compared to the year ended December 31, 2016. The increase in both the

-118-

effective tax rate and income tax expense is primarily due to the revaluation of net deferred tax assets and certain 
investments as a result of a reduction in the U.S. federal statutory income tax rate from 35% to 21% under the TCJA.

Deferred income taxes reflect the net tax effects of temporary differences between the financial reporting and tax 

bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when such 
differences are expected to reverse. Valuation allowances are provided to reduce deferred tax assets to an amount that 
is more likely than not to be realized. The Company evaluates the likelihood of realizing its deferred tax assets by 
estimating sources of future taxable income and the impact of tax planning strategies. Significant components of the 
Company’s net deferred income taxes, which are included in other assets in the consolidated statements of financial 
condition, were as follows (dollars in millions):

December 31,

2018

2017

Deferred tax assets

Allowance for loan losses

.............................................................................................................................. $

730

$

Compensation and benefits ............................................................................................................................

Other

...........................................................................................................................................................

Total deferred tax assets before valuation allowance .........................................................................................

Valuation allowance ......................................................................................................................................

Total deferred tax assets, net of valuation allowance .........................................................................................

Deferred tax liabilities

Customer fees and rewards ............................................................................................................................

Depreciation and software amortization ..........................................................................................................

Debt exchange premium ................................................................................................................................

Intangibles

...................................................................................................................................................

Other

...........................................................................................................................................................

Total deferred tax liabilities ............................................................................................................................

65

44

839

(1)

838

(159)

(137)

(34)

(26)

(48)

(404)

Net deferred tax assets(1)

................................................................................................................................ $

434

$

522

66

40

628

(3)

625

(145)

(109)

(41)

(24)

(53)

(372)

253

(1)

The change in net deferred tax assets attributable to the TCJA is reflected on the Consolidated Statements of Cash Flows under “Other, net”.

A reconciliation of beginning and ending unrecognized tax benefits is as follows (dollars in millions):

For the Years Ended December 31,

2018

2017

2016

Balance at beginning of period ............................................................................................ $

123

$

158

$

286

Additions

Current year tax positions .................................................................................................

Prior year tax positions .....................................................................................................

Reductions

Prior year tax positions .....................................................................................................

Settlements with taxing authorities ......................................................................................

Expired statute of limitations ..............................................................................................

5

6

(17)

(25)

(9)

9

23

(41)

(25)

(1)

Balance at end of period(1)

................................................................................................... $

83

$

123

$

13

22

(139)

(17)

(7)

158

(1)

For the years ended December 31, 2018, 2017 and 2016, amounts included $74 million, $105 million and $110 million respectively, of unrecognized tax benefits,
which, if recognized, would favorably affect the effective tax rate.

The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of 

income tax expense. Interest and penalties related to unrecognized tax benefits were $15 million and $27 million for 
the years ended December 31, 2018 and 2017, respectively.

-119-

The Company is subject to examination by the Internal Revenue Service (“IRS”) and tax authorities in various

state, local and foreign tax jurisdictions. The Company regularly assesses the likelihood of additional assessments or 
settlements in each of the taxing jurisdictions resulting from these and subsequent years’ examinations. The IRS is
currently examining the years 2011-2015. At this time, the potential change in unrecognized tax benefits is not 
expected to be significant over the next 12 months. The Company believes that its reserves are sufficient to cover any 
tax, penalties and interest that would result from such examinations.

The Company has an immaterial amount of state net operating loss carryforwards that are subject to a partial

valuation allowance as of December 31, 2018 and a full valuation allowance as of December 31, 2017.

16.

Earnings Per Share

The following table presents the calculation of basic and diluted earnings per share (in millions, except per share

amounts):

Numerator

For the Years Ended December 31,

YY

2018

2017

2016

Net income ......................................................................................................................... $

2,742

$

2,099

$

2,393

Preferred stock dividends ......................................................................................................

Issuance costs for Series B preferred stock redemption .............................................................

Net income available to common stockholders ........................................................................

Income allocated to participating securities .............................................................................

(31)

—

2,711

(22)

(37)

(15)

2,047

(16)

(37)

—

2,356

(17)

Net income allocated to common stockholders ........................................................................ $

2,689

$

2,031

$

2,339

Denominator

Weighted-average shares of common stock outstanding ..........................................................

Effect of dilutive common stock equivalents .............................................................................

Weighted-average shares of common stock outstanding and common stock equivalents .............

344

1

345

374

—

374

Basic earnings per common share ......................................................................................... $

Diluted earnings per common share ....................................................................................... $

7.81

7.79

$

$

5.43

5.42

$

$

405

1

406

5.77

5.77

Anti-dilutive securities were not material and had no impact on the computation of diluted EPS for the years 

ended December 31, 2018, 2017 and 2016.

-120-

17.

Capital Adequacy

The Company is subject to the capital adequacy guidelines of the Federal Reserve, and Discover Bank, the
Company’s main banking subsidiary, is subject to various regulatory capital requirements as administered by the FDIC.
Failure to meet minimum capital requirements can result in the initiation of certain mandatory and possibly additional 
discretionary actions by regulators that, if undertaken, could have a direct material effect on the financial position and
results of the Company and Discover Bank. Under capital adequacy guidelines and the regulatory framework for 
prompt corrective action, the Company and Discover Bank must meet specific capital guidelines that involve quantitative 
measures of assets, liabilities and certain off-balance sheet items, as calculated under regulatory guidelines. Capital 
amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings 
and other factors.

In 2013, the Federal Reserve, the Office of the Comptroller of the Currency, and the FDIC issued final capital 

rules under the Basel Committee’s December 2010 framework (referred to as “Basel III”) establishing a new 
comprehensive capital framework for U.S. banking organizations. The final capital rules (“Basel III rules”) substantially 
revise Basel I rules regarding the risk-based capital requirements applicable to bank holding companies and depository 
institutions, including the Company. The Basel III rules, which became effective for the Company on January 1, 2015,
are subject to phase-in periods through the end of 2018. This timing is based on the Company being classified as a
“Standardized Approach” entity.

Among other things, the Basel III rules (i) introduced a new capital measure called Common Equity Tier 1 

(“CET1”), (ii) specify that Tier 1 capital consists of CET1 and additional Tier 1 capital instruments meeting specified 
requirements, (iii) apply most deductions/adjustments to regulatory capital measures to CET1 and not to the other 
components of capital, thus potentially requiring higher levels of CET1 in order to meet minimum ratios and (iv) expand 
the scope of the deductions/adjustments from capital as compared to existing regulations.

The Basel III minimum capital ratios are as follows: 

•
•
•

•

8.0% Total capital (i.e., Tier 1 plus Tier 2) to risk-weighted assets;
6.0% Tier 1 capital (i.e., CET1 plus Additional Tier 1) to risk-weighted assets;
4.0% Tier 1 capital to average consolidated assets as reported on consolidated financial statements (known
as the “leverage ratio”); and
4.5% CET1 to risk-weighted assets.

As of December 31, 2018, the Company and Discover Bank met all Basel III minimum capital ratio requirements 

to which they were subject. The Company and Discover Bank also met the requirements to be considered “well-
capitalized” under Regulation Y and prompt corrective action regulations, respectively, and there have been no 
conditions or events that management believes have changed the Company’s or Discover Bank’s category. To be 
categorized as “well-capitalized,” the Company and Discover Bank must maintain minimum capital ratios as set forth in 
the table below.

-121-

The following table shows the actual capital amounts and ratios of the Company and Discover Bank and

comparisons of each to the regulatory minimum and “well-capitalized” requirements (dollars in millions):

Actual

Minimum Capital
Requirements

p

p

qq
Capital Requirements
To Be Classified as
TT
WW
Well-Capitalized

Amount

Ratio(1)

Amount

Ratio

Amount(2)

Ratio(2)

December 31, 2018

,

TT
Total capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

Tier 1 capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

Tier 1 capital (to average assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

CET1 capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

December 31, 2017

,

TT
Total capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

Tier 1 capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

Tier 1 capital (to average assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

CET1 capital (to risk-weighted assets)

Discover Financial Services ........................ $

Discover Bank .......................................... $

12,532

13,106

10,895

10,834

10,895

10,834

10,332

10,834

11,952

12,364

10,677

10,533

10,677

10,533

10,114

10,533

13.5% $

14.2% $

11.7% $

11.8% $

10.1% $

10.2% $

11.1% $

11.8% $

13.8% $

14.4% $

12.3% $

12.3% $

10.8% $

10.8% $

11.6% $

12.3% $

7,450

7,372

5,587

5,529

4,308

4,265

4,191

4,147

6,946

6,872

5,210

5,154

3,949

3,912

3,907

3,865

8.0% $

8.0% $

6.0% $

6.0% $

4.0%

4.0% $

$

8.0% $

8.0% $

6.0% $

6.0% $

4.0%

4.0% $

$

9,312

9,215

5,587

7,372

N/A

5,332

N/A

5,990

8,683

8,589

5,210

6,872

N/A

4,890

N/A

5,583

10.0%

10.0%

6.0%

8.0%

N/A

5.0%

N/A

10.0%

10.0%

6.0%

8.0%

N/A

5.0%

N/A

(1)
(2)

Capital ratios are calculated based on the Basel III Standardized Approach rules, subject to applicable transition provisions.
The Basel III rules do not establish well-capitalized thresholds for these measures for bank holding companies. Existing well-capitalized thresholds established in the
Federal Reserve’s Regulation Y have been included where available.

The amount of dividends that a bank may pay in any year is subject to certain regulatory restrictions. Under the 

current banking regulations, a bank may not pay dividends if such a payment would leave the bank inadequately 
capitalized. Discover Bank paid dividends of $2.4 billion, $1.9 billion and $1.8 billion in the years ended December 
31, 2018, 2017 and 2016, respectively, to the Company. 

18.

Commitments, Contingencies and Guarantees

In the normal course of business, the Company enters into a number of off-balance sheet commitments,
transactions and obligations under guarantee arrangements that expose the Company to varying degrees of risk. The 
Company’s commitments, contingencies and guarantee relationships are described below.

-122-

Commitments

Lease Commitments

The Company leases various office space and equipment under capital and non-cancelable operating leases, 

which expire at various dates through 2029. Future minimum payments on capital leases were not material at 
December 31, 2018. The following table shows future minimum payments on non-cancelable operating leases with 
original terms in excess of one year (dollars in millions): 

2019 .................................................................................................................................................................................... $

2020 ....................................................................................................................................................................................

2021 ....................................................................................................................................................................................

2022 ....................................................................................................................................................................................

2023 ....................................................................................................................................................................................

Thereafter

..............................................................................................................................................................................

Total minimum lease payments

................................................................................................................................................ $

Operating
Leases

13

11

10

8

8

33

83

Occupancy lease agreements, in addition to base rentals, generally provide for rent and operating expense 
escalations resulting from increased assessments for real estate taxes and other charges. Total rent expense under 
operating lease agreements, which considers contractual escalations, was $15 million, $14 million and $15 million for 
the years ended December 31, 2018, 2017 and 2016, respectively. 

Unused Credit Arrangements

At December 31, 2018, the Company had unused credit arrangements for loans of approximately $196.4 

billion. Such arrangements arise primarily from agreements with customers for unused lines of credit on certain credit 
cards and certain other loan products, provided there is no violation of conditions in the related agreements. These 
arrangements, substantially all of which the Company can terminate at any time and which do not necessarily represent 
future cash requirements, are periodically reviewed based on account usage, customer creditworthiness and loan 
qualification.

Contingencies

See Note 19: Litigation and Regulatory Matters for a description of potential liability arising from pending 

litigation or regulatory proceedings involving the Company.

Guarantees

The Company has obligations under certain guarantee arrangements, including contracts, indemnification 

agreements, and representations and warranties, which contingently require the Company to make payments to the 
guaranteed party based on changes in an underlying asset, liability or equity security of a guaranteed party, rate or 
index. Also included as guarantees are contracts that contingently require the Company to make payments to a 
guaranteed party based on another entity’s failure to perform under an agreement. The Company’s use of guarantees is 
disclosed below by type of guarantee.

Securitizations Representations and Warranties

As part of the Company’s financing activities, the Company provides representations and warranties that certain 

assets pledged as collateral in secured borrowing arrangements conform to specified guidelines. Due diligence is 
performed by the Company, which is intended to ensure that asset guideline qualifications are met. If the assets pledged 
as collateral do not meet certain conforming guidelines, the Company may be required to replace, repurchase or sell 
such assets. In its credit card securitization activities, the Company would replace nonconforming receivables through 
the allocation of excess seller’s interest or from additional transfers from the unrestricted pool of receivables. If the 
Company could not add enough receivables to satisfy the requirement, an early amortization (or repayment) of 
investors’ interests would be triggered. In its student loan securitizations, the Company would generally repurchase the 
loans from the trust at the outstanding principal amount plus interest.

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The maximum potential amount of future payments the Company could be required to make would be equal to 

the current outstanding balances of third-party investor interests in credit card asset-backed securities, and the principal 
amount of any student loan secured borrowings, plus any unpaid interest for the corresponding secured borrowings. 
The Company has recorded substantially all of the maximum potential amount of future payments in long-term 
borrowings on the Company’s consolidated statements of financial condition. The Company has not recorded any 
incremental contingent liability associated with its secured borrowing representations and warranties. Management 
believes that the probability of having to replace, repurchase or sell assets pledged as collateral under secured 
borrowing arrangements, including an early amortization event, is low.

Counterparty Settlement Guarantees

Diners Club and DFS Services LLC (on behalf of PULSE) have various counterparty exposures, which are listed 

below.

• Merchant Guarantee. Diners Club has entered into contractual relationships with certain international

merchants, which generally include travel-related businesses, for the benefit of all Diners Club licensees. The
licensees hold the primary liability to settle the transactions of their customers with these merchants. However,
Diners Club retains a counterparty exposure if a licensee fails to meet its financial payment obligation to one
of these merchants.

• ATM Guarantee. PULSE entered into contractual relationships with certain international ATM acquirers in

which DFS Services LLC retains counterparty exposure if an issuer fails to fulfill its settlement obligation.

• Network Alliance Guarantee. Discover Network, Diners Club and PULSE have entered into contractual

relationships with certain international payment networks in which DFS Services LLC retains the counterparty
exposure if a network fails to fulfill its settlement obligation.

The maximum potential amount of future payments related to such contingent obligations is dependent upon the 
transaction volume processed between the time a potential counterparty defaults on its settlement and the time at which 
the Company disables the settlement of any further transactions for the defaulting party. However, there is no limitation 
on the maximum amount the Company may be liable to pay. The actual amount of the potential exposure cannot be 
quantified as the Company cannot determine whether particular counterparties will fail to meet their settlement 
obligations.

While the Company has some contractual remedies to offset these counterparty settlement exposures (such as 

letters of credit or pledged deposits), in the event that all licensees and/or issuers were to become unable to settle their 
transactions, the Company estimates its maximum potential counterparty exposures to these settlement guarantees, 
based on historical transaction volume, would be $115 million for merchant guarantees as of December 31, 2018. The 
maximum potential counterparty exposures to these settlement guarantees for ATM guarantees would be immaterial as 
of December 31, 2018. The maximum potential counterparty exposures for network alliance guarantees would be $34 
million as of December 31, 2018.

The Company believes that the estimated amounts of maximum potential future payments are not representative 

of the Company’s actual potential loss exposure given Diners Club’s and PULSE’s insignificant historical losses from 
these counterparty exposures. As of December 31, 2018, the Company had not recorded any contingent liability in the 
consolidated financial statements for these counterparty exposures, and management believes that the probability of 
any payments under these arrangements is low.

Discover Network Merchant Chargeback Guarantees

The Company operates the Discover Network, issues payment cards and permits third parties to issue payment 
cards. The Company is contingently liable for certain transactions processed on the Discover Network in the event of a 
dispute between the payment card customer and a merchant. The contingent liability arises if the disputed transaction 
involves a merchant or merchant acquirer with whom the Discover Network has a direct relationship. If a dispute is 
resolved in the customer’s favor, the Discover Network will credit or refund the disputed amount to the Discover 
Network card issuer, who in turn credits its customer’s account. The Discover Network will then charge back the 
disputed amount of the payment card transaction to the merchant or merchant acquirer, where permitted by the 
applicable agreement, to seek recovery of amounts already paid to the merchant for payment card transactions. If the 
Discover Network is unable to collect the amount subject to dispute from the merchant or merchant acquirer (e.g., in the 
event of merchant default or dissolution or after expiration of the time period for chargebacks in the applicable 

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agreement), the Discover Network will bear the loss for the amount credited or refunded to the customer. In most 
instances, a loss by the Discover Network is unlikely to arise in connection with payments on card transactions because 
most products or services are delivered when purchased and credits are issued by merchants on returned items in a
timely fashion, thus minimizing the likelihood of cardholder disputes with respect to amounts paid by the Discover 
Network. However, where the product or service is not scheduled to be provided to the customer until a later date 
following the purchase, the likelihood of a contingent payment obligation by the Discover Network increases. Losses
related to merchant chargebacks were not material for the years ended December 31, 2018, 2017 and 2016.

The maximum potential amount of obligations of the Discover Network arising as a result of such contingent 

obligations is estimated to be the portion of the total Discover Network transaction volume processed to date for which
timely and valid disputes may be raised under applicable law and relevant issuer and customer agreements. There is no
limitation on the maximum amount the Company may be liable to pay to issuers. However, the Company believes that 
such amount is not representative of the Company’s actual potential loss exposure based on the Company’s historical
experience. The actual amount of the potential exposure cannot be quantified as the Company cannot determine 
whether the current or cumulative transaction volumes may include or result in disputed transactions.

The following table summarizes certain information regarding merchant chargeback guarantees (in millions):

YY

ears Ended December 31,

2018

2017

2016

Aggregate sales transaction volume(1)

.................................................................................. $

158,910

$

143,551

$

136,413

(1)

Represents period transactions processed on the Discover Network for which a potential liability exists that, in aggregate, can differ from credit card sales volume.

The Company did not record any contingent liability in the consolidated financial statements for merchant
chargeback guarantees on December 31, 2018 or 2017. The Company mitigates the risk of potential loss exposure by 
withholding settlement from merchants, obtaining third-party guarantees, or obtaining escrow deposits or letters of 
credit from certain merchant acquirers or merchants that are considered higher risk due to various factors such as time 
delays in the delivery of products or services. As of December 31, 2018 and 2017, the Company had escrow deposits 
and settlement withholdings of $10 million, which are recorded in interest-bearing deposit accounts and accrued
expenses and other liabilities on the Company’s consolidated statements of financial condition.

19.

Litigation and Regulatory Matters

In the normal course of business, from time to time, the Company has been named as a defendant in various
legal actions, including arbitrations, class actions and other litigation, arising in connection with its activities. Certain of 
the actual or threatened legal actions include claims for substantial compensatory and/or punitive damages or claims
for indeterminate amounts of damages. The litigation process is not predictable and can lead to unexpected results. The
Company contests liability and/or the amount of damages as appropriate in each pending matter. 

The Company has historically offered its customers an arbitration clause in its customer agreements. The 
arbitration clause allows the Company and its customers to quickly and economically resolve disputes. Additionally, the
arbitration clause has in some instances limited the costs of, and the Company’s exposure to, litigation. Future legal and 
regulatory challenges and prohibitions may cause the Company to discontinue its offering and use of such clauses.
From time to time, the Company is involved in legal actions challenging its arbitration clause. Bills may be periodically 
introduced in Congress to directly or indirectly prohibit the use of pre-dispute arbitration clauses. On July 10, 2017, the
Consumer Financial Protection Bureau (the "CFPB") issued a final arbitration rule (the "Arbitration Rule") that would 
have effectively banned consumer financial companies from including class action waivers in arbitration clauses. On 
November 1, 2017, a resolution of disapproval of the Arbitration Rule was signed into law and the Arbitration Rule 
was blocked from taking effect and cannot be reissued in substantially the same form, nor can a new rule that is 
substantially similar be issued unless specifically authorized by a law enacted after the date of the resolution of 
disapproval. 

The Company is also involved, from time to time, in other reviews, investigations and proceedings (both formal 

and informal) by governmental agencies regarding the Company’s business including, among other matters, consumer 
regulatory, accounting, tax and other operational matters, some of which may result in significant adverse judgments, 
settlements, fines, penalties, injunctions, decreases in regulatory ratings, customer restitution or other relief, which could 
materially impact the Company’s consolidated financial statements, increase its cost of operations, or limit its ability to 
execute its business strategies and engage in certain business activities. For example, the Company is currently the

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subject of an action by the Federal Reserve with respect to anti-money laundering and related compliance programs as 
referred to below. In addition, certain subsidiaries of the Company are subject to a consent order with the CFPB 
regarding certain student loan servicing practices, as described below. Pursuant to powers granted under federal 
banking laws, regulatory agencies have broad and sweeping discretion, and may assess civil money penalties, require 
changes to certain business practices or require customer restitution at any time. The existing supervisory action related 
to anti-money laundering and related laws and regulations will limit for a period of time the Company’s ability to enter 
into certain types of acquisitions and make certain types of investments.

In accordance with applicable accounting guidance, the Company establishes an accrued liability for legal and 
regulatory matters when those matters present loss contingencies that are both probable and estimable. Litigation and 
regulatory settlement related expense was not material for the years ended December 31, 2018, 2017 and 2016.

There may be an exposure to loss in excess of any amounts accrued. The Company believes the estimate of the 
aggregate range of reasonably possible losses (meaning those losses the likelihood of which is more than remote but 
less than likely) in excess of the amounts that the Company has accrued for legal and regulatory proceedings is up to 
$100 million. This estimated range of reasonably possible losses is based upon currently available information for those 
proceedings in which the Company is involved, takes into account the Company’s best estimate of such losses for those 
matters for which an estimate can be made, and does not represent the Company’s maximum potential loss exposure. 
Various aspects of the legal proceedings underlying the estimated range will change from time to time and actual 
results may vary significantly from the estimate. 

The Company’s estimated range above involves significant judgment, given the varying stages of the 
proceedings, the existence of numerous yet to be resolved issues, the breadth of the claims (often spanning multiple 
years and, in some cases, a wide range of business activities), unspecified damages and/or the novelty of the legal 
issues presented. The outcome of pending matters could be material to the Company’s consolidated financial condition, 
operating results and cash flows for a particular future period, depending on, among other things, the level of the 
Company’s income for such period, and could adversely affect the Company’s reputation.

On May 26, 2015, the Company entered into a written agreement with the Federal Reserve Bank of Chicago 

where the Company agreed to enhance the Company’s enterprise-wide anti-money laundering and related compliance 
programs. The agreement does not include civil money penalties.

On July 22, 2015, the Company announced that its subsidiaries, Discover Bank, SLC and Discover Products Inc. 
(the “Discover Subsidiaries”), agreed to a consent order with the CFPB resolving the agency’s investigation with respect 
to certain student loan servicing practices. The CFPB’s investigation into these practices has been previously disclosed by 
the Company, initially in February 2014. The order required the Discover Subsidiaries to provide redress of 
approximately $16 million to consumers who may have been affected by the activities described in the order related to 
certain collection calls, overstatements of minimum payment due amounts in billing statements, and provision of interest 
paid information to consumers, and provide regulatory disclosures with respect to loans acquired in default. In addition, 
the Discover Subsidiaries were required to pay a $2.5 million civil money penalty to the CFPB. As required by the 
consent order, on October 19, 2015, the Discover Subsidiaries submitted to the CFPB a redress plan and a compliance 
plan designed to ensure that the Discover Subsidiaries provide redress and otherwise comply with the terms of the 
order.

On March 8, 2016, a class action lawsuit was filed against the Company, other credit card networks, other 
issuing banks, and EMVCo in the U.S. District Court for the Northern District of California (B&R Supermarket, Inc., d/b/
a Milam’s Market, et al. v. Visa, Inc. et al.) alleging violations of the Sherman Antitrust Act, California’s Cartwright Act, 
and unjust enrichment. Plaintiffs allege a conspiracy by defendants to shift fraud liability to merchants with the migration 
to the EMV security standard and chip technology. Plaintiffs assert joint and several liability among the defendants and 
seek unspecified damages, including treble damages, attorneys’ fees, costs and injunctive relief. On July 15, 2016, 
plaintiffs filed an amended complaint that includes additional named plaintiffs, reasserts the original claims, and 
includes additional state law causes of action. On September 30, 2016, the court granted the motions to dismiss for 
certain issuing banks and EMVCo but denied the motions to dismiss filed by the networks, including the Company. In 
May 2017, the Court entered an order transferring the entire action to a federal court in New York that is presiding 
over certain related claims that are pending in the actions consolidated as MDL 1720. On March 11, 2018, the Court 
entered an order denying the plaintiffs' motion for class certification without prejudice to filing a renewed motion. 
Plaintiffs filed a renewed motion for class certification on July 16, 2018. Plaintiffs filed their opening merits expert 
reports on October 5, 2018, and the parties anticipate that class briefing will be complete by spring of 2019. The 

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Company is not in a position at this time to assess the likely outcome or its exposure, if any, with respect to this matter, 
but will seek to vigorously defend against all claims asserted by the plaintiffs.

20.

Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an

orderly transaction between market participants at the measurement date. ASC Topic 820, Fair Value Measurement
provides a three-level hierarchy for classifying financial instruments, which is based on whether the inputs to the 
valuation techniques used to measure the fair value of each financial instrument are observable or unobservable. It also 
requires certain disclosures about those measurements. The three-level valuation hierarchy is as follows:

, t

VV

•

•

•

Level 1: Fair values determined by Level 1 inputs are defined as those that utilize quoted prices (unadjusted) in
active markets for identical assets or liabilities that the Company has the ability to access.

Level 2: Fair values determined by Level 2 inputs are those that utilize inputs other than quoted prices included in
Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted
prices for similar assets and liabilities in active or inactive markets, quoted prices for the identical assets in an
inactive market, and inputs other than quoted prices that are observable for the asset or liability, such as interest
rates and yield curves that are observable at commonly quoted intervals. The Company evaluates factors such as
the frequency of transactions, the size of the bid-ask spread and the significance of adjustments made when
considering transactions involving similar assets or liabilities to assess the relevance of those observed prices. If
relevant and observable prices are available, the fair values of the related assets or liabilities would be classified
as Level 2.

Level 3: Fair values determined by Level 3 inputs are those based on unobservable inputs and include situations
where there is little, if any, market activity for the asset or liability being valued. In instances in which the inputs
used to measure fair value may fall into different levels of the fair value hierarchy, the level in the fair value
hierarchy within which the fair value measurement in its entirety is classified is based on the lowest level input that
is significant to the fair value measurement in its entirety. The Company may utilize both observable and
unobservable inputs in determining the fair values of financial instruments classified within the Level 3 category.

The determination of classification of its financial instruments within the fair value hierarchy is performed at least
quarterly by the Company. For transfers in and out of the levels of the fair value hierarchy, the Company discloses the 
fair value measurement based on the value immediately preceding the transfer.

The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety 

requires judgment and involves consideration of factors specific to the asset or liability. Furthermore, certain techniques 
used to measure fair value involve some degree of judgment and, as a result, are not necessarily indicative of the 
amounts the Company would realize in a current market exchange.

-127-

Assets and Liabilities Measured at Fair Value on a Recurring Basis

Assets and liabilities measured at fair value on a recurring basis are as follows (dollars in millions):

Quoted Price in 
Active Markets
for Identical Assets 
(Level 1)

Significant Other 
Observable Inputs 
(Level 2)

Significant 
Unobservable 
Inputs 
(Level 3)

Total

Balance at December 31, 2018

Assets

Fair value - OCI

U.S. Treasury securities ................................................... $

2,586

$

Residential mortgage-backed securities - Agency ..............

—

Available-for-sale investment securities ............................. $

2,586

$

— $

547

547

$

— $

—

— $

2,586

547

3,133

Derivative financial instruments - cash flow hedges(1) ......... $

— $

8

$

— $

Fair value - Net income

Derivative financial instruments - fair value hedges(1) ......... $

— $

5

$

— $

Liabilities

Fair value - OCI

Derivative financial instruments - cash flow hedges(1) ......... $

— $

2

$

— $

8

5

2

Balance at December 31, 2017

Assets

Fair value - OCI

U.S. Treasury securities ................................................... $

Residential mortgage-backed securities - Agency ..............

Available-for-sale investment securities ............................. $

672

$

—

672

$

— $

723

723

$

— $

—

— $

672

723

1,395

Derivative financial instruments - cash flow hedges(1) ......... $

— $

2

$

— $

Fair value - Net income

Derivative financial instruments - fair value hedges(1) ......... $

— $

4

$

— $

Liabilities

Fair value - OCI

Derivative financial instruments - cash flow hedges(1) ......... $

— $

3

$

— $

(1)

Derivative instrument carrying values in an asset or liability position are presented as part of other assets or accrued expenses and other liabilities, respectively, in
the Company's consolidated statements of financial condition.

Fair value hedge derivative financial instruments in a liability position were immaterial at December 31, 2018 

and 2017. There were no transfers between Levels 1 and 2 within the fair value hierarchy for the years ended 
December 31, 2018 and 2017.

2

4

3

-128-

Available-for-Sale Investment Securities

Investment securities classified as available-for-sale consist of U.S. Treasury securities and residential mortgage-

backed securities. The fair value estimates of investment securities classified as Level 1, consisting of U.S. Treasury 
securities, are determined based on quoted market prices for the same securities. The Company classifies residential 
mortgage-backed securities as Level 2, the fair value estimates of which are based on the best information available. 
This data may consist of observed market prices, broker quotes or discounted cash flow models that incorporate 
assumptions such as benchmark yields, issuer spreads, prepayment speeds, credit ratings and losses, the priority of 
which may vary based on availability of information.

The Company validates the fair value estimates provided by the pricing services primarily by comparison to 
valuations obtained through other pricing sources. The Company evaluates pricing variances amongst different pricing 
sources to ensure that the valuations utilized are reasonable. The Company also corroborates the reasonableness of the 
fair value estimates with analysis of trends of significant inputs, such as market interest rate curves. The Company 
further performs due diligence in understanding the procedures and techniques performed by the pricing services to 
derive fair value estimates.

At December 31, 2018, amounts reported in residential mortgage-backed securities reflect government-rated 

obligations issued by Fannie Mae, Freddie Mac and Ginnie Mae with a par value of $549 million, a weighted-average 
coupon of 2.81% and a weighted-average remaining maturity of three years.

Derivative Financial Instruments

The Company’s derivative financial instruments consist of interest rate swaps and foreign exchange forward 
contracts. These instruments are classified as Level 2 as their fair values are estimated using proprietary pricing models, 
containing certain assumptions based on readily observable market-based inputs, including interest rate curves, option 
volatility and foreign currency forward and spot rates. In determining fair values, the pricing models use widely 
accepted valuation techniques including discounted cash flow analysis on the expected cash flows of each derivative. 
This analysis reflects the contractual terms of the derivatives, including the period to maturity and the observable market-
based inputs. The fair values of the interest rate swaps are determined using the market standard methodology of 
netting the discounted future fixed cash receipts (or payments) and the discounted expected variable cash payments (or 
receipts). The variable cash payments are based on an expectation of future interest rates derived from the observable 
market interest rate curves. The Company considers collateral and master netting agreements that mitigate credit 
exposure to counterparties in determining the counterparty credit risk valuation adjustment. The fair values of the 
currency instruments are valued comparing the contracted forward exchange rate pertaining to the specific contract 
maturities to the current market exchange rate.

The Company validates the fair value estimates of interest rate swaps primarily through comparison to the fair 

value estimates computed by the counterparties to each of the derivative transactions. The Company evaluates pricing 
variances amongst different pricing sources to ensure that the valuations utilized are reasonable. The Company also 
corroborates the reasonableness of the fair value estimates with analysis of trends of significant inputs, such as market 
interest rate curves. The Company performs due diligence in understanding the impact to any changes to the valuation 
techniques performed by proprietary pricing models prior to implementation, working closely with the third-party 
valuation service, and reviews the control objectives of the service at least annually. The Company corroborates the fair 
value of foreign exchange forward contracts through independent calculation of the fair value estimates.

Assets and Liabilities Measured at Fair Value on a Non-Recurring Basis

The Company also has assets that under certain conditions are subject to measurement at fair value on a non-
recurring basis. These assets include those associated with acquired businesses, including goodwill and other intangible 
assets. For these assets, measurement at fair value in periods subsequent to the initial recognition of the assets is 
applicable if one or more of the assets is determined to be impaired. During the years ended December 31, 2018 and 
2017, the Company had no material impairments related to these assets.

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Financial Instruments Measured at Other Than Fair Value

The following tables disclose the estimated fair value of the Company’s financial assets and financial liabilities 

that are not required to be carried at fair value (dollars in millions):

Balance at December 31, 2018

Assets

Amortized cost

Quoted Prices 
in Active 
Markets for 
Identical 
Assets 
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Total

Carrying
Value

Residential mortgage-backed securities - Agency .................. $

Held-to-maturity investment securities ................................... $

— $

— $

233

233

$

$

— $

— $

233

233

$

$

237

237

Net loan receivables .......................................................... $

— $

— $

90,787

$

90,787

$

87,471

Carrying value approximates fair value(1)

Cash and cash equivalents ................................................. $

13,299

Restricted cash ................................................................... $

1,846

$

$

— $

— $

Accrued interest receivables(2) ............................................. $

— $

951

$

— $

— $

— $

13,299

1,846

951

$

$

$

13,299

1,846

951

Liabilities

Amortized cost

Time deposits(3) .................................................................. $

— $

34,635

$

— $

34,635

$

34,788

Long-term borrowings - owed to securitization investors......... $

— $

16,701

$

217

$

16,918

$

16,917

Other long-term borrowings ...............................................

—

10,325

—

10,325

10,311

Long-term borrowings ........................................................ $

— $

27,026

$

217

$

27,243

$

27,228

Carrying value approximates fair value(1)

Accrued interest payables(2) ................................................ $

— $

292

$

— $

292

$

292

(1)

(2)

The carrying values of these assets and liabilities approximate fair value due to the nature of their liquidity (i.e., due or payable in less than one year).

Accrued interest receivable and payable carrying values are presented as part of other assets or accrued expenses and other liabilities, respectively, in the

Company’s consolidated statements of financial condition.

(3)

Excludes deposits without contractually defined maturities for all periods presented.

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The following tables disclose the estimated fair value of the Company’s financial assets and financial liabilities

that are not required to be carried at fair value (dollars in millions):

Balance at December 31, 2017

Assets

Amortized cost

Quoted Prices
in Active 
Markets for 
Identical 
Assets 
(Level 1)

gg
Significant
Other
Observable
p
Inputs
(Level 2)

Significant

gg
Unobser

vable

p
Inputs
(Level 3)

TT
Total

yy
Carrying
VV
Value

States and political subdivisions of states .............................. $

Residential mortgage-backed securities - Agency ..................

— $

—

1

$

172

— $

—

1

$

172

Held-to-maturity investment securities ................................... $

— $

173

$

— $

173

$

1

172

173

Net loan receivables .......................................................... $

— $

— $

85,108

$

85,108

$

81,627

Carrying value approximates fair value

r

(1)

Cash and cash equivalents ................................................. $

13,306

Restricted cash ................................................................... $

81

$

$

— $

— $

Accrued interest receivables(2) ............................................. $

— $

818

$

— $

— $

— $

13,306

81

818

$

$

$

13,306

81

818

Liabilities

Amortized cost

Time deposits(3) .................................................................. $

— $

29,848

$

— $

29,848

$

29,752

Long-term borrowings - owed to securitization investors......... $

— $

15,851

$

640

$

16,491

$

16,536

Other long-term borrowings ...............................................

—

10,293

—

10,293

9,790

Long-term borrowings ........................................................ $

— $

26,144

$

640

$

26,784

$

26,326

Carrying value approximates fair value

r

(1)

Accrued interest payables(2) ................................................ $

— $

214

$

— $

214

$

214

(1)
(2)

(3)

The carrying values of these assets and liabilities approximate fair value due to the nature of their liquidity (i.e., due or payable in less than one year).
Accrued interest receivable and payable carrying values are presented as part of other assets or accrued expenses and other liabilities, respectively, in the
Company's consolidated statements of financial condition.
Excludes deposits without contractually defined maturities for all periods presented.

21. Derivatives and Hedging Activities

The Company uses derivatives to manage its exposure to various financial risks. The Company does not enter
into derivatives for trading or speculative purposes. Certain derivatives used to manage the Company’s exposure to
foreign currency are not designated as hedges and do not qualify for hedge accounting.

Derivatives may give rise to counterparty credit risk, which generally is addressed through collateral

arrangements as described under the sub-heading “— Collateral Requirements and Credit-Risk Related Contingency 
Features.” The Company enters into derivative transactions with established dealers that meet minimum credit criteria 
established by the Company. All counterparties must be pre-approved prior to engaging in any transaction with the 
Company. Counterparties are monitored on a regular basis by the Company to ensure compliance with the Company’s
risk policies and limits. In determining the counterparty credit risk valuation adjustment for the fair values of derivatives,
the Company considers collateral and legally enforceable master netting agreements that mitigate credit exposure to
related counterparties.

All derivatives are recorded in other assets at their gross positive fair values and in accrued expenses and other 

liabilities at their gross negative fair values. See Note 20: Fair Value Measurements for a description of the valuation 
methodologies of derivatives. Cash collateral amounts associated with derivative positions that are cleared through an 

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exchange are legally characterized as settlement of the derivative positions. Such collateral amounts are reflected as 
offsets to the associated derivatives balances recorded in other assets or in accrued expenses and other liabilities. Other 
cash collateral posted and held balances are recorded in other assets and deposits, respectively, in the consolidated 
statements of financial condition. Collateral amounts recorded in the consolidated statements of financial condition are 
based on the net collateral posted or held position for each applicable legal entity’s master netting arrangement with 
each counterparty. 

Derivatives Designated as Hedges

Derivatives designated and qualifying as a hedge of the exposure to variability in expected future cash flows 

arising from changes in interest rates, or other types of forecasted transactions, are considered cash flow hedges. 
Derivatives designated and qualifying as a hedge of the exposure to changes in the fair value of an asset, liability, or 
firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges.

Cash Flow Hedges

The Company uses interest rate swaps to manage its exposure to changes in interest rates related to future cash 
flows resulting from interest payments on credit card securitized debt and deposits. The Company’s outstanding cash 
flow hedges are for an initial maximum period of seven years for securitized debt and deposits. The derivatives are 
designated as hedges of the risk of changes in cash flows on the Company’s LIBOR or Federal Funds rate-based interest 
payments, and qualify for hedge accounting in accordance with ASC Topic 815, Derivatives and Hedging (“ASC 
815”).

The change in the fair value of derivatives designated as cash flow hedges is recorded in OCI and is 

subsequently reclassified into earnings in the period that the hedged forecasted cash flows affect earnings. Amounts 
reported in AOCI related to derivatives at December 31, 2018 will be reclassified to interest expense as interest 
payments are accrued on certain of the Company’s floating-rate securitized debt and deposits. During the next 12 
months, the Company estimates it will reclassify $10 million of pretax benefit to interest expense related to its derivatives 
designated as cash flow hedges.

Fair Value Hedges

The Company is exposed to changes in fair value of certain of its fixed-rate debt obligations due to changes in 
interest rates. The Company uses interest rate swaps to manage its exposure to changes in fair value of certain fixed-
rate long-term borrowings, including securitized debt and bank or other senior notes, and deposits attributable to 
changes in LIBOR, a benchmark interest rate as defined by ASC 815. These interest rate swaps qualify as fair value 
hedges in accordance with ASC 815. Changes in both (i) the fair values of the derivatives and (ii) the hedged long-term 
borrowings and deposits relating to the risk being hedged are recorded in interest expense. The changes generally 
provide substantial offset to one another, with any difference in interest expense.

Derivatives Not Designated as Hedges

Foreign Exchange Forward Contracts

The Company has foreign exchange forward contracts that are economic hedges and are not designated as 
accounting hedges. The Company enters into foreign exchange forward contracts to manage foreign currency risk. 
Changes in the fair value of these contracts are recorded in other income.

Derivatives Cleared Through an Exchange

The legal characterization of cash variation margin payments on derivatives cleared through an exchange are 
legally considered settlement payments and are accounted for with corresponding derivative positions as one unit of 
account and not separately as collateral. With settlement payments on derivative positions cleared through this 
exchange reflected as offsets to the associated derivative asset and liability balances, the fair values of derivative 
instruments and collateral balances shown are generally reduced.

-132-

Derivatives Activity

The following table summarizes the fair value (including accrued interest) and outstanding notional amounts of 

derivative instruments and related collateral balances (dollars in millions):

December 31, 2018

December 31, 2017

Number of
Outstanding 
Derivative 
Contracts

Notional
Amount

Derivative
Assets

Derivative
Liabilities

Notional
Amount

Derivative
Assets

Derivative
Liabilities

Derivatives designated as hedges

Interest rate swaps—cash flow hedge ............. $

2,450

5

$

Interest rate swaps—fair value hedge ............. $

8,000

Derivatives not designated as hedges

Foreign exchange forward contracts(1) ............ $

33

Total gross derivative assets/liabilities(2) ..........

10

7

Less: collateral held/posted(3) .........................

Total net derivative assets/liabilities................

$

2

$

3,800

$

— $

7,333

— $

23

8

5

—

13

(8)

2

(2)

—

$

2

4

—

6

(1)

3

—

—

3

(3)

—

$

5

$

$

5

$

(1)

(2)

(3)

The foreign exchange forward contracts have notional amounts of EUR 9 million, GBP 12 million, SGD 1 million and INR 464 million as of December 31, 2018 and
notional amounts of EUR 7 million, GBP 5 million, SGD 1 million and INR 464 million as of December 31, 2017.
In addition to the derivatives disclosed in the table, the Company enters into forward contracts to purchase when-issued mortgage-backed securities as part of its
community reinvestment initiatives. At December 31, 2018, the Company had one outstanding contract with a notional amount of $79 million and immaterial fair
value. At December 31, 2017, the Company had one outstanding contract with a notional amount of $54 million and immaterial fair value.
Collateral amounts, which consist of both cash and investment securities, are limited to the related derivative asset/liability balance and do not include excess
collateral received/pledged.

The following amounts were recorded on the statements of financial condition related to cumulative basis 

adjustment for fair value hedges (dollars in millions):

Long-term borrowings

............................................................................................................. $

7,893

$

(91)

December 31, 2018

Cumulative Amount
of Fair Value
Hedging Adjustment
Increasing
(Decreasing) the
Carrying Amount of
Hedged Assets/
Liabilities

Carrying Amount of
Hedged Assets/
Liabilities

-133-

The following table summarizes the impact of the derivative instruments on income and indicates where within the 

consolidated financial statements such impact is reported (dollars in millions):

Location and Amount of (Losses) Gains
Recognized in Income

Interest (Expense)

Deposits

Long-Term
Borrowings

Other Income

For the Year Ended December 31, 2018

Total amounts of income and expense line items presented in the statements of income in which

the effects of fair value or cash flow hedges are recorded ...................................................... $

(1,238) $

(901) $

97

The effects of cash flow and fair value hedging

Gains on cash flow hedging relationship

Amounts reclassified from OCI into earnings .......................................................................... $

— $

6

$

Gains (losses) on fair value hedging relationship

Gains (losses) on hedged items ............................................................................................. $

Gains (losses) on interest rate swaps ......................................................................................

Total gains (losses) on fair value hedges ................................................................................. $

— $

—

— $

(18) $

(23)

(41) $

The effects of derivatives not designated in hedging relationships

Gains on derivatives not designated as hedges ....................................................................... $

— $

— $

—

—

—

—

1

For the Year Ended December 31, 2017

Total amounts of income and expense line items presented in the statements of income in which

the effects of fair value or cash flow hedges are recorded ...................................................... $

(846) $

(802) $

92

The effects of cash flow and fair value hedging

(Losses) gains on cash flow hedging relationship

Amounts reclassified from OCI into earnings .......................................................................... $

(8) $

(7) $

Gains (losses) on fair value hedging relationship

Gains on hedged items ......................................................................................................... $

(Losses) gains on interest rate swaps ......................................................................................

Total (losses) gains on fair value hedges ................................................................................. $

— $

(1)

(1) $

37

$

(28)

9

$

—

—

—

—

The effects of derivatives not designated in hedging relationships

Gains (losses) on derivatives not designated as hedges ............................................................ $

— $

— $

(2)

-134-

The following table summarizes the impact of the derivative instruments on income and indicates where within the 

consolidated financial statements such impact is reported (dollars in millions):

Location and Amount of (Losses) Gains
Recognized in Income

Interest (Expense)

Deposits

Long-Term
Borrowings

Other Income

For the Year Ended December 31, 2016

Total amounts of income and expense line items presented in the statements of income in which

the effects of fair value or cash flow hedges are recorded ...................................................... $

(687) $

(711) $

89

The effects of cash flow and fair value hedging

(Losses) gains on cash flow hedging relationship

Amounts reclassified from OCI into earnings .......................................................................... $

(13) $

(22) $

Gains (losses) on fair value hedging relationship

Gains on hedged items ......................................................................................................... $

Gains (losses) on interest rate swaps ......................................................................................

Total gains on fair value hedges ............................................................................................ $

3

5

8

$

$

75

$

(50)

25

$

The effects of derivatives not designated in hedging relationships

Gains on derivatives not designated as hedges ....................................................................... $

— $

— $

—

—

—

—

1

For the impact of the derivative instruments on OCI, see Note 13: Accumulated Other Comprehensive Income.

Collateral Requirements and Credit-Risk Related Contingency Features

The Company has master netting arrangements and minimum collateral posting thresholds with its counterparties 

for its fair value and cash flow hedge interest rate swaps and foreign exchange forward contracts. The Company has 
not sought a legal opinion in relation to the enforceability of its master netting arrangements and, as such, does not 
report any of these positions on a net basis. Collateral is required by either the Company or its subsidiaries or the 
counterparty depending on the net fair value position of these derivatives held with that counterparty. The Company 
may also be required to post collateral with a counterparty for its fair value and cash flow hedge interest rate swaps 
depending on the credit rating it or Discover Bank receives from specified major credit rating agencies. Collateral 
receivable or payable amounts are generally not offset against the fair value of these derivatives, but are recorded 
separately in other assets or deposits. However, certain cash collateral amounts related to positions cleared through an 
exchange are reflected as offsets to the associated derivatives balances recorded in other assets and accrued expenses 
and other liabilities.

At December 31, 2018, Discover Bank’s credit rating met specified thresholds set by its counterparties. However, 
if its credit rating is reduced below investment grade, Discover Bank would be required to post additional collateral. The 
amount of additional collateral as of December 31, 2018 would have been $20 million. DFS (Parent Company) had no 
outstanding derivatives as of December 31, 2018, and therefore, no collateral was required. 

The Company also has agreements with certain of its derivative counterparties that contain a provision where if 
the Company defaults on any of its indebtedness, including default where repayment of the indebtedness has not been 
accelerated by the lender, then the Company could also be declared in default on its derivative obligations.

-135-

22.

Segment Disclosures

The Company’s business activities are managed in two segments: Direct Banking and Payment Services.

• Direct Banking: The Direct Banking segment includes Discover-branded credit cards issued to individuals on

the Discover Network and other consumer products and services, including private student loans, personal
loans, home equity loans, and other consumer lending and deposit products. The majority of Direct Banking
revenues relate to interest income earned on the segment’s loan products. Additionally, the Company’s credit
card products generate substantially all revenues related to discount and interchange, protection products
and loan fee income.

•

Payment Services: The Payment Services segment includes PULSE, an automated teller machine, debit and
electronic funds transfer network; Diners Club, a global payments network; and the Company’s Network
Partners business, which provides payment transaction processing and settlement services on the Discover
Network. The majority of Payment Services revenues relate to transaction processing revenue from PULSE
and royalty and licensee revenue from Diners Club.

The business segment reporting provided to and used by the Company’s chief operating decision maker is 

prepared using the following principles and allocation conventions:

•

The Company aggregates operating segments when determining reportable segments.

• Corporate overhead is not allocated between segments; all corporate overhead is included in the Direct

Banking segment.

•

•

•

•

Through its operation of the Discover Network, the Direct Banking segment incurs fixed marketing, servicing
and infrastructure costs that are not specifically allocated among the segments, with the exception of an
allocation of direct and incremental costs driven by the Company’s Payment Services segment.

The assets of the Company are not allocated among the operating segments in the information reviewed by
the Company’s chief operating decision maker.

The revenues of each segment are derived from external sources. The segments do not earn revenue from
intercompany sources.

Income taxes are not specifically allocated between the operating segments in the information reviewed by
the Company’s chief operating decision maker.

-136-

The following table presents segment data (dollars in millions):

Direct
Banking

Payment
Services

Total

For the Year Ended December 31, 2018

Interest income

Credit card loans ............................................................................................................. $

8,835

$

— $

8,835

Private student loans .........................................................................................................

PCI student loans ..............................................................................................................

Personal loans

.................................................................................................................

Other ..............................................................................................................................

614

139

935

369

Total interest income .............................................................................................................

10,892

Interest expense ...................................................................................................................

Net interest income ..............................................................................................................

Provision for loan losses .......................................................................................................

Other income ......................................................................................................................

Other expense .....................................................................................................................

2,139

8,753

3,035

1,645

3,918

—

—

—

1

1

—

1

—

310

159

Income before income tax expense ........................................................................................ $

3,445

$

152

$

614

139

935

370

10,893

2,139

8,754

3,035

1,955

4,077

3,597

For the Year Ended December 31, 2017

Interest income

Credit card loans ............................................................................................................. $

7,907

$

— $

7,907

Private student loans .........................................................................................................

PCI student loans ..............................................................................................................

Personal loans

.................................................................................................................

Other ..............................................................................................................................

Total interest income .............................................................................................................

Interest expense ...................................................................................................................

Net interest income ..............................................................................................................

Provision for loan losses .......................................................................................................

Other income ......................................................................................................................

Other expense .....................................................................................................................

523

159

860

199

9,648

1,648

8,000

2,586

1,607

3,629

—

—

—

—

—

—

—

(7)

290

152

Income before income tax expense ........................................................................................ $

3,392

$

145

$

523

159

860

199

9,648

1,648

8,000

2,579

1,897

3,781

3,537

-137-

The following table presents segment data (dollars in millions):

Direct
Banking

y
Payment
y
Ser
vices

TT
Total

For the Year Ended December 31, 2016

YY

,

Interest income

Credit card loans ............................................................................................................. $

7,155

$

— $

7,155

Private student loans .........................................................................................................

PCI student loans ..............................................................................................................

Personal loans

.................................................................................................................

Other ..............................................................................................................................

Total interest income .............................................................................................................

Interest expense ...................................................................................................................

Net interest income ..............................................................................................................

Provision for loan losses .......................................................................................................

Other income ......................................................................................................................

Other expense .....................................................................................................................

444

185

719

113

8,616

1,398

7,218

1,858

1,611

3,422

—

—

—

—

—

—

—

1

270

162

Income before income tax expense ........................................................................................ $

3,549

$

107

$

444

185

719

113

8,616

1,398

7,218

1,859

1,881

3,584

3,656

23.

Revenue from Contracts with Customers

s
ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”), generally applies to the sales of any good

or service for which no other specific accounting guidance is provided. ASC 606 defines a principles-based model
under which revenue from a contract is allocated to the distinct performance obligations within the contract and 
recognized in income as each performance obligation is satisfied. The Company’s revenue that is subject to this model 
includes discount and interchange, protection products fees, transaction processing revenue, and amounts classified as 
other income. 

-138-

The following table presents revenue from contracts with customers disaggregated by business segment and 

reconciles revenue from contracts with customers to total other income (dollars in millions):

Direct
Banking

Payment
Services

Total

For the Year Ended December 31, 2018

Other income subject to ASC 606

Discount and interchange revenue, net(1)

................................................................................ $

1,022

$

Protection products revenue ..................................................................................................

Transaction processing revenue .............................................................................................

Other income ......................................................................................................................

204

—

17

Total other income subject to ASC 606(2) ................................................................................

1,243

Other income not subject to ASC 606

Loan fee income ..................................................................................................................

Total other income not subject to ASC 606 .............................................................................

402

402

52

—

178

80

310

—

—

$

1,074

204

178

97

1,553

402

402

Total other income by operating segment

............................................................................... $

1,645

$

310

$

1,955

For the Year Ended December 31, 2017

Other income subject to ASC 606

Discount and interchange revenue, net(1)

................................................................................ $

1,009

$

Protection products revenue ..................................................................................................

Transaction processing revenue .............................................................................................

Other income ......................................................................................................................

223

—

9

Total other income subject to ASC 606(2) ................................................................................

1,241

Other income not subject to ASC 606

Loan fee income ..................................................................................................................

Other income ......................................................................................................................

Total other income not subject to ASC 606 .............................................................................

363

3

366

43

—

167

80

290

—

—

—

$

1,052

223

167

89

1,531

363

3

366

Total other income by operating segment

............................................................................... $

1,607

$

290

$

1,897

For the Year Ended December 31, 2016

Other income subject to ASC 606

Discount and interchange revenue, net(1)

................................................................................ $

1,018

$

Protection products revenue ..................................................................................................

Transaction processing revenue .............................................................................................

Other income ......................................................................................................................

239

—

11

Total other income subject to ASC 606(2) ................................................................................

1,268

Other income not subject to ASC 606

Loan fee income ..................................................................................................................

Total other income not subject to ASC 606 .............................................................................

343

343

37

—

155

78

270

—

—

$

1,055

239

155

89

1,538

343

343

Total other income by operating segment ............................................................................... $

1,611

$

270

$

1,881

(1) Net of rewards, including Cashback Bonus rewards, of $1.8 billion, $1.6 billion and $1.4 billion for the years ended December 31, 2018, 2017 and 2016,

(2)

respectively.
Excludes $3 million, $2 million and $2 million deposit product fees that are reported within net interest income for the years ended December 31, 2018, 2017 and
2016, respectively.

For a detailed description of the Company’s significant revenue recognition accounting policies, see Note 2: 

Summary of Significant Accounting Policies.

-139-

24.

Related Party Transactions

In the ordinary course of business, the Company offers consumer financial products to its directors, executive
officers and certain members of their families. These products are offered on substantially the same terms as those 
prevailing at the time for comparable transactions with unrelated parties, and these receivables are included in the loan 
receivables in the Company’s consolidated statements of financial condition. They were not material to the Company’s 
financial position or results of operations.

25.

Parent Company Condensed Financial Information

The following Parent Company financial statements are provided in accordance with SEC rules, which require

such disclosure when the restricted net assets of consolidated subsidiaries exceed 25% of consolidated net assets.

Discover Financial Services
y
(Parent Company Only)
Condensed Statements of Financial Condition

p y
p y

December 31,

2018

2017

(dollars in millions)

Assets

Cash and cash equivalents(1)

.......................................................................................................................... $

1,586

$

2,043

Restricted cash ..............................................................................................................................................

Notes receivable from subsidiaries(2)

...............................................................................................................

20

821

4

759

Investments in bank subsidiaries

.....................................................................................................................

10,891

10,560

Investments in non-bank subsidiaries ...............................................................................................................

Other assets

.................................................................................................................................................

752

676

1,048

254

Total assets

................................................................................................................................................... $

14,746

$

14,668

Liabilities and Stockholders’ Equity

Non-interest bearing deposit accounts

............................................................................................................ $

4

$

Short-term borrowings from subsidiaries

.........................................................................................................

Long-term borrowings ....................................................................................................................................

Accrued expenses and other liabilities .............................................................................................................

Total liabilities

..............................................................................................................................................

240

3,089

283

3,616

2

351

3,012

411

3,776

Stockholders’ equity ......................................................................................................................................

11,130

10,892

Total liabilities and stockholders’ equity ........................................................................................................... $

14,746

$

14,668

(1)

(2)

The Parent Company had $1.4 billion and $2.0 billion in a money market deposit account at Discover Bank as of December 31, 2018 and 2017, respectively,
which is included in cash and cash equivalents. These funds are available to the Parent for liquidity purposes.
The Parent Company advanced $500 million to Discover Bank as of December 31, 2018 and 2017, which is included in notes receivable from subsidiaries. These
funds are available to the Parent for liquidity purposes.

-140-

Discover Financial Services
(Parent Company Only)
Condensed Statements of Income

For the Years Ended December 31,

2018

2017

2016

(dollars in millions)

Interest income ..................................................................................................................... $

67

$

55

$

Interest expense ...................................................................................................................

Net interest expense .............................................................................................................

Dividends from bank subsidiaries ..........................................................................................

Dividends from non-bank subsidiaries ....................................................................................

Total income ........................................................................................................................

Other expense .....................................................................................................................

Income before income tax benefit and equity in undistributed net income of subsidiaries .............

Income tax benefit

................................................................................................................

Equity in undistributed net income of subsidiaries ....................................................................

Net income .........................................................................................................................

OCI, net

..............................................................................................................................

189

(122)

2,375

450

2,703

—

2,703

33

6

2,742

25

178

(123)

1,895

15

1,787

—

1,787

40

272

2,099

9

39

139

(100)

1,800

269

1,969

1

1,968

40

385

2,393

(1)

Comprehensive income ......................................................................................................... $

2,767

$

2,108

$

2,392

-141-

Discover Financial Services
(Parent Company Only)
Condensed Statements of Cash Flows

For the Years Ended December 31,

2018

2017

2016

(dollars in millions)

Cash flows from operating activities

Net income ......................................................................................................................... $

2,742

$

2,099

$

2,393

Adjustments to reconcile net income to net cash provided by operating activities

Equity in undistributed net income of subsidiaries ................................................................

Stock-based compensation expense ...................................................................................

Deferred income taxes ......................................................................................................

Depreciation and amortization ..........................................................................................

Changes in assets and liabilities

(Increase) decrease in other assets .................................................................................

(Decrease) increase in other liabilities and accrued expenses ............................................

(6)

81

(5)

34

(416)

(129)

(272)

(385)

75

1

31

(54)

43

64

(9)

27

10

52

Net cash provided by operating activities ...............................................................................

2,301

1,923

2,152

Cash flows from investing activities

(Increase) decrease in investment in subsidiaries .....................................................................

Increase in loans to subsidiaries ............................................................................................

Net cash used for investing activities ......................................................................................

(3)

(62)

(65)

Cash flows from financing activities

Net (decrease) increase in short-term borrowings from subsidiaries ...........................................

(110)

Proceeds from issuance of common stock ...............................................................................

Proceeds from issuance of long-term borrowings .....................................................................

Maturities and repayment of long-term borrowings .................................................................

6

49

(6)

Purchases of treasury stock ...................................................................................................

(2,065)

Net increase (decrease) in deposits ........................................................................................

Proceeds from issuance of preferred stock ..............................................................................

Payments on redemption of preferred stock .............................................................................

Dividends paid on common and preferred stock ......................................................................

Net cash used for financing activities .....................................................................................

(Decrease) increase in cash, cash equivalents and restricted cash .............................................

Cash, cash equivalents and restricted cash, at beginning of period ...........................................

1

—

—

(552)

(2,677)

(441)

2,047

—

(8)

(8)

130

5

1,127

(404)

(2,081)

(11)

563

(575)

(527)

(1,773)

142

1,905

Cash, cash equivalents and restricted cash, at end of period .................................................... $

1,606

$

2,047

$

(1)

(15)

(16)

(93)

7

130

—

(1,908)

10

—

—

(514)

(2,368)

(232)

2,137

1,905

Reconciliation of cash, cash equivalents and restricted cash

Cash and cash equivalents .................................................................................................... $

1,586

$

2,043

$

1,901

Restricted cash .....................................................................................................................

20

4

4

Cash, cash equivalents and restricted cash, at end of period .................................................... $

1,606

$

2,047

$

1,905

Supplemental disclosure of cash flow information

Cash paid during the period for

Interest expense ............................................................................................................... $

Income taxes, net of income tax refunds ............................................................................. $

156

$

(22) $

132

$

(27) $

112

23

-142-

26.

Subsequent Events

The Company has evaluated events and transactions that have occurred subsequent to December 31, 2018 and

determined that there were no subsequent events that would require recognition or disclosure in the consolidated 
financial statements.

27. Quarterly Results

The following table provides unaudited quarterly results (dollars in millions, except per share data):

Interest income ...................... $

2,907

$

2,781

$ 2,636

$ 2,569

$

2,556

$

2,476

$ 2,338

$ 2,278

December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017

September 30,
2017

June 30,
2017

March 31,
2017

Interest expense ....................

Net interest income ...............

Provision for loan losses ........

Other income .......................

605

2,302

800

505

742

501

558

507

469

2,223

2,129

2,100

Other expense ......................

1,110

1,015

Income before income tax

expense .............................

Income tax expense ...............

Net income ........................... $

Net income allocated to 

common stockholders(1) ........ $

Basic earnings per common 

share(1) ............................... $

Diluted earnings per common 

share(1) ............................... $

897

210

687

681

2.04

2.03

$

$

$

$

967

247

720

699

2.05

2.05

$

$

$

$

742

474

984

877

208

669

663

1.91

1.91

$

$

$

$

751

475

968

856

190

666

646

1.82

1.82

$

$

$

$

436

2,120

679

494

1,036

899

512

387

359

0.99

0.99

$

$

$

$

426

400

386

2,050

1,938

1,892

674

475

948

903

301

602

589

1.59

1.59

$

$

$

$

640

481

912

867

321

546

532

1.41

1.40

$

$

$

$

586

447

885

868

304

564

551

1.43

1.43

(1)

Because the inputs to net income allocated to common stockholders and earnings per share are calculated using weighted averages for the quarter, the sum of all
four quarters may differ from the year to date amounts in the consolidated statements of income.

-143-

•

•

•

•

•

•

•

•

•

PCI: Payment Card Industry

POS: Point-of-sale

PSUs: Performance Stock Units

RSUs: Restricted Stock Units

SEC: Securities and Exchange Commission

SIFI: Systemically Important Financial Institution

SLC: The Student Loan Corporation

TCJA: The Tax Cuts and Jobs Act

TDRs: Troubled Debt Restructuring

• VIEs: Variable Interest Entries

Glossary of Acronyms

• ALCO: Asset and Liability Management

Committee

• AOCI: Accumulated Other Comprehensive

Income

• ASC: Accounting Standards Codification

• ASU: Accounting Standards Updates

•

•

•

•

•

•

•

•

•

•

•

BCBS: Basel Committee on Banking
Supervision

CCAR: Comprehensive Capital Analysis and
Review

CCB: Capital Conservation Buffer

CCPAPP : California Consumer Privacy Act

CECL: Current Expected Credit Loss

CEO: Chief Executive Officer

CET1: Common Equity Tier 1

CFPB: Consumer Financial Protection Bureau

COSO: Committee of Sponsoring
Organizations of the Treadway Commission

CRM: Corporate Risk Management

CRO: Chief Risk Officer

• DCENT: Discover Card Execution Note Trust

• DCMT: Discover Card Master Trust

• DFS: Discover Financial Services

•

•

•

•

•

•

•

EGRRCPAPP : Economic Growth, Regulatory
Relief, and Consumer Protection Act

EPS: Earnings Per Share

EWIs: Early Warning Indicators

FF
FASB

: Financial Accounting Standards Board

FDIA: Federal Deposit Insurance Act

FDIC: Federal Deposit Insurance Corporation

FFIEC: Federal Financial Institutions
Examination Council

• GAAP: Generally Accepted Accounting

Principles

•

IRS: Internal Revenue Service

• KRIs: Key Risk Indicators

•

LIBOR: London Interbank Offered Rate

• OCI: Other Comprehensive Income

•

•

PCAOB: Public Company Accounting
Oversight Board

PCD: Purchased Credit-Deteriorated

-144-

Item 9. 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Chief Executive Officer and 
Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as 
defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), 
which are designed to ensure that information required to be disclosed by us in the reports that we file or submit under 
the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules 
and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is 
accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer,
as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end
of the period covered by this report.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial 
reporting (as such term is defined in Exchange Act Rule 13a-15(f) and 15d-15(f)) for the Company. Our internal control
over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements in accordance with generally accepted accounting principles. There are inherent 
limitations to the effectiveness of any system of internal control over financial reporting. These limitations include the
possibility of human error, the circumvention or overriding of the system and reasonable resource constraints. Because
of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. 
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions or that the degree of compliance with policies or procedures may 
deteriorate. 

Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. 

In making this assessment, management used the criteria set forth in Internal Control - Integrated Framework (2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on management’s 
assessments and those criteria, management has concluded that our internal control over financial reporting was 
effective as of December 31, 2018. 

rr

The effectiveness of our internal control over financial reporting as of December 31, 2018 has been audited by 

Deloitte & Touche LLP, an independent registered public accounting firm, and the firm’s report on this matter is included 
in Item 8 of this annual report on Form 10-K. 

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financial reporting (as such term is defined in Exchange 
Act Rule 13a-15(f) and 15d-15(f)) that occurred during the period covered by this report that have materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

None.

-145-

Part III.

Part III | Item 10. 

Directors, Executive Officers and Corporate Governance 

Information regarding our executive officers is included under the heading “Executive Officers of the Registrant” 
in Item 1 of this annual report on Form 10-K. Information regarding our directors and corporate governance under the 
following captions in our proxy statement for our annual meeting of stockholders to be held on May 16, 2019 (“Proxy 
Statement”) is incorporated by reference herein. 

“Corporate Governance — Information Concerning Nominees for Election as Directors” 

“Stock Ownership Information — Section 16(a) Beneficial Ownership Reporting Compliance” 

“Corporate Governance — Process for Nominating Directors - Shareholder Recommendations for Director 

Candidates” 

“Corporate Governance — Board Roles and Responsibilities — Board and Committee Meetings” 

Our Code of Ethics and Business Conduct applies to all directors, officers and employees, including our Chief 
Executive Officer and our Chief Financial Officer. You can find our Code of Ethics and Business Conduct on our internet 
site, www.discover.com. We will post any amendments to the Code of Ethics and Business Conduct, and any waivers 
that are required to be disclosed by the rules of either the SEC or the New York Stock Exchange, on our internet site. 

Item 11. 

Executive Compensation 

Information regarding executive compensation under the following captions in our Proxy Statement is 

incorporated by reference herein. 

“Corporate Governance — Director Compensation”

“Executive Compensation” 

“Compensation Discussion and Analysis” 

“2018 Executive Compensation Tables” 

Item 12. 

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder 
Matters 

Information relating to the compensation plans under which our equity securities are authorized for issuance as of 

December 31, 2018, is set forth in the table below.

Plan Category

Number of securities to 
be issued upon exercise 
of outstanding warrants 
and rights(1)

Weighted-average
exercise price of
outstanding warrants
and rights

Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders ........

Equity compensation plans not approved by security holders...

Total ..................................................................................

3,540,136

N/A

3,540,136

N/A

N/A

N/A

24,626,761

N/A

24,626,761

(1)

Includes 2,606,494 vested and unvested restricted stock units and 933,642 vested and unvested performance stock units that can be converted to up to 1.5 shares
per each unit dependent on the performance factor.

Information related to the beneficial ownership of our common stock is presented under the caption “Stock 

Ownership Information — Beneficial Ownership of Company Common Stock” in our Proxy Statement and is 
incorporated by reference herein.

-146-

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Information regarding certain relationships and related transactions, and director independence under the 

following captions in our Proxy Statement is incorporated by reference herein. 

“Other Matters — Certain Transactions” 

“Corporate Governance — Information Concerning Nominees for Election as Directors — Director 

Independence” 

Item 14.  Principal Accounting Fees and Services 

Information regarding principal accounting fees and services in our Proxy Statement is incorporated by reference 

herein.

-147-

Part IV.

Part IV | Item 15. 

Exhibits, Financial Statement Schedules

(a) Documents filed as part of this Form 10-K:

1. Consolidated Financial Statements

The consolidated financial statements required to be filed in this annual report on Form 10-K are listed below and 

appear on pages 74 through 143 herein.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Reports of Independent Registered Public Accounting Firm ..............................................................................

74

Consolidated Statements of Financial Condition as of December 31, 2018 and 2017 .......................................

76

Consolidated Statements of Income for the years ended December 31, 2018, 2017 and 2016 ..........................

77

Consolidated Statements of Comprehensive Income for the years ended December 31, 2018, 2017 and 2016 ...

78

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2018, 2017 

and 2016 ................................................................................................................................................

79

Consolidated Statements of Cash Flows for the years ended December 31, 2018, 2017 and 2016 ....................

80

Notes to the Consolidated Financial Statements ..............................................................................................

81

2. Financial Statement Schedules

Separate financial statement schedules have been omitted either because they are not applicable or because the 

required information is included in the consolidated financial statements. 

3. Exhibits

See the Exhibit Index below for a list of the exhibits being filed or furnished with or incorporated by reference 

into this annual report on Form 10-K. 

Exhibit
Number

2.1*

2.2*

Description

Exhibit Index

Separation and Distribution Agreement, dated as of June 29, 2007, between Morgan Stanley and 
Discover Financial Services (filed as Exhibit 2.1 to Discover Financial Services’ Current Report on Form 8-
K filed on July 5, 2007 and incorporated herein by reference thereto), as amended by the First 
Amendment to the Separation and Distribution Agreement dated as of June 29, 2007 between Discover 
Financial Services and Morgan Stanley, dated February 11, 2010 (filed as Exhibit 10.2 to Discover 
Financial Services’ Current Report on Form 8-K filed on February 12, 2010 and incorporated herein by 
reference thereto).

Agreement for the Sale and Purchase of the Goldfish Credit Card Business, dated February 7, 2008, 
among Discover Financial Services, Goldfish Bank Limited, Discover Bank, SCFC Receivables 
Corporation, and Barclays Bank Plc (filed as Exhibit 2.1 to Discover Financial Services’ Current Report on 
Form 8-K filed on February 7, 2008 and incorporated herein by reference thereto), as amended and 
restated by Amended and Restated Agreement for the Sale and Purchase of the Goldfish Credit Card 
Business, dated March 31, 2008, among Discover Financial Services, Goldfish Bank Limited, Discover 
Bank, SCFC Receivables Corporation, Barclays Bank PLC, and Barclays Group US Inc. (filed as Exhibit 
2.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 14, 2008 and 
incorporated herein by reference thereto).

-148-

Exhibit
Number

2.3

3.1

3.2

3.3

3.4

3.5

3.6

4.1

4.2

4.3

4.4

4.5

4.6

4.7

4.8

Description

Agreement and Plan of Merger by and among Discover Bank, Academy Acquisition Corp. and The
Student Loan Corporation dated as of September 17, 2010 (filed as Exhibit 2.3 to Discover Financial
Services’ Annual Report on Form 10-K for the fiscal year ended November 30, 2010 filed on January
26, 2011 and incorporated herein by reference thereto).

Amended and Restated Certificate of Incorporation of Discover Financial Services (filed as Exhibit 3.1 to
Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 1, 2009 and incorporated
herein by reference thereto).

Amended and Restated By-Laws of Discover Financial Services (filed as Exhibit 3.1 to Discover Financial
Services’ Current Report on Form 8-K filed on December 19, 2016 and incorporated herein by reference
thereto).

Certificate of Elimination of the Fixed Rate Cumulative Perpetual Preferred Stock, Series A, of Discover
Financial Services (filed as Exhibit 3.2 to Discover Financial Services’ Quarterly Report on Form 10-Q
filed on June 26, 2012 and incorporated herein by reference thereto).

Certificate of Designations of Fixed Rate Non-Cumulative Perpetual Preferred Stock, Series B (filed as
Exhibit 3.1 to Discover Financial Services’ Current Report on Form 8-K filed on October 16, 2012 and
incorporated herein by reference thereto).

Certificate of Designations of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series C
(filed as Exhibit 3.1 to Discover Financial Services' Current Report on Form 8-K filed on October 31,
2017 and incorporated herein by reference thereto).

Certificate of Elimination of Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock, Series B
(filed as Exhibit 3.1 to Discover Financial Services' Current Report on Form 8-K filed on December 4,
2017 and incorporated herein by reference thereto).

Senior Indenture, dated as of June 12, 2007, by and between Discover Financial Services and U.S. Bank
National Association, as trustee (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on
Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).

Subordinated Indenture, dated as of September 8, 2015, by and between Discover Financial Services
and U.S. Bank National Association (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on
Form 8-K filed on September 8, 2015 and incorporated herein by reference thereto).

Fiscal and Paying Agency Agreement, dated November 16, 2009, between Discover Bank, as issuer,
and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial
Services’ Current Report on Form 8-K filed on November 16, 2009 and incorporated herein by reference
thereto).

Fiscal and Paying Agency Agreement, dated April 15, 2010, between Discover Bank, as issuer, and U.S.
Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’
Current Report on Form 8-K filed on April 16, 2010 and incorporated herein by reference thereto).

Deposit Agreement, dated October 31, 2017 (filed as Exhibit 4.1 to Discover Financial Services' Current
Report on Form 8-K filed on October 31, 2017 and incorporated herein by reference thereto).

Form of Certificate Representing the Fixed-to-Floating Rate Non-Cumulative Perpetual Preferred Stock,
Series C (filed as Exhibit 4.2 to Discover Financial Services' Current Report on Form 8-K filed on October
31, 2017 and incorporated herein by reference thereto).

Fiscal and Paying Agency Agreement between Discover Bank and U.S. Bank National Association dated
as of February 21, 2013 (filed as Exhibit 4.1 to Discover Financial Services’ Current Report on Form 8-K
filed on February 21, 2013 and incorporated herein by reference thereto).

Fiscal and Paying Agency Agreement, dated as of August 8, 2013, between Discover Bank, as issuer,
and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial
Services’ Current Report on Form 8-K filed on August 8, 2013 and incorporated herein by reference
thereto).

-149-

Exhibit
Number

4.9

4.10

4.11

4.12

4.13

10.1

10.2

10.3

10.4

10.5

10.6

10.7

10.8†

10.9†

Description

Fiscal and Paying Agency Agreement, dated as of March 13, 2014, between Discover Bank, as issuer,
and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial
Services’ Current Report on Form 8-K filed on March 13, 2014 and incorporated herein by reference
thereto).

Fiscal and Paying Agency Agreement, dated as of August 7, 2014, between Discover Bank, as issuer,
and U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial
Services’ Current Report on Form 8-K filed on August 7, 2014 and incorporated herein by reference
thereto).

Fiscal and Paying Agency Agreement, dated June 4, 2015, between Discover Bank, as issuer, and U.S.
Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’
current report on Form 8-K filed on June 4, 2015 and incorporated herein by reference thereto).

Fiscal and Paying Agency Agreement, dated August 13, 2015, between Discover Bank, as issuer, and
U.S. Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial
Services’ current report on Form 8-K filed on August 13, 2015 and incorporated herein by reference
thereto).

Fiscal and Paying Agency Agreement, dated July 27, 2016, between Discover Bank, as issuer, and U.S.
Bank National Association, as fiscal and paying agent (filed as Exhibit 4.1 to Discover Financial Services’
current report on Form 8-K filed on July 28, 2016 and incorporated herein by reference thereto).

Other instruments defining the rights of holders of long-term debt securities of Discover Financial Services 
and its subsidiaries are omitted pursuant to Section (b)(4)(iii)(A) of Item 601 of Regulation S-K. Discover 
Financial Services agrees to furnish copies of these instruments to the SEC upon request.

Tax Sharing Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover Financial
Services (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on July 5,
2007 and incorporated herein by reference thereto).

U.S. Employee Matters Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover
Financial Services (filed as Exhibit 10.2 to Discover Financial Services’ Current Report on Form 8-K filed
on July 5, 2007 and incorporated herein by reference thereto).

Transition Services Agreement, dated as of June 30, 2007, between Morgan Stanley and Discover
Financial Services (filed as Exhibit 10.3 to Discover Financial Services’ Current Report on Form 8-K filed
on July 5, 2007 and incorporated herein by reference thereto).

Transitional Trade Mark License Agreement, dated as of June 30, 2007, between Morgan Stanley & Co.
PLC and Goldfish Bank Limited (filed as Exhibit 10.4 to Discover Financial Services’ Current Report on
Form 8-K filed on July 5, 2007 and incorporated herein by reference thereto).

Amended and Restated Trust Agreement, dated as of December 22, 2015, between Discover Funding
LLC, as Beneficiary, and Wilmington Trust Company, as Owner Trustee (filed as Exhibit 4.6 to Discover
Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by reference
thereto).

Third Amended and Restated Pooling and Servicing Agreement, dated as of December 22, 2015,
between Discover Bank, as Master Servicer and Servicer, Discover Funding LLC, as Transferor, and U.S.
Bank National Association, as Trustee (filed as Exhibit 4.2 to Discover Bank’s Current Report on Form 8-K
filed on December 23, 2015 and incorporated herein by reference thereto).

Amended and Restated Series Supplement for Series 2007-CC, dated as of December 22, 2015, among
Discover Bank, as Master Servicer and Servicer, Discover Funding LLC, as Transferor, and U.S. Bank
National Association, as Trustee (filed as Exhibit 4.3 to Discover Bank’s Current Report on Form 8-K filed
on December 23, 2015 and incorporated herein by reference thereto).

Discover Financial Services Omnibus Incentive Plan (filed as an attachment to Discover Financial Services’
Proxy Statement on Schedule 14A filed on February 27, 2009 and incorporated herein by reference
thereto).

Amended Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus Incentive Plan
(filed as Exhibit 10.6 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on July 12,
2007 and incorporated herein by reference thereto).

-150-

Exhibit
Number

10.10†

10.11†

10.12†

Description

Directors’ Compensation Plan of Discover Financial Services (filed as Exhibit 10.3 to Discover Financial 
Services’ Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference 
thereto), as amended and restated as of January 20, 2011 (filed as Exhibit A to the Discover Financial 
Services’ definitive proxy statement filed on February 18, 2011 and incorporated herein by reference 
thereto), as further amended by Amendment No. 2, effective as of December 1, 2011 (filed as Exhibit 
10.10 to the Discover Financial Services’ Annual Report on Form 10-K filed on January 26, 2012 and 
incorporated herein by reference thereto).

Amended Form of Restricted Stock Unit Award Under Discover Financial Services Directors’
Compensation Plan (filed as Exhibit 10.7 to Discover Financial Services’ Quarterly Report on Form 10-Q
filed on July 12, 2007 and incorporated herein by reference thereto).

Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.2 to Discover Financial 
Services’ Current Report on Form 8-K filed on June 19, 2007 and incorporated herein by reference 
thereto) as amended by Amendment No. 1 to Discover Financial Services Employee Stock Purchase Plan 
effective as of May 1, 2008 (filed as Exhibit 10.12 to Discover Financial Services’ Annual Report on Form 
10-K filed on January 28, 2009 and incorporated herein by reference thereto); Amendment No. 2 to
Discover Financial Services Employee Stock Purchase Plan, effective as of December 1, 2009 (filed as
Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 9, 2010 and
incorporated herein by reference thereto); and Amendment No. 3 to Discover Financial Services
Employee Stock Purchase Plan (filed as Exhibit 10.3 to Discover Financial Services’ Quarterly Report on
Form 10-Q filed on September 28, 2011 and incorporated herein by reference thereto).

10.13† Offer of Employment, dated as of January 8, 1999 (filed as Exhibit 10.2 to Discover Financial Services’

Current Report on Form 8-K filed on June 12, 2007 and incorporated herein by reference thereto).

10.14† Waiver of Change of Control Benefits, dated September 24, 2007 (filed as Exhibit 10.15 to Discover

Financial Services’ Registration Statement on Form S-4 filed on November 27, 2007 and incorporated
herein by reference thereto).

10.15

10.16

10.17

10.18

10.19†

10.20

Collateral Certificate Transfer Agreement, dated as of July 26, 2007 between Discover Bank, as
Depositor and Discover Card Execution Note Trust (filed as Exhibit 4.4 to Discover Bank’s Current Report
on Form 8-K filed on July 27, 2007 and incorporated herein by reference thereto).

Amended and Restated Indenture, dated as of December 22, 2015, between Discover Card Execution
Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee (filed as Exhibit 4.4 to
Discover Bank’s Current Report on Form 8-K filed on December 23, 2015 and incorporated herein by
reference thereto).

Second Amended and Restated Indenture Supplement for the DiscoverSeries Notes, dated as of
December 22, 2015, between Discover Card Execution Note Trust, as Issuer, and U.S. Bank National
Association, as Indenture Trustee (filed as Exhibit 4.5 to Discover Bank’s Current Report on Form 8-K filed
on December 23, 2015 and incorporated herein by reference thereto).

Omnibus Amendment to Indenture Supplement and Terms Documents, dated as of July 2, 2009, between
Discover Card Execution Note Trust, as Issuer, and U.S. Bank National Association, as Indenture Trustee
(filed as Exhibit 4.1 to Discover Bank’s Current Report on Form 8-K filed on July 6, 2009 and
incorporated herein by reference thereto).

Discover Financial Services Change-in-Control Severance Policy Amended and Restated October 15,
2014 (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-K filed on October
16, 2014 and incorporated herein by reference thereto).

Release and Settlement Agreement, executed as of October 27, 2008, by and among Discover Financial
Services, DFS Services, LLC, Discover Bank, and their Subsidiaries and Affiliates; MasterCard
Incorporated and MasterCard International Incorporated and their Affiliates; and Visa Inc. and its
Affiliates and Predecessors including Visa U.S.A. Inc. and Visa International Service Association (filed as
Exhibit 99.1 to Discover Financial Services’ Current Report on Form 8-K filed on October 28, 2008 and
incorporated herein by reference thereto).

10.21†

2008 Year End Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus
Incentive Plan (filed as Exhibit 10.21 to Discover Financial Services’ Annual Report on Form 10-K filed on
January 28, 2009 and incorporated herein by reference thereto).

-151-

Exhibit
Number

10.22†

10.23

10.24

10.25†

10.26†

10.27

10.28

10.29

10.30

10.31

10.32†

10.33†

10.34

10.35†

10.36†

Description

2008 Special Grant Form of Restricted Stock Unit Award Under Discover Financial Services Omnibus
Incentive Plan (filed as Exhibit 10.22 to Discover Financial Services’ Annual Report on Form 10-K filed on
January 28, 2009 and incorporated herein by reference thereto).

Form of Waiver, executed by each of Discover Financial Services’ senior executive officers and certain
other employees (filed as Exhibit 10.3 to Discover Financial Services’ Current Report on Form 8-K filed on
March 13, 2009 and incorporated herein by reference thereto).

Form of Executive Compensation Agreement, dated March 13, 2009, executed by each of Discover
Financial Services’ senior executive officers and certain other employees (filed as Exhibit 10.4 to Discover
Financial Services’ Quarterly Report on Form 10-Q filed on April 8, 2009 and incorporated herein by
reference thereto).

Form of Share Award Agreement Under Discover Financial Services Amended and Restated 2007
Omnibus Incentive Plan (filed as Exhibit 10(a) to Discover Financial Services’ Current Report on Form 8-K
filed on December 11, 2009 and incorporated herein by reference thereto).

Amendment to 2009 Year End Award Certificate for Restricted Stock Units Under Discover Financial
Services Amended and Restated 2007 Omnibus Incentive Plan, effective December 1, 2009 (filed as
Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on April 9, 2010 and
incorporated herein by reference thereto).

Settlement Agreement and Mutual Release between Discover Financial Services and Morgan Stanley,
dated February 11, 2010 (filed as Exhibit 10.1 to Discover Financial Services’ Current Report on Form 8-
K filed on February 12, 2010 and incorporated herein by reference thereto).

Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan Corporation and
Discover Bank, dated September 17, 2010 (filed as Exhibit 10.32 to Discover Financial Services’ Annual
Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference thereto).

Amendment to Purchase Price Adjustment Agreement by and among Citibank, N.A., The Student Loan
Corporation and Discover Bank, dated December 30, 2010 (filed as Exhibit 10.33 to Discover Financial
Services’ Annual Report on Form 10-K filed on January 26, 2011 and incorporated herein by reference
thereto).

Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated September 17,
2010 (filed as Exhibit 10.34 to Discover Financial Services’ Annual Report on Form 10-K filed on
January 26, 2011 and incorporated herein by reference thereto).

First Amendment to Indemnification Agreement by and between Citibank, N.A. and Discover Bank, dated
December 30, 2010 (filed as Exhibit 10.35 to Discover Financial Services’ Annual Report on Form 10-K
filed on January 26, 2011 and incorporated herein by reference thereto).

Form Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.4 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 8, 2011 and incorporated herein by reference thereto).

Form Award Certificate for Performance Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.5 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 8, 2011 and incorporated herein by reference thereto).

Asset Purchase Agreement between Discover Bank and Citibank, N.A. dated August 31, 2011 (filed as
Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on September 28, 2011
and incorporated herein by reference thereto).

Form 2012 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 4, 2012 and incorporated herein by reference thereto).

Form 2012 Award Certificate for Performance Stock Units Under Discover Financial Services Amended
and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on April 4, 2012 and incorporated herein by reference thereto).

-152-

Exhibit
Number

10.37†

10.38†

10.39†

10.40†

10.41†

10.42†

10.43†

10.44†

10.45†

10.46†

10.47†

10.48†

10.49†

10.50†

Description

Form 2013 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 30, 2013 and incorporated herein by reference thereto).

Form 2013 Award Certificate for Performance Stock Units Under Discover Financial Services Amended
and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on April 30, 2013 and incorporated herein by reference thereto).

Amendment No. 3 to the Directors’ Compensation Plan of Discover Financial Services, effective as of July
1, 2013 (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on
July 30, 2013 and incorporated herein by reference thereto).

Form of 2013 Special Award Certificate for Restricted Stock Units Under Discover Financial Services
Amended and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial
Services’ Current Report on Form 8-K filed on December 26, 2013 and incorporated herein by reference
thereto).

Discover Financial Services Amended and Restated 2014 Omnibus Incentive Plan (filed as an attachment
to Discover Financial Services’ Proxy Statement on Schedule 14A filed on March 19, 2014 and
incorporated herein by reference thereto).

Form 2014 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 29, 2014 and incorporated herein by reference thereto).

Form 2014 Award Certificate for Performance Stock Units Under Discover Financial Services Amended
and Restated 2007 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on April 29, 2014 and incorporated herein by reference thereto).

Amendment No. 4 to the Directors’ Compensation Plan of Discover Financial Services, effective as of May 
7, 2014 (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on Form 10-Q filed on
August 1, 2014 and incorporated herein by reference thereto).

Form 2015 Award Certificate for Cash-Converted Restricted Stock Units Under Discover Financial
Services Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial
Services’ Quarterly Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference
thereto).

Form 2015 Award Certificate for Restricted Stock Units Under Discover Financial Services Amended and
Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference thereto).

Form 2015 Award Certificate for Performance Stock Units Under Discover Financial Services Amended
and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.3 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on April 30, 2015 and incorporated herein by reference thereto).

Form of 2015 Special Award Certificate for Restricted Stock Units Under Discover Financial Services
Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial
Services’ Current Report on Form 8-K filed on April 30, 2015 and incorporated herein by reference
thereto).

Amendment No. 4 to Discover Financial Services Employee Stock Purchase Plan (filed as Exhibit 10.1 to
Discover Financial Services’ Quarterly Report on Form 10-Q filed on October 29, 2015 and
incorporated herein by reference thereto).

Form of 2015 Special Award Certificate for Restricted Stock Units Under Discover Financial Services
Amended and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial
Services’ Current Report on Form 8-K filed on December 21, 2015 and incorporated herein by reference
thereto).

10.51

Receivables Sale and Contribution Agreement, dated as of December 22, 2015 between Discover Bank
and Discover Funding LLC (filed as Exhibit 4.1 to Discover Bank’s Current Report on Form 8-K filed on
December 23, 2015 and incorporated herein by reference thereto).

-153-

Exhibit
Number

10.52†

10.53†

10.54†

10.55†

10.56†

10.57†

10.58†

10.59†

10.60†

10.61†

Description

Form 2016 Award Certificate for Restricted Stock Units under Discover Financial Services Amended and
Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.52 to Discover Financial Services’ Annual
Report on Form 10-K filed on February 24, 2016 and incorporated herein by reference thereto).

Form 2016 Award Certificate for Performance Stock Units under Discover Financial Services Amended
and Restated 2014 Omnibus Incentive Plan (filed as Exhibit 10.53 to Discover Financial Services’ Annual
Report on Form 10-K filed on February 24, 2016 and incorporated herein by reference thereto).

Amendment No. 5 to Directors’ Compensation Plan of Discover Financial Services, effective as of January
1, 2017 (filed as Exhibit 10.54 to Discover Financial Services’ Annual Report on Form 10-K filed on
February 23, 2017 and incorporated herein by reference thereto).

Form 2017 Award Certificate for Restricted Stock Units under Discover Financial Services Amended and
Restated Omnibus Incentive Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on 
Form 10-Q filed on May 2, 2017 and incorporated herein by reference thereto).

Form 2017 Award Certificate for Performance Stock Units under Discover Financial Services Amended
and Restated Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on May 2, 2017 and incorporated herein by reference thereto).

Form 2018 Award Certificate for Restricted Stock Units under Discover Financial Services Director’s
Compensation Plan (filed as Exhibit 10.1 to Discover Financial Services’ Quarterly Report on Form 10-Q
filed on May 1, 2018 and incorporated herein by reference thereto).

Form 2018 Award Certificate for Restricted Stock Units under Discover Financial Services Amended and
Restated Omnibus Incentive Plan (filed as Exhibit 10.2 to Discover Financial Services’ Quarterly Report on
Form 10-Q filed on May 1, 2018 and incorporated herein by reference thereto).

Form 2018 Award Certificate for Performance Stock Units under Discover Financial Services Amended
and Restated Omnibus Incentive Plan (filed as Exhibit 10.3 to Discover Financial Services’ Quarterly
Report on Form 10-Q filed on May 1, 2018 and incorporated herein by reference thereto).

Amendment to 2017 Directors' Annual Equity Award Certificate for Restricted Stock Units of Discover
Financial Services, effective as of February 22, 2018 (filed as Exhibit 10.4 to Discover Financial Services’
Quarterly Report on Form 10-Q filed on May 1, 2018 and incorporated herein by reference thereto).

Amendment No. 6 to the Directors’ Compensation Plan of Discover Financial Services, effective as of
February 22, 2018 (filed as Exhibit 10.5 to Discover Financial Services’ Quarterly Report on Form 10-Q
filed on May 1, 2018 and incorporated herein by reference thereto).

10.62†

Amendment No. 7 to the Directors’ Compensation Plan of Discover Financial Services, effective as of
January 1, 2019.

10.63†

Amendment No. 8 to the Directors’ Compensation Plan of Discover Financial Services, effective as of
January 1, 2019.

21

23

24

31.1

31.2

32.1

Subsidiaries of the Registrant.

Consent of Independent Registered Public Accounting Firm.

Powers of Attorney (included on signature page).

Certification of Chief Executive Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934.

Certification of Chief Financial Officer pursuant to Rule 13a-14(a) under the Securities Exchange Act of
1934.

Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 1350 of Chapter
63 of Title 18 of the United States Code.

101.INS

XBRL Instance Document.

101.SCH XBRL Taxonomy Extension Schema Document.

-154-

Exhibit
Number

Description

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

*

† 

We agree to furnish supplementally to the Commission a copy of any omitted schedule or exhibit to such agreement upon the request of the Commission in
accordance with Item 601(b)(2) of Regulation S-K.
Management contract or compensatory plan or arrangement required to be filed as an exhibit to Form 10-K pursuant to Item 15(b) of this report.

Item 16. 

Form 10-K Summary

None.

-155-

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has 

duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signature

Discover Financial Services
(Registrant)

By:

/s/ R. MARK GRAF
R. Mark Graf
Executive Vice President, Chief Financial Officer

Date: February 20, 2019

-156-

Power of Attorney

We, the undersigned, hereby severally constitute D. Christopher Greene, our true and lawful attorney with full 

power to him to sign for us, and in our names in the capacities indicated below, any and all amendments to the annual 
report on Form 10-K filed with the Securities and Exchange Commission, hereby ratifying and confirming our signatures 
as they may be signed by our said attorneys to any and all amendments to said Annual Report on Form 10-K. 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the 

following persons on behalf of the Registrant and in the capacities indicated on February 20, 2019.

Signature

Title

/s/ ROGER C. HOCHSCHILD

Chief Executive Officer and President, Director

Roger C. Hochschild

/s/ R. MARK GRAF

Executive Vice President, Chief Financial Officer (Principal Financial Officer)

R. Mark Graf

/s/ EDWARD W. MCGROGAN

Senior Vice President and Chief Accounting Officer (Principal Accounting Officer)

Edward W. McGrogan

/s/ LAWRENCE A. WEINBACH

Chairman of the Board

Lawrence A. Weinbach

/s/ JEFFREY S. ARONIN

Director

Jeffrey S. Aronin

/s/ MARY K. BUSH

Director

Mary K. Bush

/s/ GREGORY C. CASE

Director

Gregory C. Case

/s/ CANDACE H. DUNCAN

Director

Candace H. Duncan

/s/ JOSEPH F. EAZOR

Director

Joseph F. Eazor

/s/ CYNTHIA A. GLASSMAN

Director

Cynthia A. Glassman

/s/ THOMAS G. MAHERAS

Director

Thomas G. Maheras

/s/ MICHAEL H. MOSKOW

Director

Michael H. Moskow

/s/ MARK A. THIERER

Director

Mark A. Thierer

-157-

Exhibit 10.62

Amendment No. 7 to the Discover Financial Services

Directors’ Compensation Plan

Effective January 1, 2019, the Discover Financial Services Directors’ Compensation Plan (the “Plan”), is hereby 

amended in the following respects:

•

The Plan is amended by replacing the text of Subsection 5(a)(ii) Subsequent Awards in Section 5 Initial and Annual
Awards in its entirety with the following:

(ii)

Subsequent Awards.  As of the date of each Annual Meeting, each Eligible Director, including, without
limitation, any Eligible Director who becomes a member of the Board by reason of being elected to the Board at such Annual 
Meeting, shall be entitled to receive a number of Restricted Stock Units equal to the number obtained by dividing $150,000 
by the Fair Market Value of a share of Stock on such day; provided, however, that such Eligible Director continues to serve 
as a director of the Company after such Annual Meeting.  Notwithstanding the foregoing, if a person becomes an Eligible 
Director on a date other than the date of an Annual Meeting, the equity award provided for in this Section 5(a)(ii) shall be 
granted on the date that such person becomes an Eligible Director, using the Fair Market Value of a share of Stock on such 
date; provided, however, that such award shall be adjusted on a pro-rata basis by multiplying such award by a fraction 
where the numerator is the number of months between the date that such person becomes an Eligible Director and the date 
of the next Annual Meeting and the denominator is twelve (12). 

•

The Plan is amended by replacing the text of Subsection 7(a) Board Members in Section 7 Retainer and Other Fees
in its entirety with the following:

(a)

Board Members. Each Eligible Director shall be entitled to an Annual Retainer of $105,000.

Exhibit 10.63

Amendment No. 8 to the Discover Financial Services

Directors’ Compensation Plan

Effective January 1, 2019, the Discover Financial Services Directors’ Compensation Plan (the “Plan”), is hereby 

amended in the following respects:

•

The Plan is amended by replacing the text of Subsection 7(b) Lead Director and Chairpersons. in Section 7 Retainer
and Other Fees in its entirety with the following:

(b)
Independent Chair and Committee Chairpersons. In addition to the Annual Retainer provided for in Section
7(a), each Eligible Director who is the (i) Independent Chair shall be entitled to an annual retainer of $210,000;
(ii) the Audit Committee Chair shall be entitled to an annual Committee Chair fee of $30,000; (iii) the Compensation
and Leadership Development Committee Chair shall be entitled to an annual Committee Chair fee of $25,000; (iv)
the Nominating and Governance Committee Chair shall be entitled to an annual Committee Chair fee of $20,000;
and (v) the Risk Oversight Committee Chair shall be entitled to an annual Committee Chair fee of $30,000.

DISCOVER FINANCIAL SERVICES 
SUBSIDIARIES 

Subsidiary

Exhibit 21

Jurisdiction of 
Incorporation or 
Formation

Bank of New Castle ....................................................................................................................... Delaware

DFS Corporate Services LLC ............................................................................................................ Delaware

DFS GSD Corp (d/b/a Discover Payment Solutions) ......................................................................... Arizona

DFS International Inc. ..................................................................................................................... Delaware

DFS Services LLC ............................................................................................................................ Delaware

Diners Club International Ltd. .......................................................................................................... New York

Diners Club Services Private Limited .................................................................................................

India

Discover Bank ................................................................................................................................ Delaware

Discover Financial Services (Canada), Inc. ....................................................................................... Canada

Discover Financial Services (Hong Kong) Limited .............................................................................. Hong Kong
Discover Financial Services (UK) Limited .......................................................................................... England/Wales

Discover Funding LLC ..................................................................................................................... Delaware

Discover Global Employment Company Private Limited ..................................................................... Singapore

Discover Home Loans, Inc. .............................................................................................................. Delaware

Discover Information Technology (Shanghai) Limited ......................................................................... Shanghai

Discover Products Inc. .................................................................................................................... Utah

Discover Properties LLC .................................................................................................................. Delaware

Discover Services Corporation ........................................................................................................ Delaware

GTC Insurance Agency, Inc. ............................................................................................................ Delaware

PULSE Network LLC ........................................................................................................................ Delaware

The Student Loan Corporation ......................................................................................................... Delaware

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in Registration Statement Nos. 333-173360, 333-150228, 333-144184, 
333-144188, and 333-144189 on Form S-8 and No. 333-225830 on Form S-3 of our reports dated February 20, 
2019, relating to the consolidated financial statements of Discover Financial Services, and the effectiveness of Discover 
Financial Services’ internal control over financial reporting, appearing in this Annual Report on Form 10-K of Discover 
Financial Services for the year ended December 31, 2018, and to the reference to us under the heading "Experts" in the 
Prospectus, which is part of the Registration Statement.

Exhibit 23

/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 20, 2019

Exhibit 31.1 

I, Roger C. Hochschild, certify that: 

CERTIFICATION 

1. 

2. 

3. 

4. 

I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”); 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a 
material fact necessary to make the statements made, in light of the circumstances under which such statements 
were made, not misleading with respect to the period covered by this report; 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly 
present in all material respects the financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report; 

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure 
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) 

b) 

c) 

d) 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures 
to be designed under our supervision, to ensure that material information relating to the registrant, 
including its consolidated subsidiaries, is made known to us by others within those entities, particularly 
during the period in which this report is being prepared; 

Designed such internal control over financial reporting, or caused such internal control over financial 
reporting to be designed under our supervision, to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external purposes in 
accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this 
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 
of the period covered by this report based on such evaluation; and 

Disclosed in this report any change in the registrant's internal control over financial reporting that 
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the 
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the 
registrant's internal control over financial reporting; and 

5. 

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal 
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of 
directors (or persons performing the equivalent functions): 

a) 

b) 

All significant deficiencies and material weaknesses in the design or operation of internal control over 
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, 
process, summarize and report financial information; and 

Any fraud, whether or not material, that involves management or other employees who have a 
significant role in the registrant's internal control over financial reporting. 

Date: February 20, 2019 

/s/ ROGER C. HOCHSCHILD
Roger C. Hochschild

Chief Executive Officer and President

Exhibit 31.2 

I, R. Mark Graf, certify that: 

CERTIFICATION 

1. 

2. 

3. 

4. 

I have reviewed this Annual Report on Form 10-K of Discover Financial Services (the “registrant”); 

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a 
material fact necessary to make the statements made, in light of the circumstances under which such statements 
were made, not misleading with respect to the period covered by this report; 

Based on my knowledge, the financial statements, and other financial information included in this report, fairly 
present in all material respects the financial condition, results of operations and cash flows of the registrant as 
of, and for, the periods presented in this report; 

The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure 
controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over 
financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a) 

b) 

c) 

d) 

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures 
to be designed under our supervision, to ensure that material information relating to the registrant, 
including its consolidated subsidiaries, is made known to us by others within those entities, particularly 
during the period in which this report is being prepared; 

Designed such internal control over financial reporting, or caused such internal control over financial 
reporting to be designed under our supervision, to provide reasonable assurance regarding the 
reliability of financial reporting and the preparation of financial statements for external purposes in 
accordance with generally accepted accounting principles;

Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this 
report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end 
of the period covered by this report based on such evaluation; and 

Disclosed in this report any change in the registrant's internal control over financial reporting that 
occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the 
case of an annual report) that has materially affected, or is reasonably likely to materially affect, the 
registrant's internal control over financial reporting; and 

5. 

The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal 
control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of 
directors (or persons performing the equivalent functions): 

a) 

b) 

All significant deficiencies and material weaknesses in the design or operation of internal control over 
financial reporting which are reasonably likely to adversely affect the registrant's ability to record, 
process, summarize and report financial information; and 

Any fraud, whether or not material, that involves management or other employees who have a 
significant role in the registrant's internal control over financial reporting. 

Date: February 20, 2019 

/s/ R. MARK GRAF
R. Mark Graf

Executive Vice President, Chief
Financial Officer

Exhibit 32.1 

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Discover Financial Services (the “Company”) on Form 10-K for the period 
ended December 31, 2018, as filed with the Securities and Exchange Commission (the “Report”), each of Roger C. 
Hochschild, Chief Executive Officer and President of the Company, and R. Mark Graf, Executive Vice President and 
Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to 
Section 906 of the Sarbanes-Oxley Act of 2002, that: 

1. 

2. 

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange 
Act of 1934; and 

The information contained in the Report fairly presents, in all material respects, the financial condition 
and results of operations of the Company. 

Date: February 20, 2019 

/s/ ROGER C. HOCHSCHILD
Roger C. Hochschild
Chief Executive Officer and President

Date: February 20, 2019 

/s/ R. MARK GRAF
R. Mark Graf
Executive Vice President, Chief
Financial Officer

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[THIS PAGE INTENTIONALLY LEFT BLANK]

VISION
To be the leading direct bank 

and payments partner.

MISSION
To help people spend smarter, 

manage debt better and save 

more so they achieve a brighter 

(cid:697)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:73)(cid:88)(cid:87)(cid:88)(cid:85)(cid:72)(cid:17)

VALUES 
Doing the right thing

Innovation

Simplicity

Collaboration

Openness

Volunteerism

Enthusiasm

Respect

It Pays to Discover ®

2500 Lake Cook Road  •  Riverwoods, Illinois 60015  •  Discover.com/company